Posted Oct 15, 2012 11:15 am CDT
Corrected: More law firms are quoting “suicidal prices” for legal work just to get the business, a law firm consultant says.
Bruce MacEwen, who writes at Adam Smith, Esq., tells Bloomberg Law that an increasing number of firms are offering cut-rate fees to keep their lawyers occupied. The legal industry has excess capacity, Smith says, and it is facing enormous pricing pressure just to cover fixed costs.
“It’s literally happening with some of the finest white-shoe firms in New York; it’s certainly happening in the middle market,” he says. “What the industry is facing is structural. It’s not a problem facing a unique segment of the industry.”
Just as department stores have trained customers to buy only when items are on sale, a few law firms may be following the same route, he says. The result will be more firm failures. “A law firm cannot really lose money for even one year and remain viable,” he says, “because that’s what they pay their partners with.”
MacEwen sees a problem with the law firm business model that has such a high degree of fixed costs, including occupancy and compensation. There are too many associates and partners, he said, and partner salaries can’t keep increasing.
Twenty-five years ago, he said, average partner pay at the nation’s top 100 law firms was 11 times higher than that of the average American worker. Today it is 23 times higher. “You cannot grow that tree to the sky forever,” MacEwen told Bloomberg.
Updated Oct. 16 to state that 25 years ago, average partner pay was 11 times higher than that of the average U.S. worker.