Boom years for law firms were an aberration, report says
Law firms hoping for a return to the glory days should get over it, according to a new report by Citi Private Bank’s Law Firm Group and Hildebrandt Consulting.
The boom years of 2001 to 2007 and their double-digit profit growth were an aberration, according to the report (PDF posted by the Wall Street Journal). Now, productivity is down among income and equity partners, expenses are up, clients are demanding and getting discounts, and success means profit growth in the single digits. The Wall Street Journal Law Blog (sub. req.) and the Am Law Daily have stories on the report.
“Law firm leaders would be wise to draw from the lessons of the prior four years in leading their firms into the future,” the report says. “They can no longer rely on a rising tide that lifts all boats. In fact, the tide is out. And to paraphrase Warren Buffett, it’s only when the tide goes out that you discover who’s been swimming naked. Don’t get caught swimming naked.”
Greater volatility in the legal market has contributed to a spike in law firm failures, the report says, and increased lateral movement “adds to the likelihood that additional firms will fail or weaken enough to be compelled to merge with a stronger firm.”
The report advises law firms to:
• Seek feedback from their clients.
• Develop a clear strategy for growth, perhaps by focusing on key practices, industries, clients or regions. Firms rethinking their business model should also focus on efficiency, possibly by outsourcing backoffice functions or moving them to cheaper locations.
• Practice good leadership through transparency, inclusiveness, checks and balances, and tolerance for dissent.
• Pay heed to culture when developing a business plan, contemplating a merger, or making lateral hires.
• Keep balance sheets strong.
The report forecasts a slow start for 2013, with the possibility of improvement in the legal market as the year progresses.