Law Practice Management

Law Firm Business Model Isn’t Changing All That Much, Survey Says

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Ward Bower of consulting firm Altman Weil has been predicting some big changes for large law firms that will affect the bottom line for many associates.

Bower tells the Legal Intelligencer that law firms will be hiring fewer first-year associates, will be billing clients less for their work, and will be paying smaller salaries to the new hires. The traditional law firm pyramid model will be upended into a diamond structure, as law firms eschew hiring armies of associates that their clients don’t want to pay to train.

Perhaps. Law firm managers, responding to a new survey from Bower’s consulting firm, agree—to a point. Changes are being made—but there is no, all-encompassing paradigm shift in many of these areas, they believe.

The survey asked firms to assess whether 13 emerging strategies represented permanent or temporary changes to the law firm business model, according to a press release. The top four changes identified as temporary were: reduced first-year classes, reduced associate salaries, lower profits per partner and reduced leverage.

Law firms with over 500 lawyers differed from the overall group on leverage, however. About 40 percent of the large firms said the leveraged law firm pyramid model, with armies of associates supporting fewer partners, will be permanently changing.

The survey did identify other areas in which change is expected to be permanent. The top four were more price competition, a longer partner track, more contract lawyers and more alternative billing. Indeed, alternative billing is expected to represent an increasing proportion of total fees collected this year, the survey found.

“The survey was designed to measure how law firms are weathering the economic storm in a number of key areas, including strategy, growth, pricing, staffing and business development,” Altman Weil principal Tom Clay said in the press release. “We wanted to know if all the noise in the marketplace about a new law firm business model was translating into real change. We didn’t find much evidence of that beyond the expected staffing cuts, overhead reduction and extra attention to clients that any downturn would bring.”

More than 200 law firms responded to the survey of law firms with more than 50 lawyers, including 32 percent of the 250 largest US law firms. Other survey findings include:

• Support staff have taken a bigger layoff hit than associates. The survey found that 46 percent of the surveyed law firms have cut support staff, 33 percent have cut paralegals, 32 percent have cut associates, 24 percent have cut nonequity partners, and 19 percent have cut equity partners.

• More layoffs may be in the offing. Thirty-two percent of law firms said they may make additional staff cuts, 29 percent may cut paralegals, 24 percent may cut associates, 20 percent may cut nonequity partners, and 10 percent may cut equity partners.

• Few law firms, and none with 250 or more lawyers, reduced billing rates for this year.

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