May 2000

Future Trends in the Practice of Law

by Jan Michels
WSBA Executive Director
janm@wsba.org

The Western States Bar Conference is an annual meeting of 14 western states. The WSBA sends the President, President-elect, Executive Director and second-year Governors to the conference. It is a fruitful gathering for learning what our friends and neighbors in the West are up to. The presentations are always timely and specifically relevant to us. Ward Bower of Altman Weil, an organization that has studied law firms and the practice of law for many years, gave a presentation entitled "The Future of the Profession," and drew on extensive surveying and observing, both nationally and internationally. The core of Bower's presentation focused on the potential forces at work on the practice of law for the next five to10 years.

In a buyers' market, the customer drives decisions, sets terms and strategies, and evaluates costs. This is a permanent shift that means reduced profitability. Marketing and overhead costs are increasing faster than revenues. Some factors are:

• Escalating associate costs, driven by Silicon Valley and New York premium client bases;

• Billing rates that are increasingly competitive and heading downward;

• Rising senior partner compensation despite reduced contributions;

• Rapidly increasing technology costs (technology costs double every four years and are second only to the cost of support staff); and

• Clients' close scrutiny of bills.

2. It's a Mature Market

The profession of law is now considered a "mature market," with certain characteristics currently evident:

• Consolidations are numerous;

• "Branding" (name awareness) is required to sustain market share and is worth a premium of 10 to 20 percent in fees;

• Client sophistication, usually in the form of in-house counsel hiring lawyers for the legal needs of their business, is increasing;

• Marketing the firm's products and services is increasingly important, with a successful law firm needing to spend three to five percent of gross revenues on marketing;

• Lawyers are moving laterally from firm to firm; and

• There is an increase in "shake outs," with many firms not making it. Especially vulnerable are medium-sized general practice firms, and large single-city firms. Many firms already know they are in trouble and are shopping for merger possibilities.

The mystique of law practice is gone. Fee scales will float and become much more market driven. There will be a demand for more free speech in advertising. These factors will drive alternate forms of practice, like multidisciplinary practice and other innovative affiliations, and "consultant contracts." There will be the inevitable erosion of the independence of lawyers.

The WTO is already asserting its authority over many professions. Many practice areas and transactions are increasingly international. The four models of international practice are: representation of foreign clients in domestic affairs, representation of domestic clients in foreign affairs, cross-border practice, and representation of foreign clients in foreign affairs (usually U.S. partners with local associates). Many clients, especially premium business clients, require some international services. Firms can gear up for this kind of marketplace by recognizing the trends toward:

• Global firms — most big ventures are now processed under New York and London law, but we will soon see an Asian presence (Hong Kong is the most likely). Global firms will prize persons able to overcome cultural barriers;

• International transactional firms; and

• In-bound legal work (foreign business directed to U.S. law firms).

Technology will accelerate all of the above trends. There will be new opportunities and innovations. Technology will disperse legal information, legal forms, and the purchase of legal services.

There will be hyper-competition for clients and for legal talent. Top legal talent may no longer be measured through law school grades and class standing, but instead be evaluated for creativity, innovation and marketing skills.

There will be increasing price competition and billing methods. The legal profession may need alternate provisions for fees; billable hours will not survive this new market.

There will be a growth imperative. Firms must provide growth opportunities to keep top staff. Clients' legal needs may outgrow what some firms can offer, and clients will choose the firm that best suits their needs and offers the highest value. Firms will either hire more lawyers or turn away work. The winners in this environment will be boutique firms and regional, national and/or international firms. To meet this growth imperative, every firm should develop and maintain a growth strategy. Possible strategies include:

• Growth through merger to help protect territory and round out the firm and its services;

• Growth through practice area expertise, by aiming to become a boutique firm (warning: specialized knowledge no longer lasts a lifetime but changes with the times);

• Growth through expansion of practice areas by becoming a full-service firm with specialty teams; and

• Growth through geographic expansion.

Every lawyer and firm needs to redefine client relationships. The old vendor model of waiting for the customers to come to the service will not remain competitive. Successful firms will give clients choices, find a way to differentiate themselves, and achieve brand-name recognition. Firms may need to create auxiliary businesses, services or products to advertise and promote their legal services. All lawyers will need skills in marketing, good business practices and technology.

These trends carry a strong message for solo and small firms (fewer than five lawyers), which is roughly 70 percent of practicing lawyers. First, it will help to have a clear picture of what practice area a particular firm covers and to decline work that doesn't fit. For legal needs outside of what a small firm offers, develop ties to other firms and develop mutual referral systems. Second, a growth strategy is imperative, as is a plan for attracting and keeping talented legal staff. Third and foremost, cultivate clients and become their "general contractor." Be available to clients as an advisor and broker for other legal needs. A successful future in the practice of law will depend on positive client relations.

Bower also discussed what these trends mean for bar associations who have challenges too. Bar associations will need to be attractive and offer real value to members, including helpful and meaningful services. Members have already told us this at our town meetings and in the 1999 survey. And the time lawyers have to participate in WSBA activities will be at a premium, so we need to thank and reward those who do. The WSBA and its members need to concentrate on public relations and education about the core values of the justice system.

The choice is in how we respond to change. It is easy to think that these trends are only for metropolitan areas, or that they won't hit before retirement, or that "my" firm is different. WSBA Strategic Planning Goal No. 5 calls for the WSBA to respond to changes in the marketplace, and to discuss and frame possible responses. Bar leadership and staff will use the Altman Weil information to develop programs, brochures, CLEs and other services to help members accommodate this breakneck-speed change.

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