The current financial and geopolitical climate is having a prodigious effect on law firms – leaving their very future in the balance.
Scared? Don’t be.
Firms should view this recession and the governmental intervention as an opportunity to reposition themselves for the future. Those that fail to adapt to the new financial order will be at a disadvantage in terms of talent and clients.
Clients are focusing on controlling corporate legal costs, forcing firms to cut back on space and human resources.
US firms are trying to be more efficacious in their use of existing space, renegotiating leases and moving towards the UK model of shared and smaller premises.
There is also a reluctant acknowledgment among lawyers that their clients are no longer willing, or in some cases able, to pay for first-year associates to cut their teeth on deals. Unless someone is integral to the process, and ultimate success of a project or deal, clients are no longer inclined to pay for that time.
Accordingly, firms are changing the way deals are staffed. The great leverage pyramids are being replaced by a streamlined approach: less is more.
This may mean firms hire fewer first and second-year associates or that the compensation level for junior associates is capped at lower levels.
The benefits for the firm are obvious, but there is also a benefit for the associates. It is a way to keep their job, gain valuable training and, if their firm lets them, opt for fewer hours so they can enjoy a less high-pressured job. Although this may mean they will not be in the running for a partnership position, it may be a worthwhile trade-off for some.
One key to surviving this storm – while providing for the future – is to avoid the pitfall of giving up talent too quickly in a frenzied effort to cut costs. You do not want to lose good people, which does not always refer to the largest income generators.
You also need to compensate talent. Once the market turns, these are the lawyers who will allow you to attract future stars, as the best attract those they perceive as their equals.
Law firm management can keep these attorneys and benefit in the long term by effectively structuring deals and limiting hourly rates. If firms switch to a two-rate system for partners – as well as a two-tier system for non-partners – it gives them the flexibility to easily blend rates and remain transparent for clients.
The exception would be those ‘superstar’ lawyers. It is our experience that clients are willing to pay the $1,000-plus per hour for the ‘go-to’ superstar lawyer in a particular field. What the client is really focused on is the ultimate fee, not a particular rate. Having said that, the only way to control the final bill to the client is to manage the rates.
The law firms that are flexible and proactive today in their approach towards the business of law firm management will be the ones that will succeed tomorrow.
Elyce Stuart Abraham, Jillian Winoker and Renée Berliner Rush, AW Rush & Co