Analyse thisThe Word of Gold: a survey of Big Law just published across the Pond has valuable lessons for everyone
“If you don’t like something, change it. If you can’t change it, change your attitude.” (Maya Angelou)
The Law Firms in Transition survey has been carried out annually by US consultancy Altman Weil since 2009, the year after the world went off a cliff. It has become one of the most useful windows into how large corporate and commercial firms manage themselves, what works and what doesn’t.
The 2017 survey has just been conducted, with 386 firms participating. They represent 50% of the 350 largest US law firms and 50% of the AmLaw 200. At first sight, the headlines are sobering.
Decreasing demand is endemic in high-value corporate and commercial law. The most important factor is work moving in-house. Two-thirds of firms report loss of business to in-house legal teams. But also, more work is being lost to alternative providers, whose market share in the US is now estimated at $8.4 billion annually. While this trend is set to continue, there is nothing inevitable about law firms being overwhelmed by it. There are clear opportunities for them to change the way they deliver and price. The benefits of incumbency and deep longstanding relationships still lie overwhelmingly with conventional law firms. The ball is in their court and they can choose either to drop it or hit winners.
People and plans
What is the effect of these trends on individuals? The survey finds that 52% of equity partners and 62% of non-equity partners are not busy enough. Lawyers other than partners and associates are not busy enough in 43% of firms, and in 25% even associates do not have full workloads. More than 61% of respondents said overcapacity is diluting profits. Further, 88% of firm leaders said they have chronically underperforming lawyers and 68% think fewer partners will be awarded equity status in future.
Are they doing the right things to address the issue? It seems many are not: 96% are reducing pay, 79% are demanding improvement plans, and 57% are de-equitising equity partners. Yet reducing pay is rarely enough in itself. Without a plan for improvement, proper support for implementing it, and ultimately a willingness to exit underperformers, however difficult or unpleasant that may be, it is a blunt instrument.
You would think that faced with these threats, partners would pledge eternal unity, to a man and woman get behind the leadership and strive as one to take the business skywards. But you would be kidding yourself: 65% of leaders say partners are resistant to most efforts for change, and 56% that partners are unaware of what they might do differently.
Recently, I attended a meeting of the Managing Partners’ Forum in London which discussed the question: “Why can’t we get things done?” Revealingly, it was packed. Remedies ranged from changing appraisal and reward systems, to coaching and mentoring, and they can be important.
But to me, there are two obstacles in particular. First, despite what this report says about falling demand and a challenging environment, partners do not see these threats as existential. Lawyers in large US law firms and their UK equivalents routinely earn beyond the wildest dreams of most people. I read recently of one City firm, where PEP had “slumped” to £860k. This is the kind of tragedy most of us could just about bring ourselves to cope with. As Richard Susskind puts it, it is difficult to stand in front of an audience of multi-millionaires and tell them they’re doing it wrong. One sees this graphically in another of the findings: 94% said that a focus on improving efficiency is essential, but only 49% had changed their approach significantly to become more efficient. I am a massive fan of lawyers earning big money, but it can breed complacency.
Secondly, the desire for collegiality means that too often leaders avoid confronting poor working practices or personal behaviour, especially of “big beasts”, even where the health of the business demands it. True collegiality is a wonderful thing, but like the yeti, it is more talked about than seen. Where it is a euphemism for the craven tolerance of mediocrity or misbehaviour, it can be lethal.
The report is full of fascinating findings, which space does not allow me to describe here. For example, only 53% of firms report that their lateral hires have improved profits. Conversely, moving to cheaper space results in immediate bottom line improvement for 75% of firms who have done it, but they are only 25% of the total.
Despite the boulders in the road, what shines through is that for firms truly prepared to adapt, be agile, open-minded, and decisive with the blockers, there are opportunities aplenty to provide a great service and make great money. And this is true for firms of every size, not just the giants.
Stephen Gold was the founder and senior partner of Golds, a multi-award-winning law firm which grew from a sole practice to become a UK leader in its sectors. He is now a trusted adviser to leading firms nationwide and internationally.
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