Predictions and the Pace of Change

May 14th, 2015 / By Deborah J. Merritt

The consulting firm Altman Weil has been surveying managing partners of mid- to large-sized law firms (those with 50 or more lawyers) annually since 2009. The latest report offers some intriguing perspectives on how attitudes have shifted since 2009. Equally important, the report illustrates how staffing patterns have changed–despite a rebounding legal market.

Here’s What We Say

In 2009, only 25.5% of respondents thought that “more commoditized legal work will be a permanent trend going forward.” Today, 89.4% agree with that statement.

Similarly, in 2009 just 28.3% of the managing partners thought that “more contract lawyers will be a permanent trend going forward.” Today the figure is 72.4%.

Outsourcing was still a novelty in 2009: Just 11.5% of Altman Weil’s respondents thought it would be a permanent trend. Now 52.3% agree that outsourcing is here to stay.

In 2009, finally, firms thought they would soon restore the size of their pre-recession first-year classes. Only 11.4% thought “smaller first-year classes will be a permanent trend going forward.” Now a majority of responding firms (60.6%) endorse that statement.

Practices that seemed temporary in 2009 have become permanent by 2015. If so much could change in six years, what will happen over the next six? In that context, it is notable that 72.4% of the responding partners think that the pace of change is accelerating in the profession.

And Here’s What We Do

The firms’ actions seem to match their words. More than half the law firms (56.3%) use contract lawyers, while 44.4% rely on staff attorneys. The median (and modal) increase in the number of partnership-track associates was zero.

Nor are there signs that the number of associates or partners will surge any time soon. One-quarter of firms (26.6%) think their current associates still aren’t sufficiently busy. The problem of excess capacity is even greater at the income and equity partner levels: More than half of firms report that those lawyers do not have enough work to keep them busy.

Firms do not expect increased demand to cure this excess capacity. One-third of the firms (32.1%) say that demand for their services has already returned to pre-recession levels. Another quarter (25.3%) do not think demand for their services will return to that giddy level in the foreseeable future. More than half of the firms, in other words, have either returned to the boom days (in terms of demand) or do not expect those days to return for them. In either case, they have already adjusted staffing levels and continue to worry about excess capacity.

Now Watch How We Profit

For the fifth year in a row, more than half of the responding firms reported increases in revenue per lawyer and profit per equity partner. Profits at the top have increased sufficiently that the responding firms are newly optimistic that profits per equity partner (PPEP) will continue to grow handily. In 2013 and 2014, more than half of the responding partners thought that a slowdown in the growth of PPEP had become permanent. In 2015, the percentage endorsing that view fell 13.5 points to just 44.8% of respondents.

Perhaps most sobering, increased profits per equity partner showed a marked relationship to changed staffing patterns. Altman Weil reports that: “77% of law firms that changed their strategic approach to lawyer staffing reported an increase in PPEP from 2013 to 2014, compared to 56% of firms that had not made such a change – a 21-point difference.”

What Does It Mean?

What do we learn from these survey results? We learn first that managing partners, like other humans, adjust slowly to change. They initially view new practices as temporary accommodations, then grow to accept them as permanent. In this case, however, the firms that accepted the changes more readily have also profited from them. Those profits have solidified the changes and will attract other followers.

Shifts in the staffing of legal services resemble changes in other sectors of the economy. Indeed, law has lagged behind most other sectors in adopting contingent workers and classes of “permanent” employees with less security and potential for job advancement than the traditional class. Adjuncts and clinical professors appeared in academia decades before contract lawyers and staff attorneys emerged in law firms.

The most surprising feature of the legal field was the number of lawyers and academics who insisted that changes like these could not and would not happen in law practice. The resistance, both in practice and prediction, made the inevitable correction all the more harsh.

Now we need to ask ourselves: What’s next? What circumstances seem unlikely or temporary today, but will persist until 2021, when they will appear inevitable and permanent?