NEW YORK — The Second Annual Law Firm Financial Forum was a resounding success. We built on the foundation of the first year, focused on three critical areas of inquiry, and were able to drill deeper on each of them than we had the year before.
The participants were the key ingredient to the Forum’s success. We had a mix of law firm leaders, advisors and academics, all with substantial experience, and all with an interest in examining how best to adapt law firm metrics, service models, and business models to fit the changing times. The participants approached the discussions with a willingness to express their views and pose their questions. And throughout the day, they took an open-minded outlook that enabled robust give and take.
Here are some of my take-aways from the Forum:
Law Firm Metrics
The Peer Monitor Report on law firm metrics, prepared specially for the Forum, contained a number of noteworthy findings and insights. One that I found most meaningful was its quantifying of the overall legal market for which law firms compete at $437 billion. Having a sense of the total size of the market makes it possible to assess the pace, magnitude and direction of change.
The report also quantified the shares of the market which individual firms and groups of competitors have. Importantly, it concluded that the share of the market which corporate legal departments currently retain “in-house” exceeds 35% and is growing. It estimated that the share presently held by entities such as legal process outsourcers is relatively small, at approximately $1 billion, but that it is growing at an annual rate of 30%.
Each panelist stressed that the fundamental value of the analysis is to help partners plan and execute service models that make the most economic sense; more than maximizing profits or making judgments, profitability analysis was shown to be vital as a planning and service tool.
The panel discussion of metrics was stimulating. While it was wide-ranging, the panelists agreed that broad market data has limited value and that, moving forward, we will see more emphasis on assessment of metrics in the context of market segments and individual firms.
Profitability Analysis
The profitability discussion, moderated by Sandy Thomas, Global Managing Partner of Reed Smith, provided an extremely useful set of experiences and recommendations concerning all facets of establishing and administering such systems, from the nuts and bolts details of cost and revenue allocation to the management challenges all firms must address.
Each panelist stressed that the fundamental value of the analysis is to help partners plan and execute service models that make the most economic sense; more than maximizing profits or making judgments, profitability analysis was shown to be vital as a planning and service tool.
In a related issue, each panelist emphasized the critical importance of open and candid conversation with partners about the objectives of the analysis before the new system is implemented.
Business and Service Models
Jonathan Molot, from the Georgetown Law School, moderated this session, commencing with an exposition of his views on the need for law firms to adopt models that create incentives to build institutions with a long-term focus. Tim Mohan, CEO of Chapman and Cutler, and Jason Peltz of Bartlit Beck then shared the specific ways in which each of their firms have developed models that utilize different incentives and do operate differently. What followed was a dynamic and pragmatic discussion of how other firms could usefully modify their models.
Among the themes that emerged were the importance of tailoring the models to a firm’s particular strategy, the implications of model change for the personnel makeup of the firm, and the truly essential requirement that all of the partners embrace the new model.
Among the themes that emerged were the importance of tailoring the models to a firm’s particular strategy, the implications of model change for the personnel makeup of the firm, and the truly essential requirement that all of the partners embrace the new model.
Design
Margaret Hagan, a fellow at Stanford Law School and Stanford’s Institute of Design, addressed how the design process can help law firms consider new service and business models. Her lively session gave participants creative, yet practical, new ideas for conceiving alternatives to traditional approaches.
Case Study
We finished the day by working through a case study of a firm that was challenged to re-examine its model. Bill Henderson, from the Indiana University Law School, wrote the case and led the session.
The exercise engaged everyone, enabling participants to apply everything we had discussed earlier in the day to a concrete set of facts. It really brought the subjects to life in a shared basis among the participants and tied it all together.
I want to express my appreciation to all the panelists and participants, especially the co-chairs, Bill Henderson and Sandy Thomas. We had a great day of learning together.
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