Guest post by Jacquie Champagne

I’ve just recently gotten around to delving into the 2016 Altman Weil Law Firms in Transition Survey, and I found some telling information. The report might accurately be renamed “Law Firms Resisting Transition,” or even something catchier like “Law Firms Out To Lunch.” A cursory examination of the report shows persistent behaviors among law firms that make it difficult to see how they won’t continue to lose market share. While clients increasingly choose alternatives – building out in-house teams, using alternative legal service providers, or engaging a smaller number of law firms who are innovative and forward-facing –  the vast majority of law firms continue to march in place. After reading the report I concluded the following:

1.      Law firm partners continue to bury their heads in the sand.

Law firms are not taking up the innovation challenge. Over 93% of law firm leaders believe improved practice efficiency is a permanent trend. Despite this realization, less than half of those firms surveyed have changed how they approach the delivery of legal services. One quarter aren’t even considering the issue. It’s understandable then why more than 50% of law firm leaders express great concern over how prepared their firms are to make market-relevant changes.

While 81% of law firms are making ongoing efforts to educate partners on market trends, over 50% of firms indicate their partners are unaware of what they might do differently. Speaking to clients might help (see below). They are making the types of changes within their own legal departments that they’re asking their law firms to make. I recently had a conversation with a partner at an Am Law 200 firm who heads up a major innovation initiative, and we both agreed that seeing issues from the client’s perspective is not that difficult. But it does require caring more about solving your clients’ problems in the ways they want them solved than how you’re going to maximize billing hours to them.

The vast majority of law firms (91%) say they are filling leadership roles with forward-looking attorneys. I’m wondering how then there continues to be such a large disconnect between market trends and the inaction in law firms? I can only conclude that “forward-looking attorneys” means partners who are younger and have a bigger stake in the firm’s future, but who don’t necessarily have vision about the trajectory of the market for legal services. Law firm inertia with regard to adaptation will not be overcome solely by replacing current leadership with younger partners.

2.      Law firms are unresponsive to their clients.

Given the constant commentary on the disconnect between law firms and their clients, it’s surprising that 59% of law firm leaders still say their clients are not asking for change. When you cross-reference the last Chief Legal Officer survey on this particular issue, 73% of CLOs say they are putting moderate to great pressure on their law firms to change their value proposition. At the same time, over 70% of CLOs feel their law firms are less than moderately serious about changing service models, and not one CLO in the survey believed law firms are doing everything they can. There is a huge gap between law firms and clients about what clients want versus what law firms are willing to provide.

Meanwhile, law departments are doing for themselves what they want their law firms to do – managing legal departments as business units in ways that maximize value and minimize spend. They are adopting and adapting – using technology, business processes, and management to reach their strategic goals. Although some argue bringing more work in-house may not be a wise decision, clients are taking matters into their own hands because they’ve gotten little help from their outside law firms who continue to be driven by short-term profitability.

One bright spot? Law firms who are proactive in their approach to client service and fee arrangements report alternative fee matters that are more profitable than those who change as a reaction to clients. It is much more beneficial to institute change before your clients come asking for it.

3.      Law firm partners will pay to be left alone.

Over one-third of law firm leaders indicate they believe their partners would actually pay to be left alone. They are in fact paying that price when they refuse to engage more substantively with clients. Almost 65% of law firm leaders think most of their partners would sacrifice compensation in order to retain their current level of autonomy. Attorneys like being their own boss, and that extends to how they practice.

Law firm partners often rationalize that changes in the business of law have nothing to do with them. It’s other types of work that are price sensitive, not their work. Their practice is highly specialized and impervious to penetration by lower cost providers. There’s been a major realization over the last ten years, that only a small portion of legal work is bespoke, and a much larger percentage is repeatable work. Consistent with this trend, my discussions with clients now more frequently involve requests for contract attorneys in specialties like securities and cross-border tax. If these practice areas are starting to be affected, then no specialty should feel safe from change.

Even when partners are aware of changes in the marketplace and their effects, resistance to change is still high. The survey also points out that almost 56% of law firm leaders say their partners are not in enough economic pain to change. Intransigence rules the day in law firms, and successful cultural change that is greatly needed seems to be rare. I recently learned of an Am Law 200 firm that had a full business analysis done and was told what the firm needed to change, as well as how to change it. Unable to get buy-in from its partners for the necessary action, the firm subsequently retracted and went through multiple rounds of lay-offs. This is the epitome of resistance to change.

4.      Most law firms will only begin to take action when it’s too late.

I regularly connect with innovative law firms and alternative legal services providers who are changing the practice of law and the delivery of legal services. There are many companies and firms using different business models who have successfully penetrated the traditional law firm market. Certain first market entrants who have been engaged in providing alternatives to law firms since around the time of the recession now have a large advantage over others. But there continues to be plenty of room for newer market entrants and alternative providers who leverage technology, process and client service to take market share. There is a window of opportunity for law firms to make structural and behavioral changes to survive in a market being re-made around them.

It may not be noticeable from one day to the next, but over time major shifts will continue to take place in the legal services market. This report makes clear that this has already happened. Law firms rarely collect the right data or undertake analysis of why they’ve lost clients. In fairness, it’s difficult to get a former client to talk to you once they’ve moved their work to another provider. But isn’t this the strongest reason to take stock of the current market, its challenges, and to engage with clients? If law firms haven’t been motivated to take real action yet, it’s difficult to conclude that they will be before it’s too late. If the results of this survey are any indication, only when the losses are locked in will law firms understand what happened.

 

this article has been first published back in 2016, here https://www.linkedin.com/pulse/4-reasons-law-firms-continue-lose-market-share-jacquie-champagne/