State of the Legal Industry Survey

As we wind down what has certainly been one of the more noteworthy years for the legal profession, it seems both appropriate and timely to look at LexisNexis's State of the Legal Industry Survey.

The survey describes itself as "the first of its depth and breadth to be conducted on the legal industry since the start of the economic crisis. Of the 550 respondents polled, 300 were private practice attorneys, 150 were in-house corporate counsel and 100 were law students."

If a snapshot of the current mindset of legal professionals provides any sort of view into the coming year, then here's what we have to look forward to in 2010...

Transformation, evolution, contrary opinions, uncertainty, and opportunity.

Some highlights of the survey are:

• 71% of corporate counsel responded that law firms today are not doing enough to respond to the current financial pressures on their business model.

• Almost half of the in-house counsel polled (46%) say they have requested rate cuts since the start of the economic downturn, yet less than one in five (18%) private practice attorneys say their law firms have reduced billing rates.

• Only 38% of corporate counsel believe that law firms are being responsive on changing fees and costs given the current economic recession.

• 69% of corporate counsel have shifted work in-house since the start of the economic downturn; 56% have reduced spending on outside counsel.

• 57% of corporate counsel believe the billable hour will give way to alternative billing arrangements.

One finding that really stands out in the midst of this professional climate that seems poised to reward an entrepreneurial approach to business is this:

• According to the survey, 65% of law school students (and 90% of lawyers) say that school teaches students legal theory, but does not teach the practical business skills needed to practice law in today’s economy.

In other words, buckle up. For better or worse, 2010 looks to be just as turbulent a ride as 2009.

Until then, all of us here at LegalEase wish a happy and healthy New Year to you all.

The Culture of the Billable Hour

There is no shortage of talk about redesigning the billable hour model. And many firms are making inroads with fixed-price offerings for specific services.

However, there is a huge chasm between a billable hour firm that also happens to have an a la carte fixed price menu and a firm that has entirely stepped away from the billable hour.

The stark difference between the two is the corporate culture. As the vast majority of Big Law associates will attest, work-life balance can become distorted in a billable hour culture, because the hour is the final product, not the service itself.

So it's worth shining a light on a firm that bills itself as the first corporate law firm in the nation to exclusively adopt fixed price billing. Exemplar Law Partners.

As a growing chorus of industry analysts and consultants have noted, the legal landscape is poised to reward firms willing to deviate from a business model that made sense prior to the internet -- before the commoditization of legal service, before exponentially increased access to information, before virtual offices erased the historical limitations of distance.

Consistent with that sort of forward thinking, Exemplar is entrepreneurial at every level, treating their firm as a startup company rather than a partnership or solo law practice.

According to a profile at Legal Rebels:

"There simply is not a billable hour, and the culture of the company from the top down seems to be to discourage that mode of thinking entirely.

“We don’t count time. We are a timeless culture,” Marston says of the firm’s commitment to abandon hourly rates as well as time-tracking for its employees. “The only way to be profitable in business is to be profitable, not in six-minute increments or only at 30 percent [profit].

“We know how much work our professionals turn around each month; we know what value they provide, and we know what we are charging. We track it at a macro level rather than at a micro level. And they get paid for being effective and efficient.”

Which brings us to the magnitude of contrast between the billable hour firms and a firm that is completely divested from the billable hour.

Putting mechanisms in place to create a fixed price model is a matter of execution. But changing the mindset of an organization is the real hurdle, and the real reward.

Eliminating the culture of the billable hour is a tall order, but one that Exemplar's growth (doubling revenue each of the last three years) seems to support.

The ACC Value Index and Value Challenge Model

Further to our post on the Association of Corporate Counsel's Value Challenge, here's a nod to Discovery Resources recent discussion regarding the tipping point for the value challenge.

The upshot is that as part of the Value Challenge, the ACC offers their Value Index, a forum for Corporate Counsel to rate law firms in terms their cost control and cost predictability, resulting in the Value Index.

And the index seems to be supporting Counsels' demand for value realignment.

As the ACC's original Value Challenge notes:

"According to a recent issue of the California Bar Journal, a survey by the Corporate Executive Board found that “while non‐law firm costs increased by 20 percent over the past 10 years, large law firms’ prices jumped almost 75 percent in the same period.” These numbers confirm the disconnect most if not all of us have been feeling."

To even further support Counsels' overall discussions with Law Firms, the ACC commissioned the Value Challenge Model, an interactive spreadsheet that allows users to test how changes in a law firms use of partners, associates, rates, and overhead may affect efficiency and profitability.

It's definitely worth giving a look.