Deeper into the Citi Private Bank Law Watch Survey

The AmLaw Daily last week featured some continuing coverage of the Citi Private Bank Law Watch Third Quarter 2010 results.

Citi Private Bank's Law Firm Group chairman Dan DiPietro and senior client adviser Gretta Rusanow expanded upon some of the findings of the recent comprehensive survey, emphasizing:

"... an increasing willingness on the part of general counsel to branch out beyond their traditional law firms are forcing many law firms to compete on price, and others to innovate in order to be profitable and sustainable in this changed market."

DiPeitro and Rusanow write that they've spent "the past three months, having traveled throughout the U.S. and London conducting roundtables with managing partners of over 150 firms, meeting with individual law firms, and learning how firms are responding to this flat market..."

One of the prominent themes they're hearing is "the constant pricing pressures firms face, and how they are responding to these pressures."

They report that two shifts in the traditional business model are leading the altered landscape:

New Low Cost Competitors

• DiPeitro and Rusanow report that the general counsel they've spoken to are facing unrelenting pressure to internally reduce outside legal costs and are now more open than ever to "other options given the availability of off-shore legal service providers, and Am Law Second Hundred firms prepared to offer services at a lower cost than the traditional law firms."

• DiPeitro and Rusanow also note that "Am Law 100 firms have commented to us about the increased competition from these alternative providers, as well as from smaller firms who are able to provide legal services at significantly lower rates because of lower cost structures."

Alternative Fee Arrangements -- Pricing and Project Management

According to DiPeitro and Rusanow, "In addition to simply discounting fees, we see an increased focus on alternative fee arrangements (AFAs)."

While AFA's are becoming more standard, the task now is to work the kinks out. To that, DiPeitro and Rusanow broke it down even further:

• The first challenge is "how to accurately price services at the outset. Firms have started to consider how they might mine data in their practice management systems and knowledge management systems to create accurate cost predictions for matters. Some firms have formed committees composed of IT, finance, knowledge management, and practice group representatives working together to identify the common characteristics of various matters, and in so doing, improving the predictability of matter costs. In other words, these firms are moving from a reactive stance to a more strategic, scientific approach to pricing of legal services."

• "The second challenge firms confront is, once they have agreed to an AFA, how can they ensure that the work will be completed within the agreed scope and to budget. To do so, some law firms are retaining professional project managers. Other firms are placing that responsibility on lawyers by conducting project management training sessions for partners and attorneys in the firm."

Interesting the trends we started looking at 18 to 24 months ago are now becoming firmly rooted in the new normal.

The Vanishing American Lawyer?

The Vanishing American Lawyer is an interesting new book weighing in on the future of the profession.

Authored by George Washington University Law Professor Thomas Morgan, the book discusses -- amongst many topics -- two items that have been frequent fodder in this blog: The the lag time that American law firms are exhibiting in adapting to the changing global legal climate, as well as the irresponsibly slow reaction from law schools to the changing nature of the profession.

Am Law Daily reviewed the book, and said:

Morgan doesn't think that lawyers or legal needs are about to disappear. Rather, he argues, thanks to a combination of technology, global competition, and client demands, today's fairly comfortable landscape will be transformed.

"What this book predicts," he writes, "is that the interaction of law with increasingly complex economic and social issues will make distinctively legal questions less common and make many of the skills now honed in law schools less relevant."

In his view, highly specialized lawyers—often working out of large globe-straddling firms—will serve their clients as one of many agents addressing a problem. Some of the work now done by lawyers will be done by others, and vice versa.

"For better or worse," he writes, "most of tomorrow's lawyers will resemble what we today call business consultants more than they will call to mind Clarence Darrow or Atticus Finch."

The Vanishing American Lawyer seems to be consistent with Richard Suskind's The End of Lawyers? in their shared conclusions that the future of the profession is facing profound changes brought on by technology, the commoditization of legal services, external investment, and legal outsourcing.

Here Come The Numbers

As fiscal years start coming to a close, official revenue figures are starting to confirm everyone's expectations.

As reported at Am Law Daily (and discussed at Above The Law), Baker McKenzie's fiscal year ended on June 30th, and last year's 2nd highest revenue generating firm reported a 3% drop in global revenue and a 17% drop in profits per partner due to the recession.

"The financial crisis progressed into an economic recession that has been very challenging for our clients, for all law firms and for us,” says John Conroy, chairman of the firm’s executive committee.

To put Baker McKenzie's numbers in perspective, this is a firm whose fiscal year 2007 "reported profits per partner of $1.06 million, breaking the $1 million mark for the first time in the firm’s history. The firm reached another milestone in fiscal year 2008 when total revenues came in at $2.2 billion, surpassing the $2 billion barrier for the first time."

However, Baker McKenzie has also been a leader in terms of outsourcing legal work, and past year's numbers have been anchored by a global approach that encompasses more than 3,900 lawyers at 67 offices in 39 countries.

Given the squeeze in profit per partner this year, it won't be surprising to see an even greater emphasis on pushing work to more efficient cost centers.

And, while we can only speculate on how much worse Baker McKenzie's numbers would have been without their aggressive outsourcing stance, it will be interesting to see how comparable firms' numbers stack up as the year progresses.