Law Firm Strategy and Structure

SOMERSET, N.J., August 20, 2009 – Aggressive cost controls and headcount reductions are helping law firms deal with weak demand and rate growth. Despite continuing economic headwinds, firms are aggressively reducing their expenses, helping to maintain profitability. As a result, the Hildebrandt Peer Monitor Economic Index (PMI) rose four points in the second quarter to a reading of 44. A PMI of 65 or greater indicates strong law firm market performance. PMI is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets.

Demand, as measured by billable hours, was down 7.3 percent in the second quarter compared with a year earlier. However, there are some signs that demand may be beginning to stabilize. Bankruptcy work continued to be strong. Litigation work was down from a year ago, but may be stabilizing. Transactional practice areas, including corporate, mergers and acquisitions, capital markets, and real estate were substantially lower but should show signs of recovery in the second half of the year if the general economy continues to improve.

It’s no secret that 2009 was a year where many law firms began to intensively focus on their finances. Unlike in the past, now it is not just leadership taking a close look at the firm’s books. The focus on finances has extended into law firm partnerships and involves a wider audience than the managing partner and management committee. In firms grappling with the severity of the economic crisis, we have noticed many of them are encountering unexpected challenges when communicating financial results with the wider partnership. In some firms, for example, many partners have widely varying perspectives on practice profitability, office profitability, utilization, expenses, and overhead allocation. We have even found some partners referencing different values for supposedly the same performance metric.

This article is reprinted with permission from the January 2010 Law Firm Partnership and Benefits Report of the American Lawyer Media. © 2010 ALM Properties, Inc.

Economic problems impacting law firms are prompting a wealth of predictions about the future. What structural changes may result from the current economic downturn for law firms and the practice of law? The following is an updated version of an article first published by Blane Prescott, Vice President with Hildebrandt, in the closing months of 2008.

Copyright 2009. Incisive Media US Properties, LLC. All rights reserved. National Law Journal Online

I think the word "unprecedented" may be the best way to sum up the past 10 years in the legal profession. It applies to every major trend and development that has affected law firms during this period: unprecedented demand for legal services; unprecedented law firm growth and increase in profitability; unprecedented competition for top talent; unprecedented compensation for first-year associates; and, finally, an unprecedented rapid decline in demand for what we commonly think of as "recession-resistant" legal services.

Reprinted with permission from the Nov/Dec 2009 issue of Lexpert Magazine. © Thomson Reuters

The best plan in the world is useless until it is implemented. Implementation of a strategic plan always requires the active support of the partners in the firm, so it is time to explore the intersection between a plan and those who will implement it.

Delving into this topic requires an expert in the complex field of organizational development — in this case Dr. Mark Sirkin. Lexpert® columnist Mike Short has asked Mark to share with us his thoughts on the human aspects of strategic planning. This is the first of several of his contributions to appear in this space over the next few months.

The Hildebrandt Handbook of Law Firm Management draws on the extensive collective experience of the consultants of Hildebrandt International to address the key management issues and leadership challenges confronting law firms in today’s rapidly changing market environment. The Handbook provides the best current thinking on the day-to-day issues central to leading and managing modern law firms as well as identifying the emerging trends.

The purpose of this book, intended for partners and others in senior management positions in mid-size to large law firms, is four-fold: (i) to assist such firms decide whether they should consider merger; (ii) to guide firms that decide to merge through the process of identifying a suitable partner; (iii) to provide guidelines to undertaking successful merger negotiations; (iv) to help ensure that firms do realize the anticipated benefits of merger through effective post-merger integration.

The revised and updated Third edition of Anatomy of a Law Firm Merger by Hildebrandt International provides you and your firm – no matter what size or type of practice – with the expert advice on what you need to consider when contemplating a merger, and how to successfully make it happen. The Third edition now features a completely updated financial perspective for today’s changing financial picture, plus a revised discussion of the economic balance sheet — to help quantify the value each firm brings to the merger.

Practice Group Leaders are among the most essential players in achieving a firm's long-term success. Yet they frequently need guidance to build, lead, market, and manage firmwide practices. This handbook focuses on what the Practice Group Leader needs to succeed.

NOW AVAILABLE - The changing market for legal services makes practice management a critical system to ensure long-term law firm success. Effective practice management requires the hands-on operation of each practice group as a business unit that contributes to the success of the overall organization. Many firms have not yet implemented effective practice management structures. In some cases, practice management structures exist on paper, but they are not fully functioning. In still others, practice management is discussed regularly, but partners have not fully bought in to the idea of "being managed."

• Do you wonder why you are still effectively promoting lawyers every year, whether they earn it or not?
• Does your merit pay structure heavily reward hours without regard to the progress your lawyers are making in their careers?
• Are your clients concerned about the value delivered by your associates?
• Have you watched the unfolding “Lockstep-to-Levels” trend and worried you might be left behind?

HILDEBRANDT BAKER ROBBINS introduces Talent Accelerator, which combines our extensive experience customizing competency-based associate development models with a more standardized model that can be adopted at a lower cost. Talent Accelerator brings you world-class expertise and value at a price you can afford.

Any review of the legal press or conversation with the leader of a major law firm reveals there is growing interest in alternatives to the traditional lockstep compensation and promotion system used for associates. It is clear that law firms are moving in the same direction as most other professional service firms, and switching from a system of promotion and compensation based on time-in-grade, to a system of individualized performance assessment and more variable progression, often referred to today as a “lockstep-to-levels” or performance-based system.

In fact, a number of large international firms have recently put such systems in place, and an even larger number have committed to introducing such systems in 2010. While these performance-based systems are relatively new to large firms, their use is well proven among midsize and smaller firms for more than a decade. The experiences and challenges these firms have encountered in their movement to merit compensation offer lessons that can help others in implementing performance-based systems. In this article, we will cover some of the common problems, and innovative solutions, that can help guide any firm thinking about making this same transition.

Legal services pricing is the hottest topic in law firms today. Many companies are experiencing significant cost pressures and legal services, which for years have been excluded from corporate scrutiny, are now expected to find efficiencies and cost savings. Moreover, the conversation has gone beyond simply pricing to actually delivering services on a different, and more cost effective, basis. Some lawyers, remembering the host of articles over the last 25 years calling for “alternative pricing” and predicting the death of the billable hour, question whether law firms will ever bill significant amounts of work on a non-hourly basis. Others see pricing and service delivery as a way to partner with key clients and enhance their market position.

Having long recognized the flaws inherent in lockstep systems, a growing number of law firms are now transitioning to performance-based compensation and advancement systems. The downturn in the economy has certainly accelerated the pace of these transitions, but other factors contributed to the change in the way firms are hiring and managing associates. These developments include changing expectations from clients, who question paying high rates for attorneys that are still developing their skills, as well as different expectations from young associates, who want more work-life balance and are not as concerned about the path to partnership as older generations. Law firms are also starting to design their talent management systems so that they better align compensation with actual performance.

SOMERSET, N.J., September 21, 2009 – Hildebrandt, the leading management consulting firm to the legal market, today announced the introduction of LawVision™, a new consulting service that helps law firms adapt their business models to changing market conditions.

The current economic downturn has focused attention of the legal profession on the basic structural, economic, and work process models that have dominated law firms for many years. Some of the key aspects of currently prevailing models include hourly pricing, lockstep progression and compensation for associates and a profit model based on growth and expansion.

Somerset, N.J., Jan 7, 2009 –According to Hildebrandt Baker Robbins, leading consultants to the legal industry, law firm merger activity continued at an active pace in 2009, with a total of 57 completed mergers and acquisitions involving U.S. law firms, up slightly from 55 in 2008. The level of completed mergers in 2009 is consistent with the number over the past 5 years, with 54 completed mergers in 2007, 59 in 2006 and 52 in 2005. As has been the case in each of the last 5 years, the busiest quarter in 2009 was the first quarter with 33 mergers, [compared with 22 in the first quarter of 2008] followed by 9 in the second quarter, 7 in the third quarter and 8 in the fourth quarter.

According to Hildebrandt, leading consultants to the legal industry, law firm merger activity was slower during the third quarter of 2009, with a total of seven completed law firm mergers and acquisitions involving US law firms. This compares with 13 completed US mergers in the third quarter of 2008, and 10 in the third quarter of 2007. On an annualized basis, the number of mergers in 2009 is on track with 2008, due largely to the high number of mergers completed in the 1st quarter of the year.

According to Hildebrandt, leading consultants to the legal industry, law firm merger activity declined somewhat during the second quarter of 2009, with a total of nine completed law firm mergers and acquisitions involving US law firms. This compares with 14 completed US mergers in the second quarter of 2008, as well as 14 in the second quarter of 2007. Because the first quarter was a very active period, merger activity for the first six months of 2009, with 42 completed mergers, remains ahead of last year. One merger has been announced and will be completed in the third quarter.

According to Hildebrandt, leading consultants to the legal industry, law firm merger activity continued at an active pace in 2008, with a total of 55 completed mergers and acquisitions involving U.S. law firms, up from 54 in 2007. This continues the trend of the past several years, with 59 completed mergers in 2006, 52 in 2005 and 49 in 2004. We expect merger activity in 2009 to be at a more active pace than 2008, with 20 mergers already completed in 2009 and more in the works. Lisa Smith, head of Hildebrandt's Law Firm Strategy and Merger Practice, said, "We expect the current economic cycle will accelerate the pace of consolidation in the legal industry. Merger activity has picked up in recent months as firms look to diversify their client base, geography and practice mix."

Following typical patterns, the busiest quarter in 2008 was the first quarter with 22 mergers, followed by 14 in the second quarter, 15 in the third quarter and four in the fourth quarter.

The largest merger of 2008 (based on the size of the smaller firm) was the merger between Blackwell Sanders and Husch & Eppenberger to form Husch Blackwell Sanders. The second largest merger of 2008 was Mayer Brown with Hong Kong's Johnson Stokes & Master (JSM). Other top mergers were K&L Gates with Kennedy Covington Lobdell & Hickman, and also with Hughes & Luce; McGuireWoods with Helms Mulliss & Wicker; and Reed Smith with Richards Butler Hong Kong.

Eagan, MN, May 11, 2010—Thomson Reuters, the world's leading source of intelligent information for businesses and professionals, has introduced Thomson Reuters Engage, the first comprehensive Engagement Planning & Management (EPM) software tool that enables law firms to create, monitor and manage integrated budgets and work plans for matters and portfolios of matters. Thomson Reuters Engage is designed to meet law firm clients’ demands for transparent, predictable costs.

The landscape of the legal market is rapidly shifting. Firms are under increasing pressure to deliver more value to their clients in a cost-effective manner, and with plans and budgets that are consistent and predictable. Thomson Reuters Engage’s intuitive design and seamless integration with law firms’ existing management information systems – including time and billing, human resources, email and customer relationship management – allows attorneys to confidently manage within the evolving demands of today’s clients, including alternative fee arrangements.

• Do you wonder why you are still effectively promoting lawyers every year, whether they earn it or not?
• Does your merit pay structure heavily reward hours without regard to the progress your lawyers are making in their careers?
• Are your clients concerned about the value delivered by your associates?
• Have you watched the unfolding “Lockstep-to-Levels” trend and worried you might be left behind?

HILDEBRANDT BAKER ROBBINS introduces Talent Accelerator, which combines our extensive experience customizing competency-based associate development models with a more standardized model that can be adopted at a lower cost. Talent Accelerator brings you world-class expertise and value at a price you can afford.

SOMERSET, N.J., and HOUSTON, Dec. 4, 2009 – Hildebrandt and Baker Robbins & Company, the two leading consultancies serving the legal market, announced today that they will merge into a single company, effective Jan. 1, 2010. Both are part of the Business of Law group of Thomson Reuters.

Hildebrandt is the premier management consulting firm serving law firms and corporate and governmental law departments throughout the world. Baker Robbins & Company is the leading technology and business process consulting firm for the same market. Together, the new firm – which will be known as Hildebrandt Baker Robbins – will be the largest and most diversified consultancy serving the legal market, with more than 120 consultants working around the world in a broad range of practice areas.

SOMERSET, NJ, November 18, 2009 – Hildebrandt, the leading management consulting firm to the legal market, today announced the global expansion of Hildebrandt services in Beijing, Hong Kong and Sydney effective January 1, 2010.

The potential growth of the legal profession in Asia is impressive. Global firms continue to invest in the region although many lack a strategic business plan for their offices. Local and regional firms are also growing and we envision some potential consolidation of the market. The biggest challenge for local and regional firms is to put in place a structure and systems that will allow them to compete effectively in this changing market. We would not be surprised if there were consolidation between the growing Chinese firms and a major US or UK firm.

According to Hildebrandt, leading consultants to the legal industry, law firm merger activity was slower during the third quarter of 2009, with a total of seven completed law firm mergers and acquisitions involving US law firms. This compares with 13 completed US mergers in the third quarter of 2008, and 10 in the third quarter of 2007. On an annualized basis, the number of mergers in 2009 is on track with 2008, due largely to the high number of mergers completed in the 1st quarter of the year.

Over the last few weeks, many of the top 100 UK firm’s 2010¹ provisional revenue and profitability figures have been announced. The full and underlying financials are yet to be published (we are awaiting more detailed information on productivity, leverage, costs, margin, etc.) but in the meantime enough indicative data is available to begin to discuss the potential drivers of this year’s results and expectations for the future.

While the "Great Recession" of 2008 and 2009 appears to be winding to a close, its impact on the legal profession is both enduring and profound. Blane Prescott examines the trends in today's legal marketplace, and supports his assertions with up-to-date data from the Peer Monitor Index.

Please click here to download the entire presentation as a PDF.

Any review of the legal press or conversation with the leader of a major law firm reveals there is growing interest in alternatives to the traditional lockstep compensation and promotion system used for associates. It is clear that law firms are moving in the same direction as most other professional service firms, and switching from a system of promotion and compensation based on time-in-grade, to a system of individualized performance assessment and more variable progression, often referred to today as a “lockstep-to-levels” or performance-based system.

In fact, a number of large international firms have recently put such systems in place, and an even larger number have committed to introducing such systems in 2010. While these performance-based systems are relatively new to large firms, their use is well proven among midsize and smaller firms for more than a decade. The experiences and challenges these firms have encountered in their movement to merit compensation offer lessons that can help others in implementing performance-based systems. In this article, we will cover some of the common problems, and innovative solutions, that can help guide any firm thinking about making this same transition.

Legal services pricing is the hottest topic in law firms today. Many companies are experiencing significant cost pressures and legal services, which for years have been excluded from corporate scrutiny, are now expected to find efficiencies and cost savings. Moreover, the conversation has gone beyond simply pricing to actually delivering services on a different, and more cost effective, basis. Some lawyers, remembering the host of articles over the last 25 years calling for “alternative pricing” and predicting the death of the billable hour, question whether law firms will ever bill significant amounts of work on a non-hourly basis. Others see pricing and service delivery as a way to partner with key clients and enhance their market position.

Having long recognized the flaws inherent in lockstep systems, a growing number of law firms are now transitioning to performance-based compensation and advancement systems. The downturn in the economy has certainly accelerated the pace of these transitions, but other factors contributed to the change in the way firms are hiring and managing associates. These developments include changing expectations from clients, who question paying high rates for attorneys that are still developing their skills, as well as different expectations from young associates, who want more work-life balance and are not as concerned about the path to partnership as older generations. Law firms are also starting to design their talent management systems so that they better align compensation with actual performance.