Friday, May 6, 2011

Another popular press report on the changing nature of the legal services sector

This time it's The Economist magazine that's reporting on the changes occurring within the legal services sector. Or as U. Indiana Law Professor William Henderson characterizes it - "The 100 year flood that's hitting the legal profession."

Nothing earth-shattering here. By now, you know the drill: Decreased demand for legal services, clients who insist on lower bills,  outsourcing and offshoring, software that can replace associates, increased competition for the work that still exists. Here's an excerpt:

Lawyers would like to believe that the worst is over and that no more of them will suffer Howrey’s fate. Work on M&A and initial public offerings has recovered from dismal levels. And according to American Lawyer, profit per partner at America’s 100 biggest firms rose by 8.4% last year, having fallen by 4.3% in 2008 and gone up by a measly 0.3% in 2009.

But not all the trends that have hit the legal industry are cyclical. Some are here to stay even as the economy recovers. One is clients’ determination to keep their bills down. Feeling that they had overpaid vastly for the work of green trainees, they began refusing to have routine work billed to first- and second-year associates (ie, lawyers who are not yet partners). They see no reason to stand for it again. And alternative fee arrangements continue to grow in importance, albeit slowly: they accounted for 16% of big firms’ revenue in 2010.

A second trend is globalisation, which the law is experiencing later than other industries. For lawyers, it holds both promise and peril. Booming emerging markets, especially in Asia, are leading New York and London firms to extend their reach. But the growth of outsourcing to places like India is not lost on money-conscious clients, some of whom are demanding that their lawyers pass certain routine work to cheaper contractors.

A third trend is the growth of technology in an industry long synonymous with trained human judgment. Software that can perform tasks like “e-discovery”, sorting through e-mails and other digital records for evidence, is saving firms money. It has also made it harder to sustain a business model in which partners sit atop a pyramid with a fat base of associates who carry out expensively billed work, some of which is routine and repetitive.

Trends that were not part of the recession will not disappear with the recovery. Some will even strengthen. William Henderson of Indiana University points out just how good and how long a run lawyers had. Spending on legal services grew from 0.4% of America’s GDP in 1978 to 1.8% in 2003. The legal business grew four times faster than the economy. Now, Mr Henderson says, a “hundred-year flood” is hitting the profession. Job growth had begun well before 2008, he points out, so that the labour market was already out of balance when recession struck. Not all firms will survive, and those that do will not all prosper equally.

You can read the rest here.


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