(Thanks to gizmodo.com)
There have been a number of reports looking at the future of the legal profession recently (see here and here). This particular one by Winmark* looks at the factors "that are driving the future of [legal] sector from both sides", based on surveys of managing partners (MP), marketing directors (MD) and general counsel (GC).
The ten years up to the Lehman crash are portrayed as golden years for law firms, in profits, remuneration for partners and new lawyers. Since then the landscape is looking bleaker. And new factors such as the Legal Services Act and the introduction of alternative business structures (ABS) are compounding the sense of unease.
The first big indicator of this is the reduction in headcount in firms. 80% of law firms cut support staff levels and 76% cut lawyers. There were further cuts in IT, marketing, and training spends. Yet MPs are searching for stars or teams to lead them into pastures new.
While MPs are trying to boost growth and profits, GCs are looking to shrinking budgets, which is creating a mismatch of expectations. Although GCs seek simplicity and predictability in pricing of legal work, 85% still use hourly billing. Despite much publicity the billable hour is flourishing because purchasers of legal services are unsure what to replace it with whether it be premium billing or value billing. These are as yet incomplete concepts waiting for translation into reality.
One finding, surprising to me, was that GCs don't feel they have the "upper hand" when negotiating price structures with law firms. The introduction of ABSs could alter this perception as more competition enters.
How are these tensions being dealt with? Outsourcing of work is one route which is capturing the attention of GCs. This isn't the legal process outsourcing route but rather the sending of work directly to barristers--"companies' desire for quick, informal cost-effective access to advice". Correspondingly, the Magic Circle law firms have seen a reduction in use by GCs.
Even though client relationship management is the mantra du jour, it is not yet fully worked out by law firms. The report expresses doubt that clients really are at the centre of law firm thinking.
Winmark detail a series of gaps between the expectations of managing partners and general counsel that are going to be filled in interesting ways as the legal market becomes more complex following the shake out of the recession and the introduction of ABS. Expect to see new ways of managing pricing by perhaps pricing specialists and also new modes of work distribution, some of which we are seeing now.
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*I'm grateful to Winmark for giving me a copy of their report. Copies can be ordered from john.jeffcock@winmarketeurope.com.
1 comment:
The point of abs is interesting. The Economist for example reported only last week how there is an increasing amount of outsourcing of legal work from firms in the west to India. This is what the report says:
[quote] Last year, Rio Tinto, an international mining group, moved a tranche of legal work to Indian lawyers at CPA Global, which has its headquarters in Jersey, to save a fifth of its legal costs. Others are following. In May CMS Cameron McKenna, a British law firm, signed the legal industry’s biggest outsourcing deal with Integreon, an American company with operations in India. Over the next ten years, Integreon’s Indian staff will provide the British firm with services from human resources to legal research.
Though India’s legal-process outsourcing (LPO) industry is still small, it is growing fast. In a recent report, ValueNotes, an Indian consultancy, estimated that India’s LPO revenues will grow from $146m in 2006 to $440m this year and $1.1 billion in 2014. The number of Indian firms offering LPO services has swelled from 50 in 2005 to more than 140 today. Investors have spotted the potential. In February, Actis, a British private-equity outfit that specialises in emerging markets, invested $50m in Integreon. Intermediate Capital Group, also based in Britain, has bought an undisclosed chunk of CPA Global.
The growth in LPO has been boosted by the global economic slowdown. “It’s a very obvious way to cut costs and it is hard to refute once you have seen the good work that is being produced,” says Leah Cooper, CPA Global’s strategy director. Until four months ago, Ms Cooper was Rio Tinto’s managing attorney. Western lawyers have in the past been slow to outsource even the most basic work to India, because of worries about confidentiality and quality. But they are now commissioning ever larger volumes [unquote]
In transnational commercial law work, this sort of outsourcing is understandably very attractive. From a law teacher's perspective, I think there is much room for legal education and training providers to tap into this market.
jason
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