Legal Commentary

Law Firms Continue to Face Daunting Challenges

By Patrick J. Lamb

Let's piece together some insights from the Hildebrant Baker Robins/Citi Private Bank 2011 Client Advisory:

...         'The growth in demand ('total billable hours recorded by firms included in a particular database. [fn.1]) for legal services has been negative in each of the past seven quarters.'

...          Billing realization rates ('that percentage of standard rates actually billed to clients') have fallen from Q3 2007 to Q3 2010.

...         Collection realization rates have fallen faster during the same period.

...         Law Departments reduced their total spending on outside lawyers in 2009 by 5%, the first decrease in memory.

...         The demand picture shows no signs of improving.

That, my billable hour friends, is an ugly, ugly picture. What is an hourly firm to do? According the Advisory, 'most firms will implement modest rate increases in 2011.' (I wonder what the over/under is on how much collection and billing realization rates will fall in 2011.)

Remember the national outcry in late 2008 when the CEOs of Ford, GM and Chrysler all flew private jets to Washington for their appearance before Congress to provide a bailout? The most commonly heard phrases at the time were 'tone deaf' and 'blind to the optics.' Don't those same phrases apply here?

Raising rates is the easy way out. It allows one to provide nicer budgets and projections (using historic averages on realization rates, of course). Damn the optics, and damn how clients feel about this. 

The preferred approach should be focusing on delivering value so the realization rates increase. If a client feels the bill reflects real value provided, within approved budgets, the bills get paid. 

For those lawyers who believe things are 'quieting down,' the HBR/Citi Advisory should feel like a cold bucket of water is being dumped on you in the middle of a Chicago winter.

Full post as published by In Search of Perfect Client Service on January 20, 2011 (boomark / email).