Many of the 2012 Law Firms in Transition Survey findings take the form of good news/bad news:

• Revenue was up in most firms, but so were expenses. 
• Profits were up, but at a pace that is likely to be permanently slowed. 
• Firms are raising their rates, but many do not expect to realize the full increase.
• Fewer law firms expect to make personnel cuts, but in those that do, equity partners are among the most vulnerable. 
• Associate compensation may begin to rise again, but will be spread across smaller incoming classes.
• Firms are gaining experience with alternative fee arrangements, but most firms are still using AFAs reactively and less profitably than hourly billing. 
• Firms have profitability data available, but they don’t use it as well as they might. 
• Law firm leaders have moderate to high confidence about their own ability to navigate the changes ahead, but they are less sure that their partners are paying adequate attention. 

Read it at Altman Weil 

Read it at Altman Weil    

The answer is you need some luck.  He and his colleagues concluded that although there are circumstances when it can happen (he describes a few likely scenarios), they are outside of the control of an aspiring law firm.  But don’t despair.  Here’s his excellent conclusion:

“Consider what this means for law firms in the on-deck position — firms that are not currently doing business for a company, but would be at the top of the list if the incumbent flubbed something, lacked capacity, or saw a key lawyer leave. If you’re looking for a sweet spot, that may be it. Make contact with an in-house lawyer; stay gently in touch over time, forwarding items of (actual) interest perhaps once a month; and make sure the in-house lawyer remembers your name and area of expertise. When an event outside of your control occurs, you want your name to be at the top of the list of possible replacement firms.

The on-deck circle is an important place to be. Spend your time there intelligently.”

Read it at Above the Law

“The ABA Commission on Ethics 20/20 has decided that it will not develop a proposal for consideration by the association’s policy-making House of Delegates on whether nonlawyers should be allowed to have some form of limited ownership interest in U.S. law firms.

In a joint statement … co-chairs Jamie S. Gorelick and Michael Traynor confirmed that the commission agreed at its meeting last week in Washington, D.C., to shelve plans to submit a proposal on nonlawyer ownership for consideration by the House in when it convenes during February’s 2013 ABA Midyear Meeting in Dallas. Gorelick and Traynor indicated that feedback received from other bar associations and individual members of the profession did not suggest a groundswell of support for revising the ABA Model Rules of Professional Conduct to permit a limited form of nonlawyer ownership. The Model Rules, which are the direct basis for professional conduct rules in all states except California, currently do not permit nonlawyer ownership.

“Since its creation in 2009, the commission has undertaken a careful study of alternative law practice structures,” Gorelick and Traynor said in their statement. “Based on the commission’s extensive outreach, research, consultation, and the response of the profession, there does not appear to be a sufficient basis for recommending a change to ABA policy on nonlawyer ownership of law firms.”

Read it at ABA Journal

TyMetrix shared these highlights:

• The Most Expensive Lawyers Are Getting More Expensive. Rates for the highest billing partners ($800+ per hour) grew nearly three times faster than rates for the lowest billing partners (less than $300 per hour), and rates for the highest billing associates ($500+ per hour) grew nearly five times as fast as the lowest billing associates (less than $200 per hour).
• Clients Are Willing to Pay a Premium for Large Law Firm Work. The percentage increase for firms with more than 1,000 lawyers was double what the smallest firms experienced. The average hourly rates from 2009-2011 for law firms with 501-1,000 lawyers increased by 13 percent compared to a 4 percent rate increase at law firms with 1-50 lawyers.
• Lawyers Charge Different Hourly Rates to Different Clients For Similar Work.  In 2011, 90 percent of lawyers charged different rates for similar types of work. Intellectual property and commercial contracts practices had the highest percentage difference in rates (23.1 percent and 18.7 percent, respectively), while regulatory and finance/securities/banking saw the lowest percentage difference in rates (about 11 percent).
• Higher Spend Equals Higher Rates - Consolidation Not Necessarily Associated with Lower Hourly Rates. Some in-house legal departments have had success consolidating work into a single law firm, but the data reveals that rates actually tend to increase as a law firm takes on more work from a client.
• Use of Entry-Level Lawyers Can Add Significant Costs to Legal Matter.  The data confirms that the use of entry-level lawyers (associates with less than 2 years’ experience since passing the bar exam) continues to decline.  Notably, the data also show that matters staffed with entry-level associates tend to cost as much as 20 percent more.

Read it at TyMetrix

Needless to say, this is interesting stuff and has gotten some attention:

The AmLaw Daily talked to TyMetrix:

“What it’s really showing is that there’s an increased premium being paid for experience and expertise,” says Julie Peck, vice president of strategy and market development at TyMetrix. “Some parts of the lawyer market are able to raise rates much more quickly, and are more impervious to economic forces than others.”

Read it at the AmLaw Daily

The Wall Street Journal talked to some General Counsel about the report’s findings:

“I’m really seeing pretty much everybody across the board, big and small [law firms], trying to raise their rates. The small ones are not as successful,” said Lewis Steverson, general counsel for Motorola Solutions… “We get more push-back from the big firms.”

and

“There are a large number of lawyers today who find themselves in the uncomfortable position of being, for lack of a better phrase, commodity service providers,” said Ken Grady, deputy general counsel at footwear company Wolverine World Wide Inc. “You don’t see a lot of big rate increases being asked for in those areas, and that’s not something they expect to get.”

Read it at the Wall Street Journal (subscription required)

China continues to be a draw for NLJ 250 firms, which added 194 lawyers to their offices there during the past year. The number of those offices grew from 124 to 132 during 2012.

China has long been viewed as the next big legal market, and the steady growth in attorneys and office openings are proof that firms are willing to make long-term investments there. But the market has yet to produce big profits, said Ward Bower, a consultant with Altman Weil.

“I don’t know of anyone making money there yet,” Bower said. “The experience in a lot of these foreign offices of U.S. firms is that it takes a lot of time and investment to make money. That’s true even in London.”

Read it at law.com

“We’ve averaged about 15 mergers and acquisitions in each of the last six quarters,” said Altman Weil principal Eric Seeger. “The pace of merger activity is holding steady at pre-recession levels.” 

Typically, there are one or two big law firm mergers announced in the first quarter of the year, as well as a spate of small acquisitions and combinations — and 2012 is no exception.   There was one large law firm merger in the quarter, while the balance of reported combinations involved either the acquisition of a firm with 20 or fewer lawyers, or the merger of two small firms. 

Read it at Altman Weil

Download a list of first quarter mergers 

In a related article, the New York Law Journal looked at why small firms give up their independence to merge with larger entities.  Altman Weil principal Bill Brennan commented in the story:

“…many small firms have entered merger talks because the recession was a shock and they are now seeking some financial security as the economy recovers.

“If a law firm liked being a standalone entity, it had absolutely no difficulty in doing so,” [Brennan] said. Over the last 18 months, the legal market “has transitioned to a buyer’s market” for clients “where there’s not enough work to go around.”

Read it at New York Law Journal

“After three years of flat to negative growth, 2011 was the year that the nation’s 250 largest law firms started getting bigger again.

Headcount among NLJ 250 firms was up a collective 2,132 lawyers…. That represented growth of 1.7 percent — in line with the average increase during the past 10 years, but well below the 4 to 5 percent growth rate of the 2005-08 go-go years….

Ward Bower, a law firm management consultant with Altman Weil Inc., said most of the firms that made the difficult choice to downsize early in the recession are now looking to grow again. “The firms that hunkered down started dusting off their strategic plan and implementing it a little earlier than others,” he said. “And I hope next year we would see the vast majority of firms in growth mode.”

As an interesting side note, ALM tells us that the NLJ 250 is becoming the NLJ350 as of April 16th when they re-release the list with firms ranking 251-350 in size.

Read it at National Law Journal

Read it at Altman Weil

Perkins Coie partner Buddy Arnheim says that clients used to pay the firm for this work, but the firm would rather focus on counseling services which represent the greatest added value.

“The new free form-generation will help automate the simpler tasks that the law firm was already trying to give to its lower-paid employees or consultants to keep costs low for startups. Now, the entrepreneurs can do it themselves, then come to Perkins Coie when they really need assistance.”

Read it at Puget Sound Business Journal