Legal Industrial Complex Still Struggling with Rising Costs

Parsley Sage Rosemary & Ginsburg llp

“always a reasonable result for a reasonable fee, always”

MEMORANDUM

To:	Management Committee
From:	Mike Marget
Date:	September 25, 2012
Re:	Legal Industrial Complex Still Struggling with Rising Costs

Two big financial institutions, who bank many of the largest US law firms, recently released surveys concerning the financial condition of the Legal Industrial Complex.[i]  While these surveys attract less attention than pronouncements from the Federal Reserve, The American Lawyer magazine makes a big deal out of them, as do most big firm managing partners.

The elite law firm lending units at Wells Fargo and Citi Private Bank surveyed 115 and 176 law firms, respectively.[ii]   Since some firms participate in both surveys, it is not surprising that both banks reached the same conclusion about big firm financial results for the fist six months of 2012:

·         Revenues up
·         Expenses up more than revenues
·         Profits down.

The magazine’s takeaway:  After 4+ years of lawyer headcount reduction, staff layoffs and overhead cost reductions, managers at the Legal Industrial Complex firms are running out of ideas for aligning slow revenue increases with faster escalating expenses.

What’s a law firm manager to do?  Plenty actually, but it will require some out-of-the-box thinking and nimble execution.  I’m indebted to Hal M. Stewart (who I’ve never met), the COO at the mega-firm Chadbourne & Parke LLC, for suggesting a list of technology-centric initiatives in an articlepublished last December.  I’ve tweaked Stewart’s list a bit to emphasize operating efficiency and lawyer productivity improvement opportunities.  Most of these initiatives will improve the bottom line for small and midsize firms, too.

		applicable to smaller firms, too?
1.	Back office functions:  outsource or relocate them to lower-cost locations.  (Selective big firms are doing this and the trend is sure to continue.)	√ Absolutely, especially outsourcing
2.	Digitize all incoming mail/Document Management Systems:  improvements in scanning technology and integration with document management systems bring efficiencies to mail distribution and storage-and-retrieval of correspondence; enhanced use of client-matter databases to keep track of all relevant documents, emails, voicemails, PDFs and filings.	√ Absolutely,  document management is a big deal
3.	Reduce office rent – “hoteling” and other efforts to reduce office space	Probably Not
4.	Workflow automation to streamline client billing process: faster processing of client charges; electronic distribution of pre-bills; email invoice delivery (no mailing of paper invoices); faster processing equals faster collection cycle	√ Absolutely, available through outsourcing
5.	Actionable financial data:  faster, more informative financial reports; client budgeting, especially for fixed fee and contingency matters to gauge profitability	√ Absolutely
6.	Unified messaging for email/voicemail and lower telecommunications costs:  VOIP (voice-over-Internet protocol) telephone systems; ability to forward voicemail messages and save them (long-term) for retrieval via case-matter database	√ Can be accomplished inexpensively
7.	Social media to recruit associates:  Facebook as a recruiting communications tool.	Probably makes sense
8.	Precedent retrieval/Document assembly: utilize document management systems to store prior work product for prompt retrieval to avoid duplicating prior research or drafting; and utilize form documents integrated with specific case management databases to draft recurring forms (e.g., pleadings; interrogatories; motions).	√ Absolutely, available through  managed  IT services

Let’s be real.  There is still a lot of work to be done to realize the potential of law firm workplace technology – both in big firms and small/midsize firms. 

Value billing, alternative fee arrangements, contingency fee windfalls and busts aside – at the end of the day there are only 24 hours for lawyers to do what they do – represent current clients, prospect for future clients, and all the other things.  Lawyers (and administrators) need more time for all three. 

Full Disclosure Note:  4L Law Firm Services manages – for small and midsize law firms – all those things given the √ Absolutely references.

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[i] “Legal Industrial Complex” is a term applied to the 200 largest US firms identified each year by name in The American Lawyer magazine as having the highest gross revenue.  The published numbers there are mostly about bragging rights – to impress corporate clients and potential lateral candidates (i.e., the richest clients use the richest lawyers).  Although the magazine claims to do extensive due diligence on the numbers, the “real numbers” sometimes get massaged multiple times by managing partners, management committees and image consultants before being given up for publication.  The Wells Fargo and Citi Private Bank surveys, as well as a private one conducted by PricewaterhouseCoopers, provide comprehensive, reliable financial data, useful for peer group comparison purposes because the data for each participating firm is kept confidential. 

[ii] What, you might ask, do these 2 banks get for all the time, expense and trouble of compiling these surveys 4-times a year?  They get a “sit down” with the managing partner of each participating law firm; an excellent time to solidify relationships with their law firm customers and to market themselves to firms who bank elsewhere.