The 2018 Report on the State of the Legal Market was recently published by The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. The Report set forth many interesting findings – a few are highlighted below. The most intriguing, perhaps, relates to the transformation of the legal market and the question as to whether firms are ready for accelerated change.
Firms Unprepared for Transformations
The Report clearly communicates that the legal market is (and has been) undergoing a transformation. It further asserts that this transformation is occurring quickly. As stated in the Report, “The market for law firm services is being transformed – by clients, by law firms that ‘get it,’ and by alternative service providers – and that pace of change in this transformative process is accelerating.”
However, despite this rapid transformation, much of the legal industry is unprepared. According to Mike Abbott, Vice President of Client Management & Global Thought Leadership at Thomas Reuters: “We are seeing some firms manage to achieve strong growth by breaking away from traditional strategies…but for others, many key foundations that previously contributed to their success are now eroding underneath their feet, leaving them vulnerable to new competitors, further erosion of pricing power, or economic downturns.” What happens to the legal service market if many firms are ill prepared for accelerated transformation? The Report doesn’t predict, and we must wait for an answer.
Firms not Ready for Next Economic Downturn
The 2018 Report notes that many of today’s law firms had certain strategies in place during the last recession that helped them counteract the recession’s negative results. Some examples include: expense cut measures, de-equitizing partner ranks, and rate increase. But, the Report also states that these same strategies are not as popular in the current legal industry, and even if present, will likely be less effective during the next economic downturn.
James W. Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown Law and the Report’s lead author states: “Sometimes, it’s all too easy to succumb to the lure of failed strategies that may have worked in the past, to the detriment of taking bold, risky steps to deal with new challenges…[but] traditional strategies and models are increasingly unlikely to lead to future market success.”
Firm Profitability in Question
The Report points to many factors that suggest a gradual undermining in terms of firm profitability. Some of these factors include:
- A flat demand for law firm services
- Declining profit margins
- Weakening collections results
- Failing productivity
- Loss of market share to alternative legal service providers
As stated above, the 2018 Report is jointly issued annually by the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. The Report reviews the performance of U.S. law firms and analyzes how law firms are strategizing for legal market trends and expectations. Pleas click here to view a full copy of the 2018 Report.