Clients say that law firms are not doing enough to respond to the economic downturn. Law firms, meanwhile, say that clients are too focused on costs. These are two of the main findings of a recent study, commissioned by LexisNexis, on the state of the American legal industry.
Pricing emerges as the top issue, according to 71 per cent of the 150 in-house lawyers surveyed, and to 60 per cent of the 300 practitioners in private practice. Taking various findings together, American lawyers seem to agree that, in due course, hourly billing will be largely displaced by alternative billing structures — but not in 2010 and never entirely. Clients are keener on this shift than law firms.
My own research suggests that an analogous survey in the City of London would yield similar results. Here, many general counsel say that they are under pressure from their boards to cut legal budgets severely from between 20 to 40 per cent. Naturally, they are turning to their law firms to ask them to rethink their hourly rates and charging models.
In turn, firms have been proposing volume discounts, blended rates, fixed fees, various forms of value billing — and more. However, cynics say that when most firms present alternatives to hourly billing, the underlying modelling is still based on time spent. And, because they are not inclined to bid in a way that will reduce profitability, the proposals contain charging models that may seem more palatable but do not substantially reduce the final bill.
In the end, the key issue is whether charging differently will yield the savings that clients require or whether firms and clients need to start working differently. Intense recent interest in legal process outsourcing, in leasing lawyers and in sub-contracting to lower-cost jurisdictions, suggests that some clients are encouraging radical new ways of working.
The business case is clear. If routine and repetitive work can be undertaken in India at one tenth of the cost, this will bring savings far in excess of, say, volume discounts from firms that work in the traditional manner.
Given these changes in billing and working practices, opinion in the US, according to the survey (www.lexisnexis.com), is evenly split on the future of the legal industry — about half the clients and law firms believe that the recession will change permanently the way that legal business is undertaken.
Whether the profession is enduring a temporary blip or a longer-term upheaval is also a matter of discussion. Some City firms are embracing the hunker-down strategy of cutting costs, winning as much work as possible, keeping morale up and hanging on in there until the economy recovers when, it is assumed, pre-recession working and billing practices will resume.
Other firms believe that highvolume, low-margin legal work is being irreversibly changed but that, for their high-end work, clients will be happy in more buoyant times to revert to conventional ways.
A growing group of senior lawyers and clients is less sanguine. They believe that these troubled times are exposing many unjustifiably inefficient practices. They realise that new ways of working are emerging; that the costs of routine and repetitive legal work can be cut dramatically; that boards and chief executives are now aware that lawyering can be conducted differently; and that irreversible change is likely to extend to some parts of high end work, such as document review and due diligence.
This view holds that there will be no return when the economic storm passes. Even if the economy bounces back, clients will not want to go back to the old tariff.
What do these possible changes mean for the next generation of lawyers? According to the survey, 65 per cent of law students (100 were questioned) say that law schools do not teach the business skills needed to practise law in today’s economy. Ninety per cent of practising lawyers agree.
There is clearly a debate to be had about the extent to which law schools should teach about the practice of law alongside the substantive law. But the survey’s indictment of law schools, even if justified, obscures a bigger point — no one has much clue what we are training tomorrow’s lawyers to become.
A decade from now it is likely that lawyers will be undertaking at least some jobs that do not yet exist, using a range of technologies that have yet to be invented. Worryingly, it is far from clear who in the City is taking the time to think systematically about the long-term future of legal jobs and legal service.
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