BTI Consulting recently analyzed over 300 law firms to identify the key characteristics shared by the most profitable law firms, observing that while “rates can help…the outsized profits come from behaviors, strategies, and culture.”

On the client side, these behaviors include concentrating the firm’s focus in certain practice areas or industries, targeting clients that tend to have a continuous stream of work, and proactively engaging with and discussing the clients’ business, even before active matters arise.

BTI also found that the most profitable firms encourage socialization among partners, in order to create a collegial environment that encourages cross-selling and collaboration for increased business development.  They conclude that “the more you can push the behaviors and strategy into the culture–the better your profits.”

See the other habits and read more here.

Seeming to defy the laws of supply and demand, hourly billing rates at national corporate law firms have increased 3 to 4 percent per year since the recession, according to Citi Private Bank’s Law Firm Group (The Wall Street Journal).  In fact, they report, these rates have continued to rise in spite of weak demand and low inflation.

A recent study of bankruptcy cases revealed that “senior partners routinely charge between $1,200 and $1,300 an hour, with top rates at several large law firms exceeding $1,400” (The Wall Street Journal).  Legal consultant Bruce MacEwen observes that “you have a very few people at the very top where price is almost no object,” allowing for the best-of-the-best lawyers to charge an astounding $1,800-plus hourly rate (as quoted in The Wall Street Journal).

While demand for legal services has only risen 0.5% in the past year, revenue has risen by 4%, according to Wells Fargo Private Bank’s Legal Speciality Group.  Heightened rates help to increase this revenue, and are consistently raised to soften the blow of client-demanded discounts, an increasingly common practice.  By implementing an annual rate increase, says an Altman Weil legal consultant, law firms are able to offset clients’ requests for discounts (The Wall Street Journal).  

John Altorelli, finance lawyer at DLA Piper, laments that “we just raise them every year,” referring to the hourly rate system as “anachronistic” (as quoted in The Wall Street Journal).  However, many firms contend that raising rates are a way to “guarantee salaries or ensure a partner’s pay doesn’t fall, even in the down years,” allowing them to attract and keep the top talent (The Wall Street Journal).

Still, argues legal consultant Bruce MacEwen,”if clients are pushing back on rates, the answer isn’t to raise them, and then ask for a discount…the answer is to provide a better total value” (WSJ).

Read more and see the top law firm billers at the Wall Street Journal.

The world’s largest law firms are still feeling the heat from their stagnated approaches, as discussed in last week’s post.  A report released by CounselLink concluded that firms with 201 to 500 attorneys–termed “large enough” firms–are “increasingly winning the market share at the expense of the largest U.S. law firms.”

CounselLink Strategic Consulting Director Kris Satkunas suggests that the success of these ‘large enough’ firms is generally due to lower billing rates (for similar levels of service) and the increased willingness to engage in AFAs, the ‘Alternative Fee Arrangements’ widely preferred by clients today.  She reports that as a result, corporate clients are “finding the same value from this size law firm for less or at least more predictable costs–and that is driving the migration of legal work into this segment of the law firm market.”

This trend is exemplified in the recent layoffs by megafirm Reed Smith, a 1750+ attorney firm who laid off 45 lawyers and a “comparable” number of administrative staff in January 2016, according to their press statement.  Sandy Thomas, the global managing partner at Reed Smith who gave the statement, blamed the layoffs on the “fundamental shift in the nature of the demand for, and the delivery of, legal services in recent years.”

Another ‘big law’ firm, global giant Dentons, (now, with a 6,600 employee headcount, the largest law firm in the world), has been the subject of skepticism for its continued ‘bigger is better’ growth philosophy.  Jordan Furlong of global law firm consultancy Law21 argues that since there are already many multinational firms, “having dozens of offices and thousands of lawyers isn’t enough to set you apart, and I’m not sure if 80 offices and 8,000 lawyers will do it either” (as quoted in The American Lawyer).

Time will tell if “bigger really is better” for today’s law firms, but for now, all signs seem to point to an ideal amalgamation of factors for middle market firms to flourish.

Big law firms have always been pathologically conservative in updating their policies, but has this mentality begun to affect their overall profitability?  The American Lawyer recently released an article investigating whether large firms’ aging partners, who often control a majority of the client base, habitually put their self-interests above the firm’s longevity—to the point that the partners’ “short-term gains could become the institution’s long-run catastrophe.”

The New York Times released a statistic in their Dealbook stating that nearly half (46 percent) of all managing partners are between 60 and 70 years old, with only 3 percent under age 50.  And, according to The American Lawyer, these partners are hoarding their clients with an “eat what they kill” mentality–which, AmLaw argues, makes the eventual succession of new partners that much more difficult.

Interestingly enough, this problem does not go unnoticed at the big law firms.  A 2011 survey by Altman Weil found that 47 percent of firm leaders identified the “retirement and succession of baby boom lawyers in their firms” as their greatest concern.  Yet, in Altman Weil’s 2013 survey, “only 27 percent of managing partners reported that they had a formal succession planning process.”

The American Lawyer concludes that aging partners should work to “encourage long-term institutional stability,” through prioritizing client service, encouraging partner cooperation, helping partners prepare for their “second acts,” and encouraging them to sacrifice some self-interest for the long-term betterment of the firm.

However, while Big Law partners should certainly concerned be about the futures of both their firms and themselves, many big law firms are already feeling the heat from their stagnated approach.  In 2013, a study of over $10 billion in client fee invoices by LexisNexis/Counsel Link found that mid-sized firms (termed “large enough” firms, of 201-500 lawyers) are quickly grabbing the market share from biggest firms (those with 750+ attorneys).  In fact, the study found, while big law firms saw a drop in their market share from 2010 to 2013, ‘large enough’ firms successfully grew theirs from 18 to 22 percent.

So, while the biggest firms continue to turn a blind eye to future strategy, it’s safe to conclude that their mid-sized competitors are eagerly seizing the opportunity to thrive.