Corporate & Securities Law

Legal Recovery Watch: the Real Unknown

By John Wallbillich

There are glimmers of hope in the legal industry. And perhaps just a scintilla of wishful thinking.

The WSJ Law Blog story cites a new report from the Citi Private Bank Firm Group. It is their 4Q09 “Managing Partner Confidence Index,” and it shows an uptick in that metric, the strongest move in over 2 years.

The WSJ rightly expresses some skepticism as to whether things are really turning around, noting macroecomic factors, and concludes thusly:

One big looming unknown for managing partners, according to the report, is whether a step-up in demand will lead to a corresponding step-up in revenue. The reason why one might not perfectly track the other, reads the report: ?The difference is probably due to continued discounting pressure from clients. For many law firms, the road to recovery looks to be a long one.?

Understanding this point requires a closer look at the report, specifically the Demand indicator (bottom of page 1) of the overall index. It is up, with the explanation that:

“Nearly two in three respondents (64%) expect demand to grow over the next 12 months; 23% think it will stay flat.”

While the managing partners, profit hawks that they are, understandably focus on (hope for?) an end to discounting, I think this view of demand is the key. Two-thirds of managing partners surveyed buy into the assumption that a rebound in the economy will result in a commensurate rebound in a demand for legal services.

I think that this assumption is partially true, but misses the work going on in aggressive legal departments to attack demand (i.e. the ongoing need for legal services), who satisfies that reduced demand, as well as the pricing thereof. This requires a deep dive, a real microeconomic view of corporate legal services.

Over the last 12-18 month the focus has been doing the same things cheaper. That’s called a good start.

The next frontier for legal pioneers involves long-term savings. It may be called doing some things less, others not at all.

I don’t know how you factor this into a “Managing Partner Confidence Index,” but something tells me it’s not an easy fit.

(Update: The Legal Intelligencer has a look at this report as well).

Full post as published by The Wired GC on January 22, 2010 (boomark / email).