Another Day, Another Dose Of Bad News For Biglaw

But the economy is bouncing back, doesn't that bring with it any good news for Biglaw? Not so much....

Law firms pride themselves on their staidness. Lawyers get paid to manage risk, so it makes sense when you think about it. But this conservative approach caught the biggest firms a bit flat-footed when the market changed drastically. Demand plummeted and leaner competitors — smaller firms and LPOs — started snagging a larger and larger share of the pie. As they say in Biglaw circles, Growth Is Dead (affiliate link).

But the economy is bouncing back, doesn’t that bring with it any good news for Biglaw? Not so much….

Altman Weil recently completed its 2014 Chief Legal Officer Survey, gathering the straight dope from the nation’s top in-house counsel. The results were not pretty.

Of the 186 CLO’s to respond to Altman Weil’s survey, 40 percent of them had shifted work during the past year away from outside counsel in favor of keeping the matters in-house. Meanwhile, more than a quarter of responding law departments said they would decrease their use of outside counsel in 2015, compared to only 14 percent that are planning an increase.

“This continues a seven-year survey trend in which decreases in the use of outside counsel have been reported at about twice the rate of increases,” the report states.

Apparently in 2009, only 13 percent of in-house counsel planned an increase. So this study is good news if you define success very, very, very loosely.

Couple this with the long-standing trend of general counsel moving what outside work they do have toward smaller firms, and this study is an even more bitter pill for Biglaw.

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And the hits keep on coming. The work going to outside counsel is increasingly handled at a discount. As Ron Friedmann notes, the firms are doing this to themselves:

Other data from this week show the supply side – that is, lawyer headcount at Big Law – continues to grow. The TRI Peer Monitor Index Report for Q3 (pdf) notes that

“since Q3 2013, headcount growth has been steadily rising, reaching its highest level since Q4 2012. Firms continue to add headcount ahead of demand. In fact, in recent quarters, headcount growth has more than cancelled out growth in demand, dampening productivity and profitability.”

We have Economics 101 here: buyers (CLOs) shift their dollars to in-house work and alternatives while suppliers (law firms) increase capacity. No wonder Altman Weil found discounting law firm rates rampant.

But if you’re a lawyer looking to move in-house (or a contract attorney desperately seeking work), you’re in luck:

In order to accommodate the extra work staying inside their doors, in-house legal departments are planning to increase their labor force in the next 12 months. The survey found that 42.6 percent of respondents intend to hire more in-house lawyers, while nearly 15 percent want to hire more contract attorneys. Additionally, 31.6 percent of respondents are planning to hire more paralegals and 21.4 percent wish to add more support staffers.

Damn. Maybe I should write a new book about in-house departments. We can call it, “Growth Is Alive And Well!”

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Study of chief legal officers finds more bad news for law firms [ABA Journal]
Big Law – Still a Buyer’s Market [Prism Legal]

Earlier: General Counsel Increasingly Dumping The Top Biglaw Firms