Author: Richard Stock;    Lexpert    September 2002

Not since 1991 has there been such concern about low activity levels in private practice. Too many firms average only 80 % of "normal" capacity, especially when it comes to commercial practices. The indicators are more promising for litigators, labor and employment lawyers, bankruptcy/restructuring specialists, and those involved in insurance and bank recovery practices. Statistics can be as misleading as they are comforting. Simply looking at trends and averages camouflages the systemic problems affecting too many law firms in this country:

1°    Many partners have established practices and strong relationships with their clients, but their volumes are down. That means their capacity to refer work to other partners in the firm is diminishing. It also means that less work ends up on associates' desks and/or that associate numbers are constricted.



2°    The same partners who supported their firms through hard times in the early 1990's are obliged to do it again today, but they are 10 years older and cannot deliver what they do not have. Others do not have the energy for the extra mile.



3°    Law firm cost structures have not improved materially. Yes, support staff ratios are marginally better. But increased associate salaries and benefits have eroded any savings. Moreover, there has been too little innovation with law firm infrastructure and in particular with the layout (and contents) of lawyer offices, and the relationship to secretarial resources and active files. A 20% reduction in staff and space is still achievable - preferably before leases come up for renewal.



4°    The unit cost of legal services has increased by at least 5 % each year for the last 10 years. What cost $180 an hour in 1992 now costs $280, and that does not take into account the year of call increases. Institutional consumers of legal services can justify insourcing the work. There is evidence of innovation in pricing arrangements by firms to retain the workflow from such clients. The challenge for so-called "full service" firms is to make these areas of practice profitable by changing workflow protocols and the configuration of and reliance on traditional infrastructure.



5°    There are almost twice as many lawyers as there were 10 years ago. But there is not twice as much complex and sophisticated work, and some of it is shareable with very capable teams of in-house counsel.



6°    Certain sectors have been transformed. Cities have merged, and many smaller municipalities have disappeared. Companies have disappeared, sometimes to be replaced by another. Often, only one law firm supports what two firms supported previously.

For those who innovate with new services, the work seems to come. The vast majority of partners and their firms innovate in service delivery and through alternative pricing, always customized to certain clients and industry sectors. Every firm could do more to take significant costs out of its operations. Workflow protocols (intake, delegation, cycle times) are at the heart of these initiatives. The numbers and use of clerks, students, junior associates and contract lawyers is too rarely a focus of the business plan for a firm and its practice groups.

More clients than ever - especially those who are recurrent users of legal services - are formalizing and measuring how they limit costs. They determine the value they receive, based on service, results and price - the value proposition. There are five initiatives a firm can take to improve its medium-term outlook.

1°    Find a way to be involved with clients who have U.S. interests, as well as with U.S. and other international clients who have Canadian interests.



2°    Get involved with clients in a market sector that is not stable - energy, financial institutions, automotive, transportation, etc.



3°    Secure multi-year agreements for legal services with institutional clients and then offer stable prices and service guarantees.



4°    Reduce infrastructure costs by 20% in the next year. Be prepared for the disappearance of secretarial positions as we know them.



5°    Modify and stabilize the proportion of partners, associates, students and clerks by practice area to reflect the complexity mix and the amount of work that will be available. Expand the non-partner track and focus on retention of associates and support/technical staff.

Those firms that "could be busier" are usually doing too little, too late. It is not sensible to introduce a reduction/cut-back plan without a robust plan to rebuild in the aftermath. In this case, the ends do justify the means.