Big Law Confronts Big Challenges

The legal industry has come to grips with a changing business landscape

A sign hangs on the New York headquarters of Dewey & LeBoeuf LLP on May 29, 2012, in New York City.
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When global law giant Dewey & LeBoeuf officially dissolved in February, nine months after filing for bankruptcy protection, some legal industry experts predicted the death of "Big Law" — the sprawling, corporate firms that employ thousands of partners and associates. Dewey, which was based in New York, once had 1,300 lawyers and annual revenues of more than $900 million, but it sunk under the weight of $245 million in debt. Dewey is believed to be the biggest law firm to fail in U.S. history.

Survivors in the world of Big Law say the industry is not facing its demise so much as a total reboot. In response to the protracted recession, the large companies that have retained Big Law's services for decades are looking to trim every cost they face, including their legal bills. That's forcing law firms to compete for new business, which in turn is causing them to rethink everything from the methods they use to bill clients, to the approach they take to staffing cases.

The goal of the refashioned legal industry is to continue to provide top-notch counsel, but with an enhanced focus on developing niche specialties and staying mindful of clients' bottom lines. "The common phrase is 'Big Law is dead.' I think that's overblown," says Don Lents, chairman of Bryan Cave in St. Louis, which has 990 lawyers in 18 U.S. offices and a presence in Asia and Europe. "The industry isn't going away. But we have to pay more attention to efficiencies and market share. It is imperative that we not be complacent about how we position ourselves for the future."

There's little debate that the Great Recession has taken a toll on the legal industry. Between 2008 and 2012, demand for legal services dropped by 0.4 percent a year — a stark contrast to the previous four-year period, when demand grew 3.7 percent annually — according to a survey of large law firms by Citi Private Bank and Hildebrandt Consulting. Annual revenue growth was just 0.8 percent in the most recent four years, vs. 9.8 percent in the four-year period prior to the recession. Citi is predicting a flat year for the legal profession in 2013.

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Large law firms are now serving clients that are no longer willing to accept outsized hourly charges for legal services, with no explanation or accountability for results. "There's pressure coming from [clients] on how they're managing their budgets," says Chris Petrini-Poli, CEO of HBR Consulting in Chicago. "That forces big law firms to undergo the same process — really analyzing what they're spending and why."

In response to cost pressures from clients, many big law firms are moving away from billing by the hour and embracing alternative fee structures that allow them to set budgets up front. Richard Hays, managing partner of Alston & Bird in Atlanta and New York, says his firm of more than 850 lawyers has implemented project management protocols, which include holding discussions with clients about legal expenses before each job starts, and then constantly monitoring costs along the way. "We are redoubling our efforts to be efficient, with more budgeting that brings predictability to cost," Hays says.

In fact, law firms are learning to act more like the businesses they serve. To hold down costs, firms are staffing legal jobs more conservatively, by assembling teams that include a mix of seasoned lawyers and inexperienced — and hence lower-priced — young associates. Some firms are handing off rote legal tasks, such as straightforward paperwork, to inexpensive contract lawyers. Petrini-Poli says some firms have built offices in affordable locales, such as Dayton, Ohio, and staffed them up with young attorneys, who are paid five-figure salaries to handle uncomplicated legal work.

When it comes to providing specialized legal services, some firms are finding innovative ways to set themselves apart. Philadelphia-based Morgan, Lewis & Bockius, with more than 1,300 lawyers in 24 U.S. offices, has built up a practice group it calls eData, which is charged with helping clients sort through electronic documents that may come into play during cases, such as emails. "Clients became focused on how they could get that done cost-effectively, so we invested in technology that would allow us to get better at it," says Francis Milone, a partner and chair of the firm. Morgan Lewis hired a combination of lawyers, paralegals, and tech experts who are trained to manage searches of gigantic databases, and then pluck out the documents that are most relevant to a case. The firm has become so facile at that task that sometimes its eData group is hired by other law firms just to handle electronic documents for cases, Milone says.