5 Keys To Success For Law Firms In 2010

By Shannon Henson

Law360, New York (January 01, 2010) -- The struggles associated with the recession may almost be over, but legal consultants said law firms need to be smart in 2010 to position themselves for the future and stay competitive — focusing not just on cost-cutting and alternative fees but on client development, too.

The legal industry historically plays catch-up to the economy, so the impact of the turnaround has yet to be felt at many firms, consultants said. While law firms may not have to take the drastic steps they did in 2009, when many instituted widespread staffing cuts, firm leaders should be keeping an eye on the bottom line in 2010, at least for the first half of the year, consultants said.

“While I think 2010 will be a continuation of the same, the kind of bloodletting with respect to letting people go, the worst of that is over” unless the economy dramatically dips again, said Frank Michael D'Amore, founder of Attorney Career Catalysts LLC. “I think people will still be very, very cautious in 2010.”

But while they are tightening the belt, law firm leaders also should be taking steps to seize opportunities in 2010. Here are five things consultants said law firms should do to help ensure a healthy and prosperous year:

1. Improve Client Communication

Michael B. Rynowecer, president of BTI Consulting Inc., said lawyers should visit their clients for strategic planning sessions that focus on risks, strategies and the outcomes the client expects.

“Have a no-holds-barred conversation [where] everything is on the table,” Rynowecer advised lawyers. "That can be an extraordinary relationship builder and business development tool.”

If law firms have associates with extra time on their hands, they should loan those young attorneys out to shorthanded clients, he also suggested.

“They can learn the client's business, and help me, as a partner, get as client-specific as I can,” Rynowecer said.

Toni Whittier of Whittier Legal Consulting said corporate counsel have long wanted law firms to better understand the nuts and bolts of their businesses. The recession, she said, has given some law firms the nudge to do just that.

“The firms that have done so should continue those practices as the recession lifts because it has been a long-standing concern of clients,” Whittier said.

2. Re-Evaluate Alternative Fees

Consultants said the drumbeat of 2010 will be: fees, fees and fees. Those occupying general counsel offices will continue to demand lower fees, and law firms should focus their efforts on trying to figure out how best to deal with that pressure and come out ahead, consultants said.

A fair number of firms have moved to alternative billing for at least a percentage of their services, Whittier said. She believes that 2010 will be the litmus test for alternative billing as firms decide whether it should be maintained, adjusted or eliminated.

“I think in some instances it's going to be hard to go back on alternative fee arrangements that were offered and are now out there,” Whittier said. “In many instances, it's a question of adjustment.”

Rynowecer recommended that law firms ask their clients whether they have had success with alternative fees or are interested in exploring such arrangements.

“Ask them whether it's something they'd even like to do,” he said.

Jerry Kowalski, founder of legal industry consultancy Kowalski & Associates, said one of the creative billing approaches that should be explored increasingly in 2010 is a refined version of convergence. The idea became popular a few years ago, when corporations winnowed down the number of law firms they hired until just a handful of firms remained on speed dial.

More and more companies have started hiring just one law firm to handle all their legal matters worldwide for a flat fee, he said. If local counsel is required for a matter, that firm is tasked with recruiting the required counsel and paying them out of the flat fee.

The system works well for businesses, which know how much they are going to pay, and for law firms, which have a predictable cash stream, Kowalski said.

“The firms know how much money they are going to get in on a monthly basis, and there is some advantage to that,” he said. “And if law firms want to employ younger lawyers for a task so they can gain experience, it's on the law firm's nickel.”

3. Internally Investigate Fee Structures

Rynowecer recommended that law firms form a task force to identify how much it costs to handle lawsuits. The task force members should look at 15 or 20 litigations, identify the key costs, and plug the costs into a database.

“Partners could use it to evaluate fixed price scenarios as opposed to citing a figure intuitively,” Rynowecer said. “There's nothing like the facts to help when dealing with large sums of money.”

He said partners have been informally offering clients alternative fee structures, resulting in a patchwork of programs. Rynowecer believes firms should offer a uniform approach.

4. Add Value For Top Clients

Law firms should be focusing their attention on their existing clients and what they can do to add value to each client, Rynowecer said.

A firm could conduct a detailed analysis of the last 10 cases, transactions or licensing agreements of a client and come up with “specific and pointed” recommendations of how to improve and reduce risks, he said.

“If every firm did that for their top 10 clients or if every partner did that for his top client, they would be surprised at the reception and amount of business it would generate,” Rynowecer said.

To that end, Blane Prescott, a senior vice president with Hildebrandt International, said law firms may look back on 2010 as the year they changed their mindset about how partners should interact with clients. Firms have long given partners carte blanche with client development, but that should change, he said.

“Lots of partners have some terrific clients, but haven't concentrated adequately on getting the best work of their client,” Prescott said.

“Law firms didn't go to a partner and say, 'I want you to give up the crummy clients you developed and focus on our biggest and best,' because firms tend to be autonomous places,” he said. “They missed opportunities with their best clients to get more work from them. We're going to see law firms start to manage and direct the efforts of lawyers much more than they have in the past because they missed opportunities.”

5. Be Creative With Cost-Cutting

Many firms have budgeted for a slight increase in hourly rates in 2010, but general counsel want to pay the rates they were charged in 2008. So although the economy is on the upswing, law firms still should spend time tightening belts in 2010, consultants said.

“To offset that, expenses have to be reduced, and there will likely be a further reduction of personnel,” Kowalski said.

Firms should also continue to defer associates, scale back summer programs and try to rein in their real estate costs in 2010, consultants said.

“In the longer term, I would look for firms to try to decrease the size of their footprints,” D'Amore said. “I think there will be more situations where younger lawyers start sharing offices, and firms will become more comfortable with telecommuting.”

Any efficiencies that law firms have put in place during the last year should stay in place in 2010, Whittier said. “Staffing issues have bothered clients for years, and it may be a good idea to retain any positive changes the recession has sparked.”