Too Many Law Firms Are Still Fighting the Last War: “2018 Report on the State of the Legal Market”

Law firms have spent much of the past decade fortifying themselves against anticipated challenges. But strategies based on how the market has behaved in the past may be leaving many firms unprepared for the rapid transformations that are sweeping the legal industry.

Press Announcement Extract

Law firms have spent much of the past decade fortifying themselves against anticipated challenges. But strategies based on how the market has behaved in the past may be leaving many firms unprepared for the rapid transformations that are sweeping the legal industry. Those are among the conclusions of the “2018 Report on the State of the Legal Market” just issued by the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute.

Flat demand for law firm services, declining profit margins, weakening collections, falling productivity, and loss of market share to alternative legal service providers and others, are gradually undermining the foundations of firm profitability. For example, the annual declines in productivity since 2007 may not have been sufficient to trigger alarm in any given year. But the average lawyer is now billing 156 fewer hours than they did eleven years ago. At current average rates*, this is costing firms an average of $74,100 in lost revenues per lawyer each year.

The report also notes that many of the levers firms used to help counteract the last recession (expense cuts, de-equitizing partner ranks, rate increases, etc.) will likely be less effective during the next economic downturn. The current economic expansion is now the third-longest since World War II, and the impact of the next downturn on the legal industry could be severe.

“We are seeing some firms manage to achieve strong growth by breaking away from traditional strategies and better aligning with client expectations and increasing investments in business development and workflow technologies,” said Mike Abbott, vice president, Client Management & Global Thought Leadership, Thomson Reuters. “But for others, many key foundations that previously contributed to their success are now eroding underneath their feet, leaving them vulnerable to new competitors, further erosion of pricing power, or economic downturns. The willingness to make transformative changes is essential for ensuring long-term success.”

The report is jointly issued annually by the Center for the Study of the Legal Profession at Georgetown Law and Thomson Reuters Legal Executive Institute, relying on data from Thomson Reuters Peer Monitor. It reviews the performance of U.S. law firms and breaks down the new market realities that drive the need for firms to take a longer-range, more strategic view of their market positions.

* Calculated at the Peer Monitor average agreed rate of $475 per hour.

Download the “2018 Report on the State of the Legal Market.”

Industry Report Extract

Five Separate Categories of Alternative Legal Service Providers (“ALSP”) include:

  • Accounting and Audit Firms that have a large amount of revenue in legal services. They tend to focus on high-volume, process-oriented work that’s complementary to accounting-audit work.
  • Captive LPOs that are wholly owned captive operations. Often located in lower-cost regions, they are focused on high-volume process work.
  • Independent LPOs, eDiscovery and Document Review Providers who perform outsourced legal work under the direction of corporate legal departments and law firms. They are typically engaged for matter- or project-based work often proactively managed and globally delivered. This category Includes eDiscovery services and document review providers.
  • Managed Legal Services Providers that contract for all or part of the function of an in-house legal team. They typically are engaged for ongoing work within scope and proactively managed.
  • Contract Lawyers, In-Sourcing, and Staffing Services who are providers of lawyers to companies on a temporary basis. Support can range from entry-level document review to highly skilled and experienced specialists.

Examples of Key Players in these Categories include:

Accounting and Audit Firms

  • Deloitte
  • EY
  • PwC
  • KPMG

Captive LPOs

  • WilmerHale
  • Clifford Chance
  • Eversheds
  • Orrick
  • Allen & Overy
  • Reed Smith

Independent LPOs, eDiscovery and Document Review Providers

  • Thomson Reuters Legal Managed Services
  • DTI
  • Mindcrest
  • QuisLex
  • Integreon
  • Consilio
  • LDiscovery

Managed Legal Services Providers

  • Thomson Reuters Legal Managed Services
  • Axiom
  • Riverview Law
  • Elevate

Contract Lawyers, In-Sourcing, and Staffing Services

  • Halebury
  • Axiom
  • Special Counsel
  • Update Legal
  • LOC

Estimated* Overall Market Revenue of Each Category of ALSP: 

  • Accounting and Audit Firms: $900 Million
  • Captive LPOs: $150 Million
  • Independent LPOs, eDiscovery and Document Review Providers: $6,200 Million
  • Managed Legal Services Providers: $250 Million
  • Contract Lawyers, In-Sourcing, and Staffing Services: $900 Million

* Source: Alternative Legal Service Providers: Understanding the Growth and Benefits of These New Legal Providers

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