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Survey: Most Law Firms Losing Business to Corporate Legal Departments

May 12, 2015, 8:28 PM

While the overall economic picture for most major law firms has improved in 2015, lawyers still aren’t out of the woods. Many firms continue to grapple with under-productive lawyers, lack of strategic focus and corporate law departments doing more work in-house, according to a new report.

Legal consultancy Altman Weil released its seventh annual “Law Firms in Transition” survey on Tuesday, which drew responses from chairs and managing partners of 320 U.S. law firms with 50 or more lawyers, including nearly half of the AmLaw 200.

The survey, conducted in March and April, aims to gauge the health of the legal industry by looking at factors including market demand, competition levels, pricing and alternative fee arrangements and law firm economic performance.

Of the findings, Tom Clay, an Altman Weil consultant, said: “It’s a buyer’s market, there are new kinds of competitors, smart technology is taking off, and law firms have to reinvent themselves in a leaner, more agile and responsive model.”

Still, the report found that law firms generally have fared well, as the overall economy improves. In April, the legal sector added 2,300 jobs, the highest level of employment since August 2014, according to the U.S. Bureau of Labor.

The Altman Weil report found that 32 percent of the law firms it surveyed said that market demand had already returned to pre-recession levels, and another 41 percent of firm leaders expect that demand will return in the next few years.

Despite those positive signs, a quarter of law firms surveyed still faced headwinds, Altman Weil said, adding that about a third of the firms with 250 lawyers or more “do not expect demand to come back in the foreseeable future.”

Law firms, especially larger ones, remain plagued by the so-called “overcapacity” issue, loosely defined as when there are too many lawyers at a firm and not enough business.

“In firms with 250 or more lawyers, the number of partners who don’t have enough work jumps even higher,” the report said. Out of all law firms, 61 percent said overcapacity is a significant drag on firm profitability.

Meanwhile, law firms are still seeing non-traditional competitors take business away from them, and it’s not just the outsourcing vendors and Axioms of the world: Sixty-seven percent of responding law firms said that they are losing business to corporate law departments that are in-sourcing legal work.

Lastly, the report found that less than half of the firms surveyed were changing their strategy for lawyer staffing, efficiency of legal service delivery or pricing – things that Altman Weil said would result in “improved economic performance.”

When asked why they weren’t changing their models, Altman Weil reported that 63 percent of law firm leaders said: “Clients aren’t asking for it.”

To read the full Altman Weil report, click here.