This is our 29th annual report on what’s going on in the legal profession. As in all the previous reports, it is based on information my colleagues and I continually gather from many sources – law firms, legal networks, other providers of legal services, legal departments, surveys, and the legal, general, and business press.
It is also the eighth report published the first full year after a presidential election and the fifth in which the election resulted in a change of party and, therefore, a change of administration. These changes always have some impact on the legal profession, mainly in practice areas. In our last annual report, we anticipated the Trump administration would have a greater impact on the profession than any of the last three changes of administration, and that is proving to be the case.
As always, this is not an attempt to report on every development, many of which are obvious and generally recognized, but only on those that, in our opinion, have or will have an impact on the profession. The resulting picture is a montage of a legal profession that will continue to change, not just in 2018, but for years to come.
This report presents the big picture; the local picture will vary by individual firm depending on its size, client base, nature of practice, and geographic focus. For a local perspective, see the following article, “What’s Hot, What’s Not: Wisconsin Practice Trends 2018.”
Red Hot Practice Areas
Four years ago we first reported that a few firms were restructuring their practices into industry groups containing multiple practice areas. This trend has continued.
Health Care. Health care and almost every practice area involved are red hot, no matter what has happened or will happen to the Affordable Care Act (ACA).
Immigration. Regardless of what policies the Trump administration pursues, immigration will continue to be red hot.
Cybersecurity. This is the number one issue for both in-house counsel and consumers. Many in-house counsel are seriously considering outside firms’ cybersecurity practices when making hiring decisions. As cyber attacks and theft rise around the world and law firms remain prime targets, cybersecurity will continue to be a red hot practice area.
Hot Practice Areas
Financial Services. The economy will continue to strengthen. This will fuel almost every area of financial services, including initial public offerings (IPOs) and mergers and acquisitions.
Food and Beverage. Labeling, ingredient, and testing requirements will continue to increase. Legal matters regarding restaurants also are on the rise.
Bitcoin. As bitcoin and other digital currencies gain public and investor interest, some lawyers have developed the expertise to represent clients in the cryptocurrency industry. Other lawyers might have clients who wish to pay legal bills using bitcoin.
Elder Law. As we have been reporting, elder law is hot not just due to the aging population but also due to increased emphasis on health care directives.
Sports. This is hot particularly for sports-related contracts, such as for teams, players, management staff, venue, television, and so on.
Real Estate and Construction. This is hot for both residential and commercial properties in most areas of the country.
Firm Management and Business Development Issues in 2018
What are trends in firm management and business development practices? Jump to the sidebar below.
E-sports and Gaming. E-sports, the competitive playing of video games, is taking e-gaming to a whole new level. Legal work will involve negotiating team agreements, player agreements, media deals, licensing agreements, sponsorships, venue agreements, and more.
Cool Practice Areas
Commercial Litigation. The number of cases, and therefore the profitability, in most large and mid-size firms continues to decrease although there are exceptions. However, as we reported in our midyear update, there are reports that litigation funding is regaining strength.
Labor and Employment. Separate from immigration, this is a cooling practice area. [Editor’s Note: However, as reported in “What’s Hot, What’s Not: Wisconsin Practice Trends 2018,” recent events such as the #MeToo movement against sexual harassment will make this practice area heat up.]
No Reading Yet
Environmental. California, New York, Oregon, and Washington are increasing their regulatory activity, so this practice area is gaining some traction in those states. Elsewhere, we have no reading yet.
Tax. A few weeks after this report came out in early December 2017, the House and Senate passed the tax reform bill (the Tax Cut and Jobs Act of 2017). As a result, expect more activity in this practice area.
Hot Geographic Markets
Dallas. One of the most notable signs was the international law firm Winston & Strawn’s opening here in February 2017 with a group of partners from eight major law firms. Dallas is one of the nation’s fastest-growing financial and business centers.
Louisville. The health care industry has been traditionally strong here, but a convergence of recent events make this a hot geographic market. A significant public investment in the city, and a lot of people moving back into it, is attracting small and mid-size businesses and increasing the demand for legal services, which in turn is attracting firms to the area – but not the large national firms. And, enrollment at both large universities – Kentucky and Louisville – has resulted in an increased number of law school graduates.
Other Trends and Issues
Alternative Legal Services Providers (ALSPs) continue to increase in number as well as in the breadth of services they offer. However, note that there are still a substantial number of smaller in-house legal departments that need specialized services or expertise but do not yet use ALSPs. A recent survey, conducted by Thomson Reuters Legal Executive Institute and others, defined ALSPs as those entities that “present an alternative to the traditional idea of hiring an attorney at a law firm to assist in every aspect of a legal matter.” ALSPs deliver services, for example, by using contract lawyers, process mapping, or web-based technology.
Pressure on General Counsels. General counsels are experiencing more pressure to not only control costs but also provide business advice as part of a company’s or organization’s management team. Even the largest in-house legal departments continue to face pressure to reduce costs. In-house client teams continue to increase in both number and size in larger client companies.
Corporate Legal Operations Consortium. This group is comprised of people within corporate law departments who develop and keep the metrics on cases won and lost, fees billed, and even diversity, to provide information to general counsel so they can determine who they want to assign to a specific case or deal.
Law Firm Networks. As more of these are formed, they offer clients an alternative to efficient and targeted legal services without clients having to research large firms. A law firm network is a membership organization consisting of independent law firms that want to expand the resources available to each member for providing services to their clients. The network members may be formally or informally linked to one another depending on the purpose of the network.
Nonlegal Subsidiaries. Fifteen years ago, several hundred firms owned and managed nonlegal subsidiaries in a variety of industries. Estimates are that many of these have continued. If properly integrated into the structure of the firm and well-managed, they can enable firms to counter revenue and profit challenges as well as provide expanded service to clients.
Multidisciplinary Practices (MDPs). Some of the larger firms have gone beyond the subsidiary structure and have hired nonlawyers, for example consultants and other professionals, and integrated them into the practice- or industry-group structure as part of teams to serve their clients.
Fee Sharing with Nonlawyers. The District of Columbia is the only U.S. jurisdiction to allow fee sharing with nonlawyers. Otherwise, fee-sharing rules are not federally mandated but are set state-by-state. For the last four years we have reported on the small but growing momentum to change these rules and allow nonlawyer ownership of U.S. law firms. Now, with PricewaterhouseCoopers’ forming a separate entity called ILC Legal, the Big 4 accounting firms will be perfectly positioned to take advantage of new rules and pose a big threat to the law firm business.
Less Need for Lawyers. Simultaneous with the gradual trend toward fee-sharing with nonlawyers is the continued growth of technology-powered services. While lawyers are needed at various stages to help build these services, there is increasingly less need for lawyers in many areas to deliver them.
Legal Incubators. A small but steady increase in the number of these programs continues to provide recent law school graduates with the training and infrastructure they need to launch solo practices.
Blockchain. This is the technology behind bitcoin, a digital currency that is created and held electronically. Blockchain is a shared digital ledger in which items or transactions are added at the end of the chain, and encryption ensures that it remains unbroken, tamper-proof, and error-free. Blockchain is being tested in other uses, not just in relation to bitcoin. This is part of the movement in certain states, such as Arizona and Nevada, to enact legislation or issue guidance regarding new technologies and digital currencies. As it becomes more widely used, this industry should expect more regulatory efforts.
What we have reported here are some examples – but by no means all – of the developments that are affecting and changing the legal profession.
This report, like all previous reports, could not have been developed without the contributions of my colleagues. I am most appreciative of their input. Each of us maintains our commitment to the legal profession but with concern on whether it will continue to adapt to change as it has always done in the past, albeit often slowly.
Firm Management and Business Development Issues in 2018
In addition to issues affecting legal practice areas, here are trends in firm management and business development practices.
Issues Affecting Business Development
Website Design and Development. The U.S. Department of Justice is expected to start enforcing web content-accessibility guidelines early in 2018. Unless they also comply, law firms are not immune to suit as well as to a loss of reputation and declining SEO performance on their websites, according to Content Pilot CEO and Strategy Architect Deborah McMurray.
Artificial Intelligence (AI). This was the focus of the 2017 College of Law Practice Management Futures Conference. AI is just beginning to be used in marketing, as well as in providing legal services. Its impact continues to grow on planning and business decisions and on the practice of law.
Sales Professionals. The most aggressive personal injury firms are supplementing their advertising and promotion programs by hiring sales professionals. Other than personal injury firms, some firms are hiring nonlawyers to uncover and develop new business leads. It took literally several decades for the accounting profession to achieve worthwhile results from this strategy. Even with all the hue and cry for more change in the legal profession, we believe it still will not succeed here.
Formal Sales Training. This has been productive in some firms where it is supported and funded by firm management.
Stagnant Demand for Legal Services. This will continue. A Thomson Reuters survey discusses continuing aftershocks, 10 years after the “Great Recession” began, throughout the law firm market, which has shifted dramatically into a buyer’s market. Changing client demand and new competitors have resulted in a steady erosion of demand, rates, productivity, collection realization, and profitability.
Service Delivery. Other service delivery approaches involving technology, process improvement, and knowledge management continue to be developed.
Issues Affecting Law Firm Management
Mergers. This year saw another record number of mergers. This was due, in part, to some cross-border mergers. However, in most cases, larger firms continue to acquire small firms and smaller mid-size firms. For the acquiring firm, the objective is usually to increase revenues and profits. For the acquired firm, the objective is usually to survive – in some form.
Number of Lawyers. The total number of lawyers in U.S. firms remains flat. However, some mid-size firms, such as Kansas City, Mo.-based Spencer Fane, have steadily grown due to cautious first-year hiring and selective lateral entries.
First-year Hiring. Hiring of first-year associates will increase, according to professional staffing organization Robert Half, in what it describes as “high-growth areas – litigation, commercial law, and real estate.” Frankly, except for real estate, we question this prediction as far as firms go, but not necessarily in corporate legal departments.
Small Offices. Unrelated to mergers, some firms are closing small and satellite offices to reduce costs and to (hopefully) increase efficiency. However …
Virtual Offices and Work from Home. Virtual offices and working from home continue to increase. A major reason is that millennials prefer this and larger firms are developing systems and policies to accommodate them – as well as reduce space costs.
Contract and “Flex-time” Lawyers. The steady decline in the amount of billable work that began with the recent recession had already resulted in some of the larger firms replacing full-time associates – and even partners – with part-time lawyers who work only on projects as needed. Several of these firms have now formalized this structure and created flex-time-lawyer platforms. There are now also several stand-alone flex-lawyer businesses, such as Axiom and Caravel, as well as virtual firms, such as Taylor English and FisherBroyles.
Gender Bias Lawsuits. Gender bias lawsuits continue, according to the “2017 Law360 Glass Ceiling Report.” While women comprise more than 50 percent of the current law school graduates, their share of equity partnerships remains around 20 percent, and this has not increased in recent years. However, note that each year more women are elected as managing partners, succeeding men, in some mid-size to larger firms.
Alternative Fee Arrangements. Despite the predictions of the last several years, alternative fee arrangements have not replaced the billable hour except in two extremes: 1) major litigation in which clients want to drive down the fees; and 2) in many of the “basic” matters, such as uncontested divorce, for which a fixed fee is more appropriate and accepted.
Transition and Succession Plans. Not only solos but a gradually increasing number of partners in firms are addressing transition and succession issues in mid-practice rather than waiting until age, health, or other issues force them to.
Nonlawyers Managing Firms. A Chicago firm recently announced it would hire a business executive to handle the firm’s operations, apparently at a level above that of chief operating officer. As much as law firms could benefit from effective business management, does this indicate a trend toward nonlawyer managing partners and CEOs? Very, very doubtful. Several years ago, a national firm based in Philadelphia brought in a Big 4 accounting partner as its CEO. After several years, he left the firm, and the firm again elected one of its partners as CEO.