Skip this post if you believe the BigLaw market will return to its pre-2007 state. If not, does your firm have a strategy to control and reduce costs?
Two reports last week remind us of the tough market Biglaw faces. Bruce MacEwen, aka Adam Smith, Esq., has written three masterful installments on why Growth is Dead (Part 1, 2, 3). Separately, the Wall Street Journal blog reported on a Wells Fargo survey of 115 law firms: a “grim outlook”. Revenue is up 3% but expenses are up more than double that, at 6.5%.
Associate compensation is a big number - new lawyers earn $160,000.. So too is overhead - it typically exceeds $200,000 per lawyer, and pushes $300,000 at many firms. Getting the lawyer headcount right is hard but firms give this a lot of thought.
It’s not clear, however, that as many firms give as much thought to overhead and to cost control and reduction. But that may be shifting. Last week Bingham McCutcheon announced that it will open a low cost service center in Lexington, KY with 250 staff. Other firms with publicized domestic low cost service centers are Pillsbury (Nashville, TN), WilmerHale (Dayton, OH), Reed Smith (Pittsburgh, PA), and Orrick (Wheeling, WV).
An owned and operated service center lets firms benefit from the lower labor and occupancy cost of a smaller city relative to lawyer offices in major cities such as NYC, DC, DC, Chicago, LA, or SF. Smart firms also save with efficiency gains from centralizing staff, improving processes, and deploying better technology. Similar benefits are also available by working with outsourcing companies.
The interesting question is whether the BigLaw market will soon tip in favor of centralized services, whether in an owned-and-operated low cost center or via a third party outsourcing provider. With BigLaw moving in a pack, can it be long before partners press the COO to at least investigate a lower cost support options?