My last post asked whether greater value add would accompany higher hourly rates in 2010. It appears lawyers were not listening.
Today’s TexParte Blog summarized the results of a LexisNexis survey. And the results do not instill confidence that lawyers fully grasp the problems with their business model.
The following findings suggest a problem for law firm leaders:
- 71 percent of in-house counsel believe that law firms are not doing enough to adjust to pressures on legal budgets.
- 46 percent of in-house have asked their outside counsel to lower their hourly rates; only 18 percent have done so.
- 65 percent of law students say they are not learning the business skills they need to succeed in the practice of law.
Implications For Law Firm Strategy
Law firm management needs to look for alternatives to their business strategy and business models. Raising hourly rates without increasing value, while ignoring client demands, will not improve the bottom line.
The problem is that most lawyers, even the most prestigious law firms, think of their value add in terms of time. For example, a highly complex merger or acquisition with many moving pieces is thought to take more time and skill. Law firms argue that such transactions take more attorney time, and more legal skill to complete.
Too often, however, law firms that work on the complex transactions charge the same billable hour rate for less complex work. How can that be justified? Clients have demanded and received adjustments in such situations, as they well should.
The key is for law firms to price legal services in terms of their value add. Spending more time might sometimes add value. But the relationship is neither positive, linear nor simple.
This raises the question of whether a single firm can price various legal services on a value add basis, or whether the fragmentation of law firms at different price points is an inevitable result. Transaction cost economics (see the works of Oliver Williamson, this year’s co-winner of the Nobel Prize in Economics) teaches that there are limits to firm size. Strategy scholars also know that a single firm has difficulty offering products across the spectrum of price and quality.
I have already suggested that Legally Informed Strategy is one solution to adding value to legal services. Legally Informed Strategy does this by embedding business strategy as a fundamental consideration of legal advice, recognizing that first and foremost, legal moves must integrate with business objectives. Successful execution of Legally Informed Strategy requires an astute understanding of how business and law interact.
What About The Next Generation Of Lawyers?
That law students feel unequipped to face the business challenges of law should concern lawyers and clients alike. If these future lawyers do not have business experience or training, will they be able to provide Legally Informed Strategy?
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Wondering the sample size here. Were students from every law school polled? Some great programs being offered at various schools.
Also, heard of many students being asked by their professors on how to “do” social networking and web 2.0.
Wonder the percentage of law proffs who consider themselves competent to teach business skills?
What did the other 35% law student’s say? Wonder how many college graduates feel they have learned business skills?
Hi Rex,
The sample size was 100 law school students. The post has a link to the LexisNexis survey.
Not many profs have the background to teach business skills. Many have experience only as a judicial clerk or as a law firm associate. They cannot experience business skills like managing people or running a company.
Doug