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MANAGEMENT

Your Firm’s Place in the Legal Market

MANAGEMENT

How should you grow? Analyzing the future needs of your clients is key.

Your Firm’s Place in the Legal Market

By William Henderson and Evan Parker

of all this growth is that the supply of capable outside counsel exceeds demand. model, as it creates an aura of confidence for partner/ownFor the foreseeable future, most of The Am Law 200 will only ers and the resources and opportunities necessary to reward be able to grow by taking market share. Yet this business chaljunior lawyers for their hard work. For decades, growth oclenge is no more formidable than the one confronted by Steve curred organically; as clients grew, so did the firm. should grow?toAnalyzing the[“How futuretoneeds of your clients is key. uponyou his return Apple in 1997 Take Market But every market has a saturation point. For the cor-How Jobs Share,” November]. For the better part of a decade, the company porate legal market, the rise of The Am Law 200 ended had been losing market share to Microsoft. For Jobs, focus was comfortable regional oligarchies. Regional firms became the key—createBy a handful of new products that “much betnational firms by moving into each other’s backyards and William Henderson andwere Evan Parker ter” than anything else in the market. To achieve this goal, Apple poaching each other’s talent. An unintended consequence would “start with the customer experiof all this GROWTH IS THE LINCHPIN OF THE TRADITIONAL LAW ence andFIRM work backward to thegrowth technol-is that the supply of capable outside MARKET SIZE BY PRACTICE AREA exceeds demand. model, as it creates an aura of confidence for partner/ownogy.” That singularcounsel focus can help large Business law is the focus of Big Law. Buters there’s money to be made in other the foreseeable future, most of The Am Law 200 will only and the resources and opportunities necessary reward lawtofirms take market For share. practice areas. be able to grow by taking market share. Yet this business chaljunior lawyers for their hard work. For decades, growth oclenge isMARKET no more formidable than the one confronted by Steve curred organically; as clients grew, so did the firm. SIZING THE U.S. LEGAL Business Law (Antitrust, Corporate, $89B point. For Jobs in upon return to Apple in 1997 [“How to Take Market But every market has a saturation the corSecurities, Finance, Insurance) Standard questions anyhisfocused Tort Litigation (Negligence) $33B market, the rise of The Am Lawplanning Share,” November]. For the better part of a decade, the company porate legal 200 ended process is, “What is the had been losing market comfortable regional oligarchies. Regional firms size became of the addressable market?” and share to Microsoft. For Jobs, focus was Real Estate $23B the key—create handful of new products that were “much betnational firms by moving into each other’s backyards and “Why are the customers in this amarImmigration, Consumer Law and Other $21B Civil Legal Services anything else in the market. To achieve this goal, Apple poaching each other’s talent. An unintended consequence ket going to buy ter” fromthan us and not our Intellectual Property $17B competitors?” The answers provide would “start with the customer experiLabor and Employment $15B ence and work backward to the technolthe basis for strategic focus. MARKET SIZE BY PRACTICE AREA Criminal Law $14B can help Here is some data to begin formu- ogy.” That singular focus count tice areas familiar to most big-firm lawyers (see the graph forlarge upward growth in GDP between 2012 and 2015. Business law is the focus of Big Law. But there’s money to answer be made other lating an tointhe first question. law firms take market share. One of the implications immediately evident in this on the facing page). Research and Document Services $13B practice areas. The market for U.S. legal services Sizing the market in this way, we see the relative imporanalysis is that the U.S. legal market is highly fragmented. Wills, Estates and Trusts Total Market Size = $289 Billion $12B totals roughly $289 billion. We cal- SIZING THE U.S. LEGAL MARKET tance of certain legal work and the wide variation by practice Latham & Watkins, the firm at the very top of the Am Law Business Law (Antitrust, Corporate, Family Law $11B $89B Securities, Finance, Insurance) anyleague focused culated this number directly from the Standard questions in200 area. The largest market is the one most synonymous with table ($2.6 billion in annual revenue), has less $9B Bankruptcy Tort Litigation (Negligence) $33B is the of the total market. At the same time, the 2012 Economic Census, the census planning process is, “What large-firm practice: antitrust, corporate, securities, finance than 1 percent $8B Other market?” and and insurance. Although some of the market is focused on annual revenues of the 2015 Am Law 200 totaled Real Estate $23B of U.S. business that takes place once size of the addressable combined in thisbillion, mar- which reveals the enormous economic sway every five years. In 2012, the Cen- “Why are the customers$100.4 retail clientele (wills, estates and trust, $12 billion; family law, Tax Law $6B Immigration, Consumer Law and Other $21B Civil Legal Services ket going to buy from us and not our sus Bureau reported that the dollars $11 billion), most specialties bear on the commercial world. of the large law firm sector. Source: U.S. Census Bureau Analysis Environmental $6B Intellectual Property $17B by Lawyer Metrics spent in the U.S. legal services mar- competitors?” The answers provide Returning to the focus principle, the $15 billion labor Health Care $5B Labor and Employment $15B ket totaled $263 billion (NAICS code the basis for strategic focus. and employment (L&E) market offers a good case study. WHICH PRACTICE AREAS? Public and International Law $5B Criminal Law $14B Here is some data toThe beginEconomic formu- Census disaggregatescount ticeemployment areas familiar to most big-firm for upward growth inFor GDP between 2012clients, and 2015. 5411). These are the gross receipts of large corporate labor and legal the gross receipts Arbitration and Mediation $3B lating an answer to the first question. on the facing page). One of the implications immediately evident in this organizations that are in the business fees are a cost of doing business—a cost they want to miniof legal service organizations into so-called product lines. Research and Document Services $13B 0 20 40 60 80 100 Sizing is that the is highly fragmented. of providing legal services. We then The market for U.S. legal mize market while also reducing settlement costs, courtthe andmarket arbi- in this way, we With services a little work, these product lines analysis can be grouped intoU.S. legal Wills, Estates and Trusts Total Market Size = $289 Billion $12B caltance of certain legal Latham Watkins, at the very top therisk AmofLaw Market Size (Billions of Dollars) adjust upward to $289 billion to ac- totals roughly $289 billion. tration awards, andof the future litigation. Yet, for at work and the wi set ofWe submarkets that break down annual sales&into prac-the firm Family Law $11B culated this number directly from the area. The largest market is the one m 200 league table ($2.6 billion in annual revenue), has less $9B Bankruptcy 2012 Economic Census, the census large-firm practice: antitrust, corpor than 1 percent of the total market. At the same time, the D e c e m b e r 2015 | americanlawyer.com The A m e rtotaled ic a n L aw yeand r |insurance. D e c e mb e rAlthough 2 0 1 5 1 0some 3 $8B Other of U.S. business that takes place once of th combined annual revenues of the 2015 Am Law 200 every five years. In 2012, the Cenretail clientele (wills, estates and trust, $100.4 billion, which reveals the enormous economic sway Tax Law $6B

102

MICHAEL WITTY

Practice Area

Practice Area

GROWTH IS THE LINCHPIN OF THE TRADITIONAL LAW FIRM


MANAGEMENT MANAGEMENT MANAGEMENT

MANAGEMENT

Your Firm’s Place Your Firm’s Place in the Legal Market in the Legal Market MANAGEMENT

How of should grow? Analyzing the future needs of your clients is key. How clients is Howshould shouldyou yougrow? grow?Analyzing Analyzingthe thefuture futureneeds needs ofyour youryou clients iskey. key. How should you grow? Analyzing the future needs of your clients is key. By William Henderson and Evan Parker

Your Firm’s Place in the Legal Market

By ByWilliam WilliamHenderson Hendersonand andEvan EvanParker Parker By William Henderson and Evan Parker

growth is that the supply of capable outside counsel exceeds demand. model, as counsel itcounsel createsexceeds an aurademand. of confidence for partner/owncounsel exceeds demand. model, model,as asitititcreates createsan anaura auraof ofconfidence confidencefor forpartner/ownpartner/ownexceeds demand. model, as creates an aura of confidence for partner/ownFor the foreseeable future, most of The Am Law 200 will only ers and the resources and opportunities necessary to For future, of Law Forthe theforeseeable foreseeable future,most most ofThe TheAm Amreward Law200 200will willonly only ers ersand andthe theresources resourcesand andopportunities opportunitiesnecessary necessaryto toreward reward For the foreseeable future, most of The Am Law 200 will only ers and the resources and opportunities necessary to reward able to grow by taking market share. Yet this business chaljunior forto their hard work. For decades, be grow by share. Yet business chalbeable able to grow bytaking takingmarket market share.growth Yetthis thisocbusinessbe chaljunior ocjuniorlawyers lawyersfor fortheir theirhard hardwork. work.For Fordecades, decades,growth growth oc- lawyers be able to grow by taking market share. Yet this business chaljunior lawyers for their hard work. For decades, growth ocasmore clients grew, so than did lenge formidable the one Steve lengeisisisno no more formidable thanthe thefirm. oneconfronted confrontedby bylenge Steveis no more formidable than the one confronted by Steve curred curredorganically; organically;as asclients clientsgrew, grew,so sodid didthe thefirm. firm. curred organically; lenge no more formidable than the one confronted by Steve curred organically; as clients grew, so did the firm. How should grow? the future needs of your isto key. Jobs upon clients his return Apple in 1997 [“How to Take Market But every market has a saturation point. For the to corJobs upon his return to Apple [“How Jobs uponyou his return toAnalyzing Applein in1997 1997 [“How toTake TakeMarket Market But But every every market market has has aaa saturation saturation point. point.For For the the corcorJobs upon his return to Apple in 1997 [“How to Take Market But every market has saturation point. For the corShare,” November]. For the better part of a decade, the company porate legal market, the riseFor ofthe The Ampart Law ended Share,” November]. better of aaadecade, the Share,” November]. For the better part of200 decade, thecompany company porate porate legal legal market, market,the the rise rise of ofThe TheAm Am Law Law 200 200 ended ended Share,” November]. For the better part of decade, the company porate legal market, the rise of The Am Law 200 ended had been losing market share to Microsoft. For Jobs, focus was comfortable oligarchies. Regional firms For became had been market to was hadregional beenlosing losing marketshare share toMicrosoft. Microsoft. ForJobs, Jobs,focus focus was comfortable comfortableregional regionaloligarchies. oligarchies.Regional Regionalfirms firmsbecame became had been losing market share to Microsoft. For Jobs, focus was comfortable regional oligarchies. Regional firms became the key—create a handful of new products that were “much betnational by moving into each other’s backyards and the aaahandful of products that were “much betthekey—create key—create handful ofnew new products that were “much betnational and nationalfirms firmsby bymoving movinginto intoeach eachother’s other’sbackyards backyards and firms By William Henderson and Evan Parker the key—create handful of new products that were “much betnational firms by moving into each other’s backyards and ter” than anything else in the market. To achieve this goal, Apple poaching ter” each other’s talent. An anything else in the oconsequence ter”than than anything else inunintended themarket. market.T T achievethis thisgoal, goal,Apple Apple poaching poachingeach eachother’s other’stalent. talent.An Anunintended unintendedconsequence consequence ter” than anything else in the market. T ooachieve achieve this goal, Apple poaching each other’s talent. An unintended consequence would “start with the customer experiwould would“start “startwith withthe thecustomer customerexperiexperiwould “start with the customer experiof all to this capable outside to the technolGROWTH IS THE LINCHPIN OF THE TRADITIONAL LAW enceofand work backward ence and work technolence andFIRM workbackward backward tothe thegrowth technol-is that the supply ence and work backward to the technolMARKET BY PRACTICE MARKET MARKET SIZE SIZE BY BY PRACTICE PRACTICE AREA AREA MARKET SIZE BY PRACTICE AREA exceeds demand. model, as it creates an auraSIZE of confidence for partner/ownogy.” That singular focus can help large ogy.” That focus help ogy.”AREA Thatsingular singularcounsel focuscan can helplarge large ogy.” That singular focus can help large Business lawopportunities isother the focus of Big Law. But there’s money to the be made in other Business there’s to in Businesslaw lawis isthe thefocus focusof ofBig BigLaw. Law.But Buters there’s money tobe bemade made in other Business law is the focus of Big Law. But there’s money to be made in other For foreseeable future, most of The Law 200 will only and money the resources and necessary reward lawAm firms take market share. law firms take share. lawto firms takemarket market share. law firms take market share. practice practiceareas. areas. practice areas. be able to grow by taking market share. Yet this business chaljunior lawyerspractice for theirareas. hard work. For decades, growth oclenge MARKET is no more formidable than the one confronted Steve MARKET curred organically;Business as clients grew, so did the firm. SIZING THE U.S.byLEGAL SIZING SIZINGTHE THEU.S. U.S.LEGAL LEGAL MARKET SIZING THE U.S. LEGAL MARKET Law (Antitrust, Corporate, Business BusinessLaw Law(Antitrust, (Antitrust,Corporate, Corporate, Business Law (Antitrust, Corporate, $89B in 1997Standard $89B point. For $89B Jobsin upon return to Apple [“How to questions Take Market But every marketSecurities, has a saturation the corFinance,$89B Insurance) Securities, Securities,Finance, Finance,Insurance) Insurance) in any focused Standard questions any focused Standard questions in anyhis focused Securities, Finance, Insurance) Standard questions in any focused Tortrise Litigation Tort TortLitigation Litigation(Negligence) (Negligence) Tort Litigation (Negligence) $33BShare,” $33B market, the $33B November]. For the better part of a decade,process the company porate $33B legal of (Negligence) The Am Lawplanning 200 ended planning is, “What is the process is, is planning process is, “What “What is the the planning process is, “What is the had been losing market Forthe Jobs, focus was market?” and comfortable regional oligarchies.Real Regional firms became size of addressable size addressable market?” and sizeof ofthe the addressable market?” and share to Microsoft. size of the addressable market?” and Estate Real RealEstate Estate Real Estate $23B $23B $23B $23B the key—create a handful of new products that were “much bet- in this marnational firms by moving into each backyards and “Why are the customers “Why are the customers in this mar“Why are the customers in this mar“Why are the customers in this marImmigration, Consumer Law andother’s Other Immigration, Immigration,Consumer ConsumerLaw Lawand andOther Other Immigration, Consumer Law and Other $21B $21B $21B $21B Legal Services Civil CivilLegal LegalServices Services Civil Legal Services ter” anything else in the market. Toket achieve Appleus and not our poaching each other’s talent.Civil An unintended consequence goingthis to goal, buy from ket us not ketgoing goingto tobuy buyfrom fromthan usand and notour our ket going to buy from us and not our Intellectual Property Intellectual IntellectualProperty Property Intellectual Property $17B $17B $17B $17B the customerThe expericompetitors?” answers provide competitors?” competitors?”The The answers answers provide provide would “start with competitors?” The answers provide Labor and Employment Labor Laborand andEmployment Employment Labor and Employment $15Bfor $15B $15B $15B ence and work backward to the technolthe basis for strategic focus. the thebasis basis forstrategic strategicfocus. focus. the basis for strategic focus. MARKET SIZE BY PRACTICE AREA Criminal Law Criminal CriminalLaw Law Criminal Law $14Bis $14B $14B $14B focuscount can help large iscount some data to begin formutice areas familiar to m upward growth in to GDP between 2012 and 2015. Here Here somedata datato tobegin beginformuformu- ogy.” That singularHere familiar big-firm lawyers (see for upward growth in 2015. ticeareas areas familiar tomost most big-firm lawyers (seethe thegraph graph for upward growth inGDP GDPbetween between2012 2012and andcount 2015.for tice Here isissome some data to begin formutice areas familiar to most big-firm lawyers (see the graph count for upward growth in GDP between 2012 and 2015. Business law is the Research focus of Big Law. But there’slating money toanswer be made other lating share. an answer question. immediately on the facing page). One ofon the an to the first lating an answer toin the firstquestion. question. law firms take market the facing One of the implications on theimplications facingpage). page).immediately evident in this Oneto ofthe thefirst implications immediately evident evident in in this this lating an answer to the first question. on the facing page). One of the implications immediately evident in this and Document Services Research Researchand andDocument DocumentServices Services Research and Document Services $13B $13B $13B $13B practice areas. The market for is U.S. services Sizing the market i analysis is that the U.S. legal market highly fragmented. The market The$12B market for for U.S. U.S. legal legal services services Sizing the in we analysis the legal Sizing themarket market inthis thisisway, way, wesee seethe therelative relativeimporimporanalysis isthat thatlegal theU.S. U.S. legalmarket marketis highlyfragmented. fragmented. The market for U.S. legal services Sizing the market in this way, we see the relative imporanalysis is that the U.S. legal market isishighly highly fragmented. Wills, Estates and Trusts Total Market Size = $289 Billion Wills, Wills,Estates Estatesand andTrusts Trusts Total Billion TotalMarket MarketSize Size===$289 $289 Billion Wills, Estates and Trusts Total Market Size $289 Billion $12B $12B $12B LEGAL MARKET totals roughly $289 billion. the We caltance of certain legal w Latham Watkins, the firm atwork the very top of thevariation Am Lawby totals totalsroughly roughly$289 $289billion. billion.We Wecalcal- SIZING THE U.S. of legal and Latham & Law tance ofcertain certain legal work andthe thewide wide variation bypractice practice Latham &Watkins, Watkins, thefirm firmat atthe thevery verytop topof ofthe theAm Am Law &tance totals roughly $289 billion. We caltance of certain legal work and the wide variation by practice Latham & Watkins, the firm at the very top of the Am Law Business Law (Antitrust, Corporate, Family Law Family FamilyLaw Law Family Law $11B $11B $11B $11B $89B Securities, Finance, Insurance) any focused culated in this number directly from the in area. 200 league table ($2.6 billion in annual revenue), has less culated from culatedthis thisnumber numberdirectly directly fromthe the Standard questions area. The largest market is with 200 league table billion less area. The largest market theone onemost mostsynonymous synonymous withThe largest mark 200 league table($2.6 ($2.6 billion inannual annualrevenue), revenue),has has less culated this number directly from the area. The largest market isisthe the one most synonymous with 200 league table ($2.6 billion in annual revenue), has less $9B $9B $9B $9B Bankruptcy Bankruptcy Bankruptcy Bankruptcy Tort Litigation (Negligence) $33B “What isCensus, the of 2012 is, Economic large-firm practice: an than of the total market. At corporate, the same time, the finance 2012 2012 Economic Economic Census, Census,the the census census planning process large-firm practice: antitrust, securities, than the total the large-firm practice: antitrust, corporate, securities, finance than111percent percent ofthe thecensus totalmarket. market.At Atthe thesame sametime, time, the1 percent 2012 Economic Census, the census large-firm practice: antitrust, corporate, securities, finance than percent of the total market. At the same time, the $8B business $8B $8B $8B Other $23B of Other Other market?” and Other of U.S. business that takes revenues place once andon insurance. Althou combinedand annual revenues of the 2015 Am 200 totaled ofU.S. U.S. businessthat thattakes takesplace placeonce once size of the addressable insurance. Although some of the is combined annual of and insurance. Although some ofLaw themarket market focused on combined annual revenues ofthe the2015 2015Am AmLaw Law200 200totaled totaled of U.S. business that takes place once and insurance. Although some of the market isisfocused focused on combined annual revenues of the 2015 Am Law 200 totaled Real Estate customers in this marfive years. In 2012, thereveals Cen- the retail reveals enormous economic swayfamily every five years. years.In In 2012, 2012,the the CenCen- “Why are the every retail clientele (wills, estates and $12 law, $100.4 billion, which sway retailwhich clientele (wills,the estates andtrust, trust, $12billion; billion; family law,clientele (wills, es $100.4 billion, which reveals theenormous enormouseconomic economic$100.4 sway billion, every five years. In 2012, the Cenretail clientele (wills, estates and trust, $12 billion; family law, $100.4 billion, which reveals the enormous economic sway Tax Law$21B every Tax TaxLaw Law Tax Law $6B five $6B $6B Immigration, Consumer Law and Other $6B Civil Legal Services us not our susfrom Bureau reported thatfirm thesector. dollars $11 billion), most speci of the large law firm sector. sus Bureau that the dollars sus Bureaureported reportedSource: thatU.S. the dollars ket going to buy $11 billion), most of the law $11 billion), mostspecialties specialtiesbear bearon onthe thecommercial commercialworld. world. ofand thelarge large law firm sector. sus Bureau reported that the dollars $11 billion), most specialties bear on the commercial world. of the large law firm sector. Census Bureau Analysis Source: Source:U.S. U.S.Census CensusBureau BureauAnalysis Analysis Source: U.S. Census Bureau Analysis Environmental Environmental Environmental Environmental $6B $6B $6B $6B Intellectual Property $17B by LawyermarMetrics by byLawyer LawyerMetrics Metrics by Lawyer Metrics The answers provide in the U.S. legal services marReturning to the f spent spentin inthe theU.S. U.S.legal legalservices services mar- competitors?”spent Returning Returningto tothe thefocus focusprinciple, principle,the the$15 $15billion billionlabor labor spent in the U.S. legal services marReturning to the focus principle, the $15 billion labor Health $15B Care Health HealthCare Care Health Care $5B $5B $5B $5B Labor and Employment focus. ket totaled $263 PRACTICE billion (NAICS code and employment (L&E ket kettotaled totaled$263 $263billion billion(NAICS (NAICScode code the basis for strategic and WHICH PRACTICE AREAS? (L&E) andemployment employment (L&E)market marketoffers offersaaagood goodcase casestudy. study. WHICH AREAS? ket totaled $263 billion (NAICS code WHICH PRACTICE AREAS? and employment (L&E) market offers good case study. WHICH PRACTICE AREAS? Public Law Public Publicand andInternational InternationalLaw Law Public and International Law $5B These $5B $5B $5B Criminal Lawand International $14B Here is some data These toThe begin formutice areas familiar to most count for upward inFor GDP between 2012 and 2015. 5411). are the grossCensus receiptsdisaggregates of For large big-firm corporate 5411). 5411). Theseare arethe thegross grossreceipts receiptsof of large corporate clients, labor and employment legal Thegrowth Economic Census disaggregates the gross receipts For large corporate clients, labor and employment legal Economic the receipts 5411). These are the gross receipts of The Economic Census disaggregates the gross gross receipts For large corporate clients, labor and employment legal The Economic Census disaggregates the gross receipts Arbitration and Mediation Arbitration Arbitrationand andMediation Mediation Arbitration and Mediation $3B $3B $3B $3B lating an answer to the first question. on the facing page). One of the implications immediately evident in this organizations that are in the business fees are a cost of doing organizations that are in the business organizations that are in the business fees are a cost of doing business—a cost they want to miniof legal service organizations into so-called product lines. fees are a cost of doing business—a cost they want to miniof legal service organizations into so-called product lines. organizations that are in the business of legal service organizations into so-called product lines. fees are a cost of doing business—a cost they want to miniof legal service organizations into so-called product lines. Research and Document Services $13B 20 40 60 80 The market 100 000 20 40 60 80 100 20 40 60 80 100 0 of 20 40 60 80 100 for U.S. legal services Sizing the market in this way, we analysis is that the U.S. legal market is highly fragmented. of providing legal services. We then mize while also reduc providing legal services. We then of providing legal services. We then mize while also reducing settlement costs, court and arbiWith a little work, these product lines can be grouped into mize while also reducing settlement costs, court and arbiWith a little work, these product lines can be grouped into of providing legal services. We then With a little work, these product lines can be grouped into mize while also reducing settlement costs, court and arbiWith a little work, these product lines can be grouped into Wills, Estates and Trusts Total Market Size = $289 Billion $12B $289 upward billion. cal- billion tancepracof certain legal and and the wi Latham Watkins, firm at the very top of the Am Market Size (Billions of Dollars) Market MarketSize Size(Billions (Billionsof ofDollars) Dollars) Market Size (Billions of Dollars) to $289 ac- down tration awards, th adjust billion to adjustupward upwardto to$289 $289 billion toacac- totals roughlyadjust tration awards, and the risk of future Yet, at set of the submarkets that break annual saleslitigation. into tration awards, anddown the risk ofLaw future litigation. Yet,for for at work set submarkets that break sales pracadjust upward to $289 billion to acsetof ofWe submarkets thatto break downannual annual sales&into into practration awards, and the risk of future litigation. Yet, for at set of submarkets that break down annual sales into pracFamily Law $11B culated this number directly from the area. The largest market is the one m 200 league table ($2.6 billion in annual revenue), has less $9B Bankruptcy 2012 Economic Census, the census large-firm practice: antitrust, corpor than 1 percent of the total market. At the same time, the 1 0 2 De cem ber Other 20 15 | americanlawyer.com D Deeccceeem 2015 ||| americanlawyer.com americanlawyer.com De mmbbbeeerrr 2015 2015 americanlawyer.com m D 222000111555 11100033some The AAA icaaannn L awye yerand Deeeccceeemb mbeeerrrAlthough 3 The mmeeerrric ic LLaw aw ye rr |||insurance. D mb $8B of U.S. business that takes place once ofTh the combined annual revenues of the 2015 Am The Law 200 totaled every five years. In 2012, the Cenretail clientele (wills, estates and trust, $100.4 billion, which reveals the enormous economic sway Tax Law $6B

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MICHAEL WITTY WITTY MICHAEL MICHAEL WITTY

Practice Area

Practice Practice Area Area

Practice Area

of all this IS LINCHPIN OF is THE TRADITIONAL FIRM outside of all the of ofTHE all this this growth growth is that that the supply supplyLAW of capable capable outside GROWTH FIRM GROWTHIS ISTHE THELINCHPIN LINCHPINOF OFTHE THETRADITIONAL TRADITIONALLAW LAWGROWTH FIRM of all this growth is that the supply of capable outside GROWTH IS THE LINCHPIN OF THE TRADITIONAL LAW FIRM


MANAGEMENT

least the last 15 years, firms toward the top of The Am Law 200 have had little interest in solving those problems, instead responding to client rate pressures by shedding L&E lawyers [“Playing Not to Lose,” February 2013]. A few law firms, however, decided to make L&E their singular focus. Three examples are Ogletree Deakins, Jackson Lewis and Littler Mendelsohn. In the 2005 Am Law 200 rankings, these firms ranked No. 195, No. 128 and No. 108, respectively. Their combined revenues were $433 million. A decade later, all three had significantly grown their topline and entered The Am Law 100 (No. 84, No. 79 and No. 62). Their current combined revenue is $1.3 billion, or nearly 10 percent of the total U.S. labor and employment legal market. Law firm leaders may scoff at the low revenue per lawyer (RPL) figures generated by these three firms (between $500,000 and $530,000, compared with an average $882,000 for The Am Law 100 and $643,000 for Second Hundred firms.) Yet alternative staffing, use of technology and better practice management enhances the profitability of this lower RPL work, particularly if work is performed using AFAs. Ac-

ark that won’t sink. This stability and prosperity was created by working backward from the needs of the client. WHICH INDUSTRIES?

Industry Sector

One of the most common laments from corporate clients is the failure of outside counsel to understand their business. A law firm can solve this problem by focusing its resources on clients in a handful of industries, thus creating the economies of scale and scope to master its clients’ mix of business and legal issues. Some industries spend more money on legal fees than others. Working with Rees Morrison, a principal of Altman Weil, who has collected data on law department spending since 2010, we constructed a statistical model (see graph at left) to estimate differences in external legal spending across 11 industries. External spending is based on percentage of company revenue; 0.3 percent is the average across 2,500 corporate clients in the sample. One obvious takeaway is that legal problems (and legal bills) vary widely by industry, with companies in finance, technology and energy sectors tending to spend the most. Yet law firms often draw the wrong inferences, focusing OUTSIDE LEGAL SPENDING BY SECTOR on marquee clients and lateral partFinance, tech and energy sectors spend a greater share of revenue on external legal work than do other industries. (The average is 0.3 percent of revenue.) ners on Wall Street, Silicon Valley or the Houston Energy Corridor. Rather Finance than envy someone else’s client base, a better path is to know your market Technology Below Average and pursue focused opportunities. External Spending Energy Among firms serving the finance Insurance sector, Skadden, Arps, Slate, MeaTelecommunications and Media gher & Flom is one firm to envy. In the 1960s, the New York City-based Health Care and Life Sciences Above Average firm had fewer than 20 lawyers and External Spending Education was an outsider. The firm got its Transportation start on Wall Street by representing shareholders in proxy battles beManufacturing and Production cause white-shoe firms turned down Wholesale, Retail and Service Industries the work, lest they be seen as antiUtilities management by their investment banking clients. With the rise of the -0.2% -0.1% Average +0.1% +0.2% +0.3% hostile takeover era, Skadden rose to Source: General Counsel Metrics prominence along with another outsider firm, Wachtell, Lipton, Rosen & Katz. Because the work paid well, the white-shoe Wall cording to our research, all three of these firms appears to be Street firms eventually followed. pursuing this strategy, each with its own areas of emphasis. Skadden and Wachtell entered a lucrative Wall Street One of the more surprising metrics on L&E firms comes niche by focusing on the needs of clients no one else parfrom ALM’s Corporate Representations scorecard. Based on ticularly envied. When it comes to industry focus, study the our analysis of 2008-2012 data, Littler, Ogletree and Jackindustry concentrations that, through accidents of geograson Lewis are in the top five firms for having the most rephy, history and relationships, already exist within your firm. lationships with Fortune 500 companies. Furthermore, the What are those clients’ most pressing business and legal No. 1 slot for Fortune 500 relationships went to general problems? Answer that, and you’ll provide better solutions practice firm Morgan, Lewis & Bockius for the strength of than your competitors. In turn, you’ll take market share. its labor and employment work, which accounted for over 40 percent of its Fortune 500 representations. Labor and employment may be a $15 billion “commodWilliam Henderson is a professor at Indiana University Maurer ity” legal market, but when diversified across a broad swath School of Law and co-founder of Lawyer Metrics. Evan Parker of corporate America, L&E firms appear to be building an PhD is the director of analytics at Lawyer Metrics. 104

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Profile for Lawyer Metrics

Your Firm’s Place in the Legal Market  

In the second installment in a series on strategy, this article describes how firms can recapture market power and take market share by beco...

Your Firm’s Place in the Legal Market  

In the second installment in a series on strategy, this article describes how firms can recapture market power and take market share by beco...

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