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Lawyers, Legal Staff, Legal Fees, and Deleveraging

published December 17, 2011

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ALM Legal Intelligence's recent survey report, “Life After Leverage: New Models of Law Firm Staffing”, published in November, explored the impact of deleveraging on staffing structure, performance management, client relations and morale through its survey of partners, associates and paralegals at Am Law 200 law firms.

Nigel Holloway, vice president of research at ALM Legal Intelligence was quoted as saying in the December 13th press release, “Law Firm Partners Handling Larger Share of Work in Deleveraging Trend, According to ALM Legal Intelligence Survey of Law Firm Staffing Models”: “When times were good, law firms profited from a process known as leveraging. They charged high fees for legal work done by armies of inexperienced associates who were paid a fraction of the compensation received by the partners but were also much less productive.”

This practice of leveraging, per the survey, reached its apex when in 2008, there were nearly 68,000 associates employed by the 250 largest U.S. law firms. However, by 2010, that number had decreased to almost 60,000, or eleven percent. During the same amount of time the number of partners decreased only slightly; by less than one percent. Holloway was quoted as saying: “That is a significant amount of deleveraging at America's largest law firms.”

More and more, clients are unwilling to pay for work performed by junior associates, as they are perceived as unproductive. However, clients are willing to pay a higher price for work performed by experienced partners.

As revealed by the survey, the trend of deleveraging will most probably continue. A whopping 61 percent of respondents felt that, per the article, “partners have been doing more of the work relative to associates in the past three years.” However, that percent fell to 45 when respondents were asked about the three years to come. Basically, if the U.S. economy declines in that time, the practice of deleveraging might increase.

The survey also revealed paralegals will become more key, as clients continue to insist lower fees. An overwhelming number of respondents, over fifty percent, felt that the number of paralegals should be increased. And, more routine legal work activities can be handled by legal process outsourcing (LPO) providers. And, increasingly, both law firms and corporate counsel are moving toward utilizing staffing firms to procure for them experienced attorneys for use on a per project basis for highly complex, specialized matters, such as M&A advisory issues.

The survey also revealed that law firm performance metrics are becoming tighter. Rather than use billable hours as a yardstick for measuring performance, law firms are moving toward focusing on business development skills and industry expertise; as well, firms are evaluating their attorneys more frequently. Over 50 percent of those surveyed said that linking job performance to pay as a means of improving job performance “was the most important way to retain staff and remain competitive.”

ALM Legal Intelligence gives detailed business information for and about the legal industry, and focuses on the top U.S. and international law firms.

The survey's results reflect the changing landscape of legal billing and fee structures. This is evidenced by Holland & Knight's recent announcement that its Public Policy & Regulation Group would, effective the first of the new year, eliminate tracking of billable hours for fixed fee clients.

Top U.S. and international law firms are participating in  legal recruitment process, please visit here for more information.