In December 2020, Burford Director Christine Azar directed questions concerning law firm trends to a respected group of law firm leaders. Their perspectives are excerpted and gathered below.
Recent research shows that two out of three law firm lawyers identify increased competition from traditional and emerging competitors as a key challenge. We’ve also seen recent research suggesting that there may be an increase in law firm mergers given this tough competitive landscape. Do you agree that bigger is better? What can—and should—law firms do to set themselves apart?
Jason Leckerman: Is bigger better? For a small slice of the legal industry, that may be true, but for most firms like ours, I’m not so sure. Intense competition among law firms, emerging new law providers and large acquisitions will always be a part of “big law” firm culture; however, that can only go so far. While some firms want to be all things to all clients, we prefer to focus on core areas of strength and providing the services we know our clients want and need. My sense is that most firms will continue focusing on attracting small groups or laterals as a primary driver for growth. Indeed, the changes prompted by the pandemic no doubt will challenge the notion that firms “need” an office in particular cities. Acceptance that lawyers can do their work from anywhere (while honoring state licensing requirements) is growing rapidly, along with the notion that employees can work remotely and remain productive and efficient.
To set themselves apart, law firms will need to focus on qualities other than size. How firms deliver legal services to clients will remain a key differentiator. This year will present significant challenges and opportunities. The new administration in the US, the important focus on racial equity and the pandemic (and its true economic impact) will mean new federal, state and local laws and regulations, as well as increased enforcement activity. Firms need to stay ahead of these changes, so clients know what’s coming around the corner and how to mitigate the risks or maximize the opportunities they will create. We know that while clients’ legal budgets are not increasing, their legal needs are, so firms need to be one step ahead and align their priorities with the goals and needs of their clients. That is not as easy as it sounds.
We are helping clients address ethical, environmental and safety concerns through our Environmental, Social, and Governance (ESG) Initiative. ESG metrics are a growing area of focus for companies of all sizes, investors and investment firms, lenders, governmental agencies and legislatures, stock exchanges and other self-regulatory bodies, activist shareholders and advocacy groups. Another example is Ballard’s Racial Justice and Equality Pro Bono Litigation Initiative, a new pro bono plan of action dedicated to combating racial injustice and inequity through litigation. Litigators take on pro bono cases that specifically address racial justice issues, such as policing, education, and voting rights. We also are establishing partnerships with firm clients and public interest organizations dedicated to promoting racial justice. Writing checks and financially supporting these organizations is simply not enough. We must commit to forging these partnerships if we want to see real change.
Times are changing and there needs to be more sharing of risk between clients and law firms. Frank Ryan
Jason Peltz: Whether bigger is better likely depends on the particular legal service being provided. To meet competitive challenges, firms must differentiate themselves by knowing who they are and the particular legal services they excel at providing. Since our founding 27 years ago, our singular focus remains high-stakes litigation. Companies and individuals hire us for their most important litigation and our exceptional quality and experience, not size, empower us to succeed.
Frank Ryan: I don't believe that bigger is better. Being strategic is what is most important. I do believe that global scale with incredibly talented lawyers is very important—especially for us. Our ability to deliver globally for clients 24/7 in our client's most important, sophisticated matters is critical. But just being bigger I don't believe is the answer. Being sufficiently large and being strategic is what is most important for law firms today.
The competition is as hot as it has ever been and will only become more competitive over time. As far as law firm mergers are concerned, we constantly see a drumbeat of top talent moving to certain firms and I believe that there will be more opportunities in the coming years for law firms to scale up. I think there will be mergers but how quickly that happens and what size I don't know yet.
Although anecdotal evidence suggests that the number is overstated, 68% of lawyers say that their firms are likely to consider building risk-based practices. Does this reflect a larger trend towards traditionally hourly fee defense firms augmenting or developing risk-sharing practices?
Frank Ryan: I can't comment on the percentage, but I do think risk-sharing is something that law firms are increasingly thinking about as we become more sophisticated. All of us are becoming more sophisticated in terms of outcomes, specialties and having a talent to drive certain matters that allow both client and law firm a greater degree of certainty. Times are changing and there needs to be more sharing of risk between clients and law firms. Therefore, I believe law firms increasingly will consider risk-sharing opportunities and contingency fee arrangements.
Jason Peltz: While I’m not sure, my sense is that more traditional, hourly firms are exploring contingency and other risk-based fee models. It will be interesting to see how successful those firms can be given their institutional constraints. Considering most of those firms’ models are built on hours, including their assessments of value, success and compensation, I imagine it will be difficult for many of them to pivot from their age-old architecture. I suspect some will succeed and others will not.
Jason Leckerman: I am skeptical that many other big law firms will actually embrace risk to the degree that they will develop significant risk-based practices that do not rely on the hourly fee model. It is true, however, that there seems to be an increasing willingness for clients and firms to find ways to share in the risk and the potential upside in litigation. This willingness seems to be natural extension of the increased use of alternative fee arrangements (AFAs) that benefit both the law firm and the client. While we have been offering risk-based arrangements, given the choice between that and other AFAs, clients still choose other AFAs most of the time. This indicates that risk-based arrangements have a long way to go to gain support and adoption. We are, however, willing to bet on the talent of our lawyers—their ability to provide both clients and the firm upside—and I would assume other law firms feel the same about their lawyers.
Recent research shows 67% of CFOs would advocate for the use of legal finance in an economic downturn. What role should law firms play in educating clients about various financing options, including legal finance?
Jason Peltz: As a trusted advisor, it is critical that lawyers educate clients regarding legal finance options. This is especially true given the exasperating budget constraints that many clients face, as legal finance may make especially good sense to assure that meritorious litigation can be efficiently and successfully handled.
Jason Leckerman: We are counselors. That means that we need to educate our clients about their options, including legal finance. For clients with liquidity constraints or who are simply risk adverse, legal finance could be the right answer. For law firms, it simply may make good business sense.
Frank Ryan: The question of educating is a tricky one. First of all, making sure we understand the client's needs and client's goals is first and foremost and then being able to provide to clients the tools that will allow the client to satisfy and meet those goals is important. I think legal funding is for some clients to meet those goals and it is a tool that makes sense for some clients. It is certainly something a law firm should have at its disposal to discuss with the client.
Jason Leckerman is Chair of Ballard Spahr’s litigation department with a focus on antitrust and competition, product liability, and commercial litigation. At Ballard Spahr, he is a member of the Expanded Board, Partner-in-Charge of the litigation mentoring program in the Philadelphia office, and is Partner-in-Charge of the United Way Campaign.
Jason Peltz is a managing partner at Bartlit Beck with a national litigation practice, regularly handling cases before state and federal courts, arbitrators, and mediators across the country. He has extensive experience in a wide variety of complex commercial litigation, including matters involving breach of contract, patent infringement, product liability, breach of fiduciary duty, and deceptive and unfair trade practices
Frank Ryan is the Global Co-Chair and Global Co-CEO of DLA Piper. He provides legal and strategic advice to domestic and multinational clients who draw on his experience in high-stakes litigation, intellectual property, media and sports, complex commercial and sovereign related issues. Clients turn to him as a go-to strategist and litigator for their most important matters.