Presentation Review: “Finding Growth in a Flat Market" by Michael Blachly, Director of Marketing and Business Development, Gray Reed & McGraw, Steven R. Boutwell, Chief Operating Officer, Kean Miller LLP, Michelle Murray, Chief Marketing Officer, Cahill Gordon & Reindel LLP and moderated by Brent Turner, Manager, Peer Monitor,
Summary by Michael Blachly, Director of Marketing and Business Development, Gray Reed & McGraw
During the LMA Annual Conference presentation on Finding Growth in a Flat Market, Brent Turner, Manager for Peer Monitor, and Janet Bennett, National Manager of Business Development for Monitor Suite, gave a presentation on the state of the legal market. Following their overview, a Q&A session was given with a panel of industry CMOs and COOs including Steve Boutwell, Chief Operating Officer for Kean Miller, Michael Blachly, Director of Marketing & Business Development for Gray Reed & McGraw, and Michelle Murray, Chief Marketing Office at Cahill Gordon & Reindel.
THE STATE OF THE LEGAL INDUSTRY BY BRENT TURNER AND JANET BENNETT
Based on Thomson Reuters Peer Monitor’s database of 170 US headquartered firms, demand for services (defined as billable hours) was down -0.2% ... essentially flat. That figure was lifted by a healthy 4th quarter, which saw demand at 1.0%, but also meant that most of 2017 was in negative territory to find things flat by year’s end. The most encouraging piece of the Q4 performance were the practices that made it happen. For the first time since Q2’11, we witnessed corporate, labor & employment, and litigation all in positive territory. These are the three largest practices by proportion, and having them work together in a positive fashion certainly bodes well for overall market performance. Litigation in particular, the largest practice, stole most of the headlines as Q4 represented its first positive performance in the past 22 quarters for the practice. A sign that the practice hit rock bottom and had nowhere to go but up? Or a byproduct of a thriving economy?
Rate performance, the main driver of profitability after the years of relying on expense reduction, equity partner attrition, and cash collections, has remained particularly strong. AmLaw 100 firms are pushing nearly 4% on worked rate growth, and AmLaw 2nd Hundred and Midsize firms pushing 3%, after the post-recession years saw all segments in the low 2s.
Imbalance continues to be an industry health metric that is performing poorly. This to say that the years growing lawyer ranks in light of soft demand has become a significant cost to law firms. While lawyer growth continues (mainly associates, of counsel, and senior staff/counsel), we have experienced demand patterns that don’t support the additional capacity. Dating back to 2005, Peer Monitor has witnessed a reduction of 156 billable hours per lawyer, per year. Much of this time was spent with a fairly flat demand picture, meaning that the productivity decline is largely to blame on decades-old hiring practices.
Lastly, we are beginning to see overall expenses rise after several years of very modest growth rates. While both direct and indirect expenses have followed each other in near lockstep fashion since 2009, 2016-17 saw the categories diverge with the associate pay increase that many large and medium size firms implemented. Through Q4’17, direct expenses grew at 3.5%, a stark difference to the 1.8% we saw at the end of 2015. Indirect expenses, by comparison, are growing at a fairly pedestrian 2%, making it clear that at least some semblance of the associate pay increase has been covered by a less aggressive overhead expense, rather than by an increase in revenues. When we boil it down by category, it is obvious that marketing & business development have been asked to sacrifice the most, while technology, occupancy and recruiting have also faced sizeable headwinds.
In addition to the Peer Review research results, the presentation also include a report on litigation, corporate and IP trends based on Thomson Reuters Monitor Suite.
Litigation Analysis from Monitor Suite
Peer Monitor billing analysis showed that litigation was down overall from 2016 to 2017 but experienced positive growth in Q4 of 2017. Monitor Suite reflects similar patterns when analyzing US District court civil dockets. 218,000 civil cases were filed in 2016 with that number rising to 200,500 in 2017. Q4 2017 reflects the same increase shown by Peer Monitor. Q1-Q3 had 16-19,000 cases filed each month while Q4 hovered around 20,000 cases filed month and totaled 60,133 civil cases for the quarter, up from 50,723 in Q4 2016 (15% growth).
While employment litigation showed an increase in billables in Q4 2017, the practice area experienced a decline in federal and state court filings. Practices with growth include ERISA and civil rights employment matters. Out of the top industries experiencing employment litigation, the only industry showing growth from 2016 to 2017 was the automotive industry.
Patent dockets ended 2017 with positive growth in law firm billings however docket filings in US District and the Patent Trial and Appeals Board dropped from 2015 to 2017 going from 8900 cases filed in 2015 to 6700 in 2017. Since the release of the U.S. Supreme Court decision, TC Heartland, a shift has also occurred in “where” cases are being filed, primarily with a shift away from the Eastern District of Texas. Texas previously accounted for as many patent dockets as the next four jurisdictions combined; however, patent dockets in Texas district courts dropped from 2700 cases in 2015 to 1000 in 2017. Delaware is seeing an increase going from 456 in 2016 to 644 in 2017. The top industries for patent litigation across all district courts are technology, industrial manufacturing, consumer products, and pharmaceuticals.
Corporate Analysis from Monitor Suite
Peer Monitor revealed corporate M&A work ending 2017 in positive growth. Over the past five years, Monitor Suite analysis shows that the number of deals has been tracking annually and has been steady in the past three with approximately 50,000 mergers and acquisitions per year.
Financial Services remains the top industry generating M&A work based on the value of the deals, followed by technology, energy and industrial manufacturing for the biggest deals. Financial Services also ranks highest for the largest number of deals.
- Financial Services grew from $748B to $755B from 2016 to 2017. The biggest deal was KKR & Co’s acquisition of Unilever’s margarine and spread business.
- Retail grew from $130B to $243B from 2016 to 2017. Deals in this industry include the CVS acquisition of Aetna and Amazon acquiring Whole Foods.
Monitor Suite analysis of Private Equity investments shows technology companies pulling in over ½ of the investment dollars annually from 2013 to 2016. Prepackaged software accounted for ¾ of the tech company investment and some of those big investments were in companies such as Uber, Lyft, Snap and Magic Leap. The tech industry experienced a drop in investments in 2017 while industries with growth included industrial manufacturing, health care and real estate.
The US accounts for the largest number of portfolio companies obtaining investment – more than 10,000 companies in the past five years and over $300 billion in investment. Asia (made up mostly of China and India) ranks second with approximately 1700 companies obtaining investments of $143 billion. California based companies account for more investments than any other state, or country, around the world, with over 2,800 companies getting investments of $119 billion over the past five years.
A Q&A WITH MARKETING LEADERS ON THE STATE OF THE INDUSTRY
Based on the recent Peer Monitor / Monitor Suite results, what are you seeing in the market place and what will it take to thrive?
Blachly - I feel the market is definitely getting more competitive. Large AmLaw 100 firms are getting the big bet-the-company matters. Mid-size firms are getting the day to day legal work. And the AmLaw 200 are getting squeezed. But a lot of mid-size firms are starting to see competition both from our clients who are bringing the work in-house as well as alternative legal service providers. To stand out in today’s market, mid-size firms in particular need to truly own an area and become niche focused whether that is dominating a region, dominating an industry or dominating a niche practice.
Boutwell - I think all business development, like politics, is local. For mid-size, or regional firms, knowing your market, inside and out, is key. For example, Kean Miller is thriving in the energy and petrochemical sector, particularly in the upstream, midstream, and downstream markets. We are flexible and try to anticipate upward and downward trends in this market, read and react, and take advantage of our local know-how.
Murray - Competition in the market is fierce. Firms must continue to be client-centric. Law firms are embracing competitive intelligence tools to help them better understand what issues their prospects and clients are facing at both the company and industry level. Firms are also actively engaging in client feedback as a way to better serve their clients.
What are some of the best practices you employ as well as tools that you offer to ensure that your partners are maximizing their marketing and business development potential?
Murray - Like many firms, my team provides client dossiers to the attorneys to prepare them for meetings. We have used the alert tools and dashboards provided by Monitor Suite, Bloomberg and other CI providers to give the attorneys real-time updates on their clients. We have increased our research function by 200% over the past year - primarily to focus on data integration and to implement a metrics-oriented approach to business development. We are using these tools to understand Cahill’s position in the market as well as to find new opportunities with existing clients. We are also working with our strategic initiatives committee to utilize the CI tools in an effort to better allocate our internal resources.
Boutwell - We stress many things, but one of the best practices we employ centers on intense preparation for client interactions, meetings and presentations. Our department mantra is: “The more your prepare, the more prepared you will look. The less you prepare, the less prepared you will look.” We spend a lot of time on research, meeting materials, and “interaction rehearsals” to make sure our partners are as prepared as they can be.
Blachly - Knowledge is key. You don’t know what you don’t know. We need to use the tools available to us to help us understand the client’s needs, who is currently representing them, how their business operates, strategic objectives, industry trends and who can be enlisted to coach us on the client. Many of these questions can be answered though tools that the firm can secure. This includes CRM to identify relationships, MonitorSuite to give us client/prospect intelligence, news monitoring services to keep us in the loop, industry teams to give a broader perspective of what is going on, etc. But keep in mind you have to have the staff to effectively support the tools. Otherwise they will never be utilized.
What do you see others doing that you’d like to do next or plan to do next to stay ahead of the market changes?
Boutwell - Leadership training. Leading teams, groups, and sections of lawyers is difficult. We’ve all heard the term “herding cats.” We look forward to providing the next layer of leaders in our firm with some meaningful leadership training that will help them with their “cat herding” techniques.
Blachly - Much of what we are prioritizing will allow us easier access to information and the ability to pull information together. This includes making a significant investment to our CRM, building an experience database and building a proposal generator.
Murray - I know of one firm that is reverse-engineering Monitor Suite and tracking plaintiff firms that are likely to bring litigation against their clients in an effort to stay ahead of the curve. This past year, we have integrated new technology solutions to assist our department and I have added an experience database to my “wish list”.
What activity or process do you think is critical to staying in front of the market trends to help your firm:
Boutwell - I think client feedback is one of the most important aspects of our role in our firms. It is the client who can provide the most germane market trends and how those trends relate to their business and legal operations. Spending time listening to clients, hearing about their plans and goals, and asking intelligent, open-ended, questions will lead to new opportunities to serve client needs.
Murray - Cahill does not try to be all things to all people, but rather is very deep in a few industries and practices, serving clients in both litigation and corporate matters. It’s no secret we are active in the leveraged finance market. Since this is such a niche area, we are utilizing technology to track deal flow and monitor specific activity. Understanding what types of deals are being done and in which industries, provides our attorneys valuable intel when speaking with their clients and prospects.
Blachly - Being a trusted advisor is much easier said than done. We need to advocate to our attorneys to make them really understand what it means to be a trusted advisor and what a commitment it is on their part. This includes being educated on the client’s business and industry, seeking client feedback, working on effective communication, and collaborating with the client not just in the attorney’s area of law but in the client’s business. And as legal marketers we need to work to educate our attorneys on the resources available to help them accomplish this.
How do you measure success with your business development activities?
Blachly – Measuring the successes of a law firm’s marketing department is vital for the department to be able to argue its importance as well as prove effective versus ineffective marketing efforts. A law firm should always be seeking client feedback. But a marketing department should be as well with its own attorneys. Every year, I schedule a meeting with each of our partners where I ask them three questions: How are we doing, what would you like to see us do better, and what are other firms doing that you would like to see us do? In addition, any metrics or KPIs that you can track should be tracked and reported. It not only shows your departments sophistication but also can be used to argue stances on debated issues.
Murray - While winning an RFP for a new matter or providing the intel that helps to bring in a new client is obviously among the top answers, we believe success is really defined by client satisfaction. Clients have a lot of choices, so a firm needs to provide both a legal solution plus client service. As the leader of a marketing department, my clients are the partners of the firm. When our department can help a lawyer look good to their client by providing a solution, that is a success.
Boutwell - Sometimes we joke that it’s the number of airline tickets purchased annually for face-to-face meetings with our clients. Our firm is fortunate to have a list of long-term, blue-chip clients, but their legal departments are based outside of our Louisiana headquarters. Seeing them, hearing their observations on our service, and learning more about their needs is our number one objective.