Below is a review of those external trends (over which law firms have little or no control), and internal cultural and management issues that will affect the midsize law firms during the next five years and beyond. Also listed are strategies developed by lawyer management in the more financially and professionally successful mid-sized law firms to deal with these trends.

This "background information" was prepared by Joel following discussions with dozens of members of executive committees and managing partners while conducting strategic planning studies and facilitating numerous strategic planning retreats.

1. External Trends

1. Midsize law firms are likely to see an upturn in the growth and profitability during 2004 and beyond. However, these firms will find the practice of law to be more competitive, concentrated and demanding, with greater emphasis on delivering high quality legal services faster, and less expensively.
   
   
2. Midsize law firms will continue to practice in a "buyer's market." This means that lawyers, and most of the services they offer, will be plentiful; buyers (clients) will have a wide-range of choices of high quality lawyers and law firms to serve them; fees and other conditions of employment will continue to be influenced by the buyers (clients). Competition for corporate, business and individual clients will cause traditional hourly billing rates to be replaced by variations of hourly billing arrangements, contingency and fixed fee and combination of these alternatives.
   
   
3. Midsize law firms will continue to be affected by a "profit squeeze" resulting from (a) increased overhead due to higher associate and staff salaries and benefits; (b) higher automation costs, professional liability insurance and marketing expenses; (c)partners' unwillingness/inability to increase hourly fee rates for "commodity" type work to off-set higher overhead; (d) enhanced client scrutiny of hourly rates, hours to produce work and lawyer and paralegal staffing of work assignments; (e) pressure by corporate counsel for law firms to absorb more of the "soft costs;" (f) slower paying clients, that affect cash flow and hence the availability of distributable dollars for partners; and (g) a great many midsize law firms are burdened with higher debt.
   
   
4. Continued consolidations of corporations and businesses, and the increasing number of bankruptcies of corporate and business clients, will further enhance the competitive pressures among law firms of all sizes to attract and retain their financial stable and profitable clients.
   
   
5. Midsize law firms will continue to encounter increasing competition from national, regional, statewide law firms engaging in inter-jurisdictional client representation as the result of mergers and acquisitions of general practice and specialty firms, as well as from increasing development of law firm networks and strategic alliances among smaller law firms to enable them to compete with midsize and larger multi-jurisdictional law firms.
   
   
6. Enhanced competition from "nontraditional" sources will increase.
   
   Companies such as Borg-Warner, General Electric and others, will continue to out source to India and other countries more commodity type and legal research work to be performed at half the $150 and $200 hourly cost that would be charged by their domestic law firms. These lower hourly rates for commodity type work will affect the hourly rate structure of midsize law firms competing for similar work. Paralegal firms owned by non-lawyers will continue to provide some commodity type legal services via the Internet. The number of Labor/Employee Benefits, Health Care and Environmental consulting firms will continue to grow. These consulting firms will hire more lawyers to perform many of the same legal/quasi-legal/administrative and preventative types of specialized services offered by midsize law firms.
   
   
7. Corporate and business clients will continue to employ in-house attorneys to perform day to day legal work and manage legal work referred to outside law firms. The sophistication of these in-house counsel will continue to increase and they will be more critical in the way corporate and business clients (a) select and utilize outside law firms; (b) negotiate fees and costs of outside law firms, i.e., reconsolidating of corporate client work in a smaller number of outside law firms enable corporate and business clients to further influence the fee structure charged by law firms, and (c)approve payment of bills for fees and costs for legal services and utilize auditing firms to scrutinize the number of hours required to perform assigned work, the professional personnel assigned to work on these matters, i.e., partners, associates and paralegals, the hourly rates charged etc.
   
   
8. The increasing number of multidisciplinary practices and the employment of non-lawyer professionals will perform more of the administrative and quasi-legal services performed by law firms, but at lower cost, i.e., ancillary services, in private law firms of all sizes and specialties including human resources training outsourcing, real estate title services, wealth management services for money and investment management, etc.

2. Internal Cultural and Management Issues in Midsize Law Firms

1. Executive Committees and Managing Partners in the more enlightened midsize law firms will devote more of their time dealing with (a) delivering the most appropriate approaches for delivering high quality legal services faster, better and less expensively; (b) the basics of managing professionally and financially successful professional business service organizations; (c) attracting and retaining those lawyers who control profitable clients and who possess expertise in current and newer substantive practice areas that are essential to attract and retain existing and potential clients, (d) attracting and retaining a sufficient volume of profitable business from existing and potential clients.
   
   
2. Partners' attitudes will continue to change about prevailing interpersonal values between and among partners, associates and staff. These changing attitudes will affect the personal relationships between and among partners, partners and associates and staff. These changes in firm culture(s) will cause changes in the personal and financial relationships, i.e., from "fraternal values" to "business values."
   
   
3. Midsize law firms will have stronger centralized management, including (a) increased accountability and less autonomy for partners' concerning their actions/inactions; (b) greater emphasis on every partner to be a "working partner;"(c) more merit-based compensation decisions; and (d) diminishing feelings among partners about those "entitlements" to older partners by virtue of seniority.
   
   
4. There will be increased mobility of partners who control significant amounts of client business, including those highly productive and profitable partners and experienced associates who support the former partners. As the result, Executive Committees and Managing Partners will devote more of their attention to developing strategies about how to attract and retain these more profitable lawyers.
   
   
5. Executive Committees and Managing Partners in midsize law firms will devote more of their time performing the strategic planning function and managing the substantive and business sides of their law firms in an effort to provide high quality, timely and cost-effective service to clients.
   
   
6. Midsize law firms will employ more sophisticated non-lawyer business managers with special expertise in areas of financial management and technology, human relations and administration to relieve lawyer management of most of their involvement in day to day administrative matters. Lawyer management will delegate to these non-lawyer managers greater responsibility for preparing sophisticated financial analysis, addressing technology issues, etc.
   
   
7. Technology will continue to enhance the speed with which legal services are performed, thereby enabling attorneys and paralegals to produce documents and communicate with clients at a much faster pace. At a minimum, voice mail, e-mail, internet transfer of documents. Move to Word from Word Perfect. Document management is key. Computer file storage. Off site back up. Voice recognition software.
   
   
8. Partners in most midsize firms will become more sensitized about the enhanced importance of client service and marketing to attract and retain clients. The following have motivated Executive Committees and Managing Partners to make organizational/structural/procedural changes/management in the manner in which their firms organize and manage their client service and marketing activities: (a) an ABA study on the decline of the image of the legal profession. Ethics = Service (an article about the results of this study is included in the Exhibit section of this report); (b) clients' perceptions concerning the services provided and how they are treated by outside law firms, not only the results achieved or the fees charged, i.e., (1) returning telephone calls and invoicing; (2) allowing clients to design their own invoices; (3) written service plans for major clients; (4) use of client surveys; interviews and mail surveys; (5) making it easy for clients to contact their attorneys by: E-mail; home phone numbers on business cards; 24 hour night service telephone answering, etc.; (6) Client status reports; (7) the notion of "guaranteed" service or reductions in the bill, (8) law firms adding value to their clients and educating corporate and business executives through newsletters, seminars, direct mail, web sites, etc.
   
   
9. In an effort to contain legal costs, more corporate and business controversies will be resolved by Alternative Dispute Resolution, as opposed to Litigation.
   
   
10. Law firms "partnering" will be fostered between law firms and many of their "better clients" concerning, i.e., creating a working relationship that results in a mutual value to both the law firm and the client, etc. Partnering requires risk-sharing in the areas of: (a) outcomes, (b) fees, costs and expenses, (c)investment in the matter with the client; etc.

3. Strategies that lawyer management in the more financially and professionally successful midsize law firms have developed/will develop to deal with these trends.

1. Executive Committees and Managing Partners acknowledge that there will be in a buyer's market indefinitely. Therefore, they will (a) anticipate and respond to the needs and expectations of clients; and (b) take steps to insure that partners and associates understand that legal services must add value to clients, and that billing methods shift from cost-to value-based.
   
   
2. Executive Committees and Managing Partners in the more financially and professionally successful law firms acknowledge that the substantive and administrative sides of their practices will have to be managed in a more "businesslike" manner in order to continue to attract and retain high quality partners and associates; and continue to attract, retain and service their more profitable and growth oriented clients, during this decade, and beyond. This means that (a) the roles of lawyer management must include the oversight of their firms' day to day operations and the leadership component; (b) More and better leadership will be required in midsize firms to : (1) coalesce the attorneys and administrative members of the firm, and bring them together at a rallying point; (2) reinforce partners' and associates' confidence about their firm's future; (3) think strategically about the firm; (d) take the necessary steps to retain the more productive and profitable partners and associates; (e) maximize opportunities in core competencies, and (f) identify opportunities that compliment/supplement current areas of expertise.
   
   
3. More and better planning for the future by lawyer management in midsize law firms. Executive Committees and Managing Partners will think strategically about their firms, i.e., reach a consensus of the partners about what should be the common goals for their firms generally and for each of its substantive components. Managing Partners will need to identify what the partners want their firm to become, and whether it has the resources internally to achieve these objectives, or if the firm will achieve these goals as the result of the acquisition of lateral hires with an active client base in particular practice areas.
   
   This planning process will contribute to establishing common goals, and enhances the understanding of values and cultures of attorneys in the firm, generally and their respective practice areas;
   
   
4. Lawyer management in midsize firms will further instill in their partners, associates and support staff the importance of focused and enhanced client service and marketing efforts as an integral part of their firm's culture. Further, client needs and service requirements will drive every decision these firms make that affect their clients.
   
   
5. Client Service Teams in midsize law firms consisting of attorneys with expertise in interdisciplinary substantive practice areas of law will become more prevalent in midsize firms. These teams will provide legal services to clients, enhance client relations and marketing efforts for clients, generally.
   
   
6. Midsize law firms will establish dedicated Key Client Teams consisting of attorneys with expertise in interdisciplinary substantive areas of law to provide legal services and enhance client relations and marketing efforts for each of their firms key clients, i.e., the firm's fifteen (15) or twenty (20) top fee paying clients. Each Key Client Team is headed by a Client Relation s Manager who focuses on client relations, performing or coordinating the performance of legal services for the applicable client, etc. This includes (a) visiting key clients' offices, touring their plants, etc.; (b) attending industry conferences; (c) reading clients' industry publications, (d) maintaining a cross disciplinary approach for servicing their clients; (e) obtaining industry news feed from the internet; and (f) sharing historical "war stories" about the practices of key clients.
   
   
7. Client service and marketing activities in midsize law firms will become more targeted and focused on specific industries, i.e., practice teams geared to particular industries, clients, areas of specialization within industries, etc., will replace larger practice areas as the basis upon which law firms are organized and marketed.
   
   
8. Attorneys in midsize firms who possess expertise in particular industries are included as members of "industry committees" for attracting work from existing and potential clients within these industries. In this regard, more firms are requesting their attorneys to complete "attorney profile forms" that highlight the substantive as well as industry expertise of each attorney to be posted as a resource on the firm's information system. A copy of an attorney profile form is included in the exhibit section of this report.
   
   
9. Midsize firms will create Marketing Committees/partners whose objectives are to coordinate/oversee the marketing and client relations efforts of the leaders of the client service teams - generally and for the top paying clients - have assumed, and will continue to have greater prominence. These Committee members will be expected to identify potential clients for development, the proliferation of work from existing clients and the cross selling of the firm's expertise, etc.
   
   
10. Partners and associates in midsize firms will be required to prepare personal business plans based upon their areas of practice, talents and abilities. A copy of an attorney planning form is included in the exhibit section of this report. Attorneys having the ability and interest in business development will be given the opportunity to develop additional business; their annual billable hours and dollar budgets are reflective of the decision to allow them to spend more time marketing, etc. Many midsize firms will include in their compensation criteria the extent to which partners have achieved their business plans.
    
    
11. Midsize law firms will increase their allocated budgets of time and out-of-pocket expenses devoted to marketing. Currently, many midsize firms budget out-of-pocket marketing expenses to be equivalent to two and one half percent (2 ½%) to three percent (3%) of annual revenue.

* Excerpted from Mr. Rose's introductory remarks during the 17th Annual Conference & Workshops on Law Firm Management & Economics that was held in Washington, DC March 18 - 19, 2004. This annual conference, sponsored by Joel A. Rose & Associates, Inc., is attended by managing partners, members of executive and management committees, financial partners and executive directors of midsize law firms across the United States