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Friday, October 12, 2012
"Suicide Prices" and the Coming Crisis at Big Law Firms
Oct. 12 (Bloomberg Law) -- An increasing number of major law firms are quoting "suicide prices" just to get business that will keep their lawyers occupied, even though the firms can't make money on the work, according to law firm consultant Bruce MacEwen.
Those firms may be training clients, like department stores have done with their customers, only to buy when prices are discounted, which could lead to more major firms going out of business, says MacEwen, who writes at Adam Smith, Esq. (http://www.adamsmithesq.com)
There are simply too many partners and associates at many firms. Adding to the firms' economic challenges, the revenues of legal process outsourcers (LPOs) are expected to grow 85 percent in the next few years. The result is more attorney layoffs are likely ahead, he says.
Big firms have "avoided the really difficult, awkward conversations" about trimming partner ranks. But "that day is coming, because that's where the money is," he says.
"Most partners actually don't understand the firm's business. It's not their job. They want to serve their clients. That's why they made partner. But it presents a tremendous challenge to managing partners" in a time of economic challenges, MacEwen says.
Twenty-five years ago, average partner pay at the AmLaw 100 law firms was 11 percent higher than that of the average American worker. Today it is 23 times higher. "You cannot grow that tree to the sky forever," says MacEwen.
"Some firms get it completely; other firms just are hoping they can hold their breath and it will be 2006 again."