Many of the major law firms in the larger cities in the United States grew in size in response to client demand for legal services and became known as “mega firms.” Some of those firms now have thousands of lawyers. Many clients feel compelled to employ them in “bet the company” legal matters. Their fees are remarkably higher than many mid-size (or even larger) firms in order to pay the increased overhead in cities such as New York, Washington D.C. and San Francisco, including the ever rising salaries of associates. They continue to grow.
This growth in size has taken a different direction over the last few years as a result of the acquisition of, or merger with, law firms located outside of the United States. Many firms now have offices worldwide. In the coming months and years will those firms start to look elsewhere for growth and if so, what options are available to them? Will the next step be to acquire regional law firms, and if so, how will that affect the independent small to mid-sized law firm?
Typically, regional law firms are defined as those having multiple offices, cities and states within the same region. The movement to regionalize law firms started 15 or more years ago. Firms regionalized themselves by merger, but more frequently by hiring away blocks of lawyers from established firms in other cities who then opened local offices. These lawyers were either big income producers or rainmakers or both. They were offered more money and more apparent stability. The raided firms were left with a substantial loss of revenue and a non-commensurate reduction in overhead, and in some cases, loss of clients. Some were forced into immediate dissolution. In other cases, dissolution occurred later as additional lawyers left the firm because of the inability to maintain lawyer income levels.
A recent count among Birmingham firms reveals 15 firms that have multiple non-Birmingham offices, most of which are located within the Southeastern United States. Fifteen years ago, the number of firms was closer to three or four with offices outside of Birmingham, much less the state of Alabama. It appears very likely that this trend will continue, not because of savings in economies of scale – frequently touted as a means of increasing profits in non-legal mergers, similar to the financial services industry’s heightened merger and acquisition activity of the last decade – but rather as a means to increase hourly fees and expand a firm’s client base.
We can’t explain why, but clients expect to and are willing to pay higher rates for large law firms. We know of cases where clients are paying higher rates for associates in regional law firms than for more experienced and qualified partners in non-regional firms. Clients unwilling to pay higher rates are politely invited to find another firm to represent them.
Regional firms implore their clients to use their firm’s lawyers in every city where they are located. To some clients this may seem attractive as they are only then dealing with one law firm, instead of maybe 12, and perhaps they think they will have more control over the fees they are charged if they use the firm region-wide. The regional firm’s gain of clients in this manner results in a loss of business for smaller local firms. What was once your client is now their client.
Is it just a matter of time before the international firms turn their attention to the regional firms for merger candidates? If that happens on a large scale, then what? Won’t that just exacerbate the problems mentioned above? To over-dramatize it, are the days of the small and mid-sized firms numbered?
It is no longer good enough to do excellent legal work for your clients. They need to know how much you value your relationship with them and you cannot do that sitting behind your desk in your office. If you have any hope of keeping your clients when this onslaught occurs, you better have a deeper relationship with them than just a periodic phone call and a handshake.
How do we maintain our practice when multiple regional firms are practicing in our area and encouraging their clients to do business with them throughout the region? There is no easy answer, but one thing firms can do is become more active in legal networking societies – as we have with Primerus. Get to know as many attorneys in these organizations as you can, because they are an invaluable source of business. Make a concerted effort to meet as many people as possible. Spend enough time with them so that they will remember who you are – because we all feel a lot more comfortable making referrals if we know the lawyer to whom we are referring the business.
Meeting people and building relationships with them are key to growing and maintaining your client base – whether the relationships are with the clients themselves, referring attorneys or businesses and networking organizations in your community. It is elementary, but every person is a source of business – whether as a potential client or a great source of referral work. It doesn’t matter where you meet them, be it a professional or social setting … just get out and meet people and make new friends. And you should conduct yourself in such a manner that the people you meet are convinced that you are a capable lawyer and worthy of a referral.