Our blog will return after January 2, 2012, as well as Hildebrandt Headlines. All of us here at the Hildebrandt Institute extend our very best wishes for a happy holiday season.
Hildebrandt Institute is a division of
-
Recent Posts
Blogroll
Monthly Archives: December 2011
Apple of Their Eyes
Last month we wrote about the growing proliferation in law firms of tablet devices, especially the iPad, and how their adoption is being driven in large part by lawyer demand. The latest Macs in Law Survey shows that Apple products, particularly the iPad and iPhone, are gaining momentum with lawyers over competing technologies such as RIM’s BlackBerry. This survey, now in its second year, was conducted by Vancouver-based Themis Solutions Inc., the developer of Clio, a cloud-based practice management system designed for solo practitioners and small firms. Survey results were based on responses from 763 legal professionals and law students, 76% of whom were lawyers at firms with 10 attorneys or less.
So why the preference for all things Apple? Almost half the respondents chose Apple hardware because they felt the “technology was more reliable and secure.” Over one-third mentioned usability. And with specific regard to the iPad, 52% of respondents report using an iPad in their law office in 2011, a big bump up from 26% in the 2010 survey. And for those contemplating buying an iPad for their law office, 70% are considering a purchase next year, compared to 40% in 2010.
In terms of mobile devices, the iPhone is clearly the winner, chosen by 61% of respondents, followed by Android-based devices at 21% and the BlackBerry at 11%. And users for the most part are pretty happy with their current choices – 77% do not plan on switching mobile devices next year.
And while only 10% of respondents stated that familiarity with Apple/Mac products due to home use was a reason to choose it for the workplace, over three-quarters of law students plan on choosing a Mac platform for their office when they graduate. This suggests a very bright future for Apple hardware and devices in the legal industry.
The Hildebrandt Institute will be exploring technology issues at its annual CIO forum in New York on April 18, 2012. If you are interested in attending or participating in the forum, please contact us at hildebrandtinstitute@thomsonreuters.com.
Posted by Marianne Purzycki
Modest Rate Increases Predicted For 2012
The National Law Journal released its annual billing rate survey this week and for the third year in a row, billing rates showed modest increases. For the 62 firms in the NLJ 250 ranking that provided billing rate data, the average firm-wide hourly billing rate, which combines partner and associate rates, increased by 4.4% during 2011 from $390 to $407. That increase followed on a 2.7% increase in 2010 and a 2.5% increase in 2009, all much lower than the routine six to eight percent increases seen in the pre-recession years when a seller’s market was being driven by high demand for law firm services.
While firms may have been reluctant to increase rates too much in the early years of the economic downturn, as clients’ prospects have improved somewhat this past year, firms have felt freer to boost rates. However, in today’s buyer’s market, clients are still pressing for more control over pricing and staffing decisions, which continues to put a ceiling on rate hikes.
The Hildebrandt Institute’s Peer Monitor Index (PMI) tells a similar story, indicating that rates firmed up slightly for the third quarter of 2011, rising 3.5% compared with the same period a year ago. “The story hasn’t changed a whole lot in the past year,” Peer Monitor director Mark Medice told the NLJ. “And I suspect that we’ll see a similar story in 2012, which is that rates will increase about 3 or 3.5 percent.”
The PMI report also points out that for the overall market, 2011 third quarter rate growth is the strongest rate performance in over a year. However, one size does not fit all. Peer data also suggests that while many firms are achieving better‐than‐average rate growth this year, other firms are not faring as well and are seeing flat or even slightly negative rate growth. Some firms are being more strategic and are targeting key practice areas and attorneys that will bear rate increases, while leaving others alone, says Medice.
Medice also believes that the rate increases reflect some shifting of work to more senior attorneys in response to the “first-year dilemma,” a topic that we’ve written about before. “We’re starting to get some information that firms are taking a harder look at associates,” Medice said. “The use of first- and second-year associates has declined, and there’s a stronger mix of senior associates in the pool.”
Under increasing client pressure for greater value and lower costs as well as fiercer competition for legal market share, according to Medice, “[the] question now becomes, ‘How do we grow revenue?’” He added, “I think we’re on a relatively steady path to change in the pricing and relationship model, even though alternative fee arrangements are still only about 10 to 12 percent of business. I think we’ll see a lot of law firm mergers as well.”
Posted by Marianne Purzycki
Posted in Insights
Tagged AFAs, alternative fees, billing rates, first-year dilemma, Peer monitor
South Korea Quickly Attracting U.S. Firms
For the third week in a row, a major American law firm has announced that it will open an office in South Korea next year. Cleary Gottlieb Steen & Hamilton, Sheppard Mullin Richter & Hampton, and Simpson Thacher & Bartlett, have all announced that they intend to open offices in Seoul in 2012. Pent up demand, which has been building since the U.S. and South Korea agreed to a free trade agreement (FTA) in 2007, is now being satisfied, since both countries ratified the FTA this fall, opening the legal services market to U.S.-based firms.
Earlier in the year, U.K. firms were granted permission to open offices in South Korea with the approval of the FTA between Europe and South Korea that was signed by the European Parliament in February. Beginning in July, European Union-based law firms were permitted to open representative offices in South Korea to advise on foreign law. By July 2013, EU firms will have the right to fee share with Korean law firms and by July 2016, firms will be able to enter into partnerships and hire Korean lawyers. While Allen & Overy, Clifford Chance and Linklaters are all active with Korea work, only Clifford Chance has announced (in February) its intention to open in Seoul.
Foreign firms must first get approval from the Korean Ministry of Justice before setting up an office and must then register with the Korean Bar Association, in a process that takes approximately three months.
Beginning in January, U.S. firms will be allowed to file applications to open representative offices. In a multi-stage process, the firms are initially permitted to advise on U.S. law, public international law and international arbitration. In 2014, they will be able to enter cooperative agreements with local firms on work that combines elements of international and local counsel. In 2017, U.S. firms will be able to hire local lawyers and merge with local firms.
Immediately after the US-Korea FTA was approved in late November by the Korean Parliament, Cleary Gottlieb, with one of the leading Korea practices among international firms, was the first U.S. firm to announce its intention to open an office in Seoul in the first half of 2012. The firm will initially relocate two Hong Kong-based partners to Seoul for the launch plus a number of Korean-speaking associates. The firm plans to move most of its 17-lawyer Korea team from Hong Kong in the next two to four years.
Sheppard Mullin announced last week that it would open an office in Seoul in the first quarter of 2012. Partner Seth (Byoung Soo) Kim, chair of the firm’s Korea practice and currently based in the firm’s New York and Los Angeles offices, will relocate back to Seoul to head the office. Samsung, Hyundai Motor, and Korea Development Bank are among the firm’s many Korean clients.
Simpson Thacher, which like Cleary has a large share of the Korean market, announced plans this week to open an office in Seoul “as soon as practicable in 2012.” Partner Youngjin Sohn will relocate to Seoul, together with several associates from the firm’s Hong Kong office, where the firm’s 10-lawyer Korea team is currently located. The firm represented Goldman Sachs, Morgan Stanley and BoA Merrill Lynch in connection with Samsung Life Insurance’s $4.4 billion IPO, the largest ever IPO by a Korean company.
Other U.S. firms that are considering launching offices in South Korea include Paul Hastings, McDermott Will & Emery, and Ropes & Gray.
Posted by Marianne Purzycki
Survey Reports Majority Would Report Wrongdoing
In an interesting follow-on to a piece that we wrote last week on whistleblowers, a new Ethics & Action Survey commissioned by plaintiff litigation firm Labaton Sucharow reports that 34% of survey respondents are aware of misconduct in the workplace and 78% would report the wrongdoing if it could be done “anonymously, without retaliation, and result in a monetary award.” Conducted by ORC International between November 17-20, the survey questioned 1,000 Americans.
As we mentioned in our post last week, the new whistleblower provisions in the Dodd-Frank act provide strong protection to employees who report the fraud directly to the SEC and provide monetary awards to eligible individuals of up to 30% of the money collected in an enforcement action in which over $1,000,000 in sanctions is ordered.
And while it was only in August that these new provisions kicked in, the SEC quickly recorded an impressive number of tips (well over 300) in just seven short weeks. So while the Survey reported that an overwhelming majority (79%) would encourage a loved one to report wrongdoing, other findings reveal differences among gender, income, educational levels, and regions of the country.
- Women were only slightly more inclined than men to encourage a loved one to come forward (82% versus 75%).
- In terms of income, while 49% of respondents with annual household income between $75,000-$100,000 reported that they had knowledge of, or had observed misconduct, the percentage dropped to 29% for those respondents with a household income above $100,000.
- While 29% of high school graduates had knowledge of wrongdoing, that figure rose to 42% for those with some level of college education.
- Of respondents living in the Northeastern US, 29% have observed or have direct knowledge of misconduct in their workplace while in the Western US, the number increases to 37%. In US metro areas, the number is 32% compared to 41% of respondents living in non-metro areas.
Posted by Marianne Purzycki
Rising expenses and uncertain economy cause firms to re-evaluate staffing
As the economy struggles to resurrect growth after a prolonged downturn, law firms are also feeling the pinch, as noted in the most recent Peer Monitor index. According to the third quarter report:
While rates strengthened slightly, demand growth weakened. Most significantly, the rise in expenses continues to accelerate. In the third quarter, increases in expenses ran well ahead of slowing revenue growth, sharply curtailing profitability.
The recent trend in increased expenses reflects a slow-down in the cost cutting we’ve seen in recent years, which was largely the lever that raised law firm profitability (or at least kept it from suffering too drastic of a decline) in many firms. Indeed, a significant portion of those expenses involve compensation for legal and administrative staff. The chart displayed here shows the dramatic difference between third quarter 2010 and this past quarter on the direction of key expense items. Compensation and benefits, which together contribute nearly 45% of total overhead expenses, have reversed sharply, nearly wiping out savings from last year.
There is much debate about whether and how much demand is likely to rebound in the coming years. We believe it will rise, but is unlikely to return to the go-go times prior to 2008, at least in the foreseeable future. Without significant growth in the market, in order to continue to increase profitability, firms can either augment their share of the market and/or look for ways to become more efficient. On the second point, many firms have already tackled the low hanging fruit in the form of removing some of the “fat” that tends to accumulate in any successful organization during good times. Going forward, firms will likely need to become more creative about improving the leanness of their business. Are firms now at the point of being forced to rethink the structure of their legal staff and administrative support, instead of merely making it smaller?
To take the pulse of the staffing structure in large law firms, we have just launched the third annual Peer Monitor Staffing Ratio Report. Contact Elizabeth Lilleboe to learn more and find out how your firm compares with the market on these critical issues.
Posted by Lisa Rohrer
Posted in Uncategorized
2012: Year of the Whistleblower?
According to data from the Association of Certified Fraud Examiners, fraud in companies is more likely to be discovered by tips (40%), than any other detection method. And while it was only in August that the new whistleblower provisions in the Dodd-Frank Act took effect, the SEC quickly recorded 334 whistleblower tips in just seven weeks of the program for fiscal year 2011, which ended September 30. The most common complaints were market manipulation (16.2%), offering fraud (15.6%) and corporate disclosures and financial statements (15.3%). Submissions came from individuals in 37 states, with the highest number coming from California (34), New York (24), and Florida (19) as well as from foreign countries, including China (10) and the United Kingdom (9).
So it is no wonder that a number of market commentators are predicting that 2012 might just become “the year of the whistleblower” and that perhaps whistleblowing will become a “global industry.” Thanks to the global economic crisis, some predict that countries will strengthen protection for whistleblowers and governments, mindful of misuse of public dollars, will devote more resources to rooting out fraud in public programs and military spending.
The SEC’s Office of the Whistleblower administers its whistleblower program and while the rules encourage internal reporting, they also provide strong protection to employees who want to report the fraud directly to the SEC. The Commission is authorized to provide monetary awards of up to 30% of the money collected, to eligible individuals who come forward with tips that lead to a Commission enforcement action in which over $1,000,000 in sanctions is ordered.
The SEC also reported in November that its past fiscal year saw the agency file a record 735 enforcement actions, including many cases of insider trading as well as those related to the financial crisis, often involving highly complex market practices and products.
And while the DOJ has not released fiscal year 2011 data for False Claims Act activity, in 2010 the DOJ recovered $3 billion in civil settlements and judgments, including a record $2.5 billion health care fraud recovery. Most of the cases resulting in recoveries were brought by whistleblowers under the False Claims Act’s qui tam provisions, and they are entitled to recover between 15 and 30 percent of the proceeds of a successful suit. Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $27 billion. Recoveries in qui tam cases have exceeded $18 billion, and whistleblowers have obtained more than $2.8 billion in awards.
So what do the new SEC whistleblower provisions mean for in-house attorneys? Corporate Counsel magazine recently interviewed Paul Leder, a partner at Richards Kibbe & Orbe, who specializes in securities compliance and enforcement, and previously served as a deputy director at the SEC. According to Leder:
A key issue for companies in 2012 is going to continue to be the enhanced whistleblower provisions that the SEC now administers. And the reason for that is twofold. One is that companies need to focus on their internal mechanisms for dealing with whistleblowers to encourage internal reporting at the earliest possible stages. In those cases where they receive a complaint, they need to be prepared to deal with that in a timely and credible fashion. The other piece . . . is that whistleblowers would be likely to make allegations related to financial fraud issues and illicit payments. Whistleblowers may believe, rightly or wrongly, that they have insights into the company’s activities in these areas that might point to potential misconduct.
Leder further explains that companies must develop a culture that encourages internal reporting, and the message needs to be clearly communicated and re-communicated by all levels of management. Companies must also have a mechanism, such as a hotline or an ombudsperson, to receive the complaints, and then finally, the complaints must be acted upon in a timely and effective manner, so it is apparent to employees that they have been heard and are being taken seriously.
Posted by Marianne Purzycki
Update on Hong Kong: World Leader in IPOs (Again)
Last month we wrote about a “war for talent” in Hong Kong, in which we highlighted the growing number of firms that have recently launched local Hong Kong law practices. Local practices are especially advantageous when competing for IPO work, where the competition can be fierce. An article in today’s Wall Street Journal (subscription required) reports that Hong Kong will edge out New York this year for new listings, making Hong Kong the top global venue for the third year in a row.
As of last Friday, data provided by Dealogic shows that Hong Kong has raised $30.2 billion in new listings, compared to New York with $29 billion. The rebound is a surprise, since New York led for most of the year, and is due to three big IPOs in the market now which are worth as much as $6.75 billion. Leading companies, such as Haitong Securities, China’s second-largest brokerage, have attracted institutional investors “with a combination of lower-than-expected prices and smaller offerings, bankers involved in the deals said.” The other two companies in the market are New China Life Insurance Co., the country’s fourth biggest insurer by premiums, and Chow Tai Fook Jewelry Group Ltd., the world’s biggest jewelry company by at least some measures, which has drawn high-profile local investors and billionaire George Soros.
Posted by Marianne Purzycki
2012: Law Firm Leaders Cautiously Optimistic
The American Lawyer released the results of its ninth annual survey of law firm leaders this week and it is clear that while 2011 started out looking good for firms, the last few months indicate that firm management cannot count on a robust economy heading into next year. Despite the economy, 73% of law firm leaders are optimistic about their firm’s future in 2012. So firms are fine-tuning their strategies like never before to differentiate themselves from their competitors and looking for greater efficiencies in their internal operations.
Only 20% of respondents expect to see revenue growth in their corporate practices next year, compared to more than one-third of respondents last year. And clients are taking longer to pay their bills, according to 43% of the respondents. Billing rates are continuing to rise, with 93% of firms expecting to increase rates by 5% or less.
Cautiously optimistic, firms are holding steady on the size of their first-year associate classes, with 58% keeping their class size the same as in 2011. More than one-third of respondents expect to reduce their equity partnership ranks and 49% of firms have made efforts to align partner compensation with a willingness to cooperate in new initiatives such as project management.
Leaders are not as optimistic about profits per partner as they were last year. The majority (58%) of survey respondents expects PPP to grow 5% or less, which is higher than the 41% who responded last year. A healthy 26%, however, expect profits to increase by more than 5%, although this is down considerably from last year’s 38%.
Strong client relationships are critical and “firms are building closer ties with key clients—89 percent of survey respondents said they’ve accomplished this in the past year.” More than half of all respondents have a formal client feedback program in place.
In fact, relationship-building has become so important that it is now an essential skill for partners. “The old model had room for the entrepreneurial partner and also the partner who did a good job maintaining a relationship with a client,” says John Murphy, chair of Shook, Hardy & Bacon. “Now there is more emphasis on growing business, so the partner who is maintaining the status quo is falling behind.”
Clients continue to be assertive, with 81% of respondents reporting that more clients are requesting discounts and 55% reporting that clients are requesting deeper discounts. When asked if clients have refused to pay for work by first- or second-year associates, 54% responded in the affirmative. Almost all of the respondents had some alternative fee arrangements in place in 2011. Most common was the flat fee for an entire matter (92%); 82% used capped fees; and 74% used contingency fees. However, in terms of the actual amount of work (percentage of matters) that utilized AFAs in 2011, the average was only 16%.
Big gains are being seen in alternative staffing arrangements. The use of contract lawyers is more popular, with three-quarters of respondents using this arrangement in the past year, up from 55% in 2010. Thirty-seven percent of respondents outsourced work to lawyers managed by third parties (up from 25% last year), while 28% outsourced work to non-lawyers managed by third parties, almost double the percentage from last year.
Posted by Marianne Purzycki
Emily Fisher
Marianne Purzycki
Administrator
Tricia Pelton
