Current Developments of Legal Markets, Challenges for Law
Firms and for the Education and Training of Lawyers
•Facultad de Derecho, Universidad de Navarra: Training Lawyers for the
Future
•Madrid, 9 May 2013
•Markus Hartung
Training lawyers for the future – what future?
– The End of Lawyers? Rethinking the Nature of Legal Services – Richard Susskind
– The Death of Big Law – Larry Ribstein
– Growth is dead: Now what? – Bruce Mac Ewen
– Partnership: The Grand Delusion – Stephen Mayson
– Partnerships: Will they survive? – Laura Empson
– A less gilded future – The Economist
– Avoiding Extinction: Reimagining Legal Services for the 21st Century – Mitch Kowalski
– The Lawyer Bubble: A Profession in Crisis – Steven J. Harper
2
Agenda for today
1. Development of Legal Markets until 2007/08
2. The Impact of the Financial Crisis and Survival Strategies for Law Firms
3. The Spanish Legal Market
4. Client Expectations
5. The „New Breed“: Lawyers for the Future
3
No Future?
4
© Bruce MacEwen 2013
Where does this gloomy mood come from?
„... Law firms have had
Christmas for every day for
decades now, but the party
is over.“
(cit. Beat Hess, Shell)
1. Development of Legal Markets until 2007/08
Small
Scale
Large
High
Global
Elite
Specialist
Niche
Players
Value
Perception
Specialist
Niche
Players
Leading
Local
Players
Generalists
Low
Source: Kerma Partners, 2005
Commodity
Specialists
International
Full Service
Firms
The “Party” until 2007
Profits per equity partner, 1998 - 2007
USD millions
5,0
2007
1998
Wachtell
TOP 30 MOST PROFITABLE FIRMS
WITHIN THE TOP 60 FIRMS BY REVENUE1
4,5
4,0
Slaughter & May
3,5
Cravath
Sullivan
3,0
Cadwalader
2,5
Linklaters
Paul Weiss
Allen & Overy
Dechert
Gibson
Davis Cleary
Weil
Polk
Dunn White &
Shearman &
Case
Paul Hastings
Milbank
Debevoise
Willkie
Ashurst
2,0
Herbert Smith
Clifford
Chance
Skadden
Latham
1,000
800
600
400
200
Sterling
Orrick
Fried
Frank
1,5
Total profit
USD
millions
Freshfields
Simpson
Dewey &
LeBoeuf
DLA Piper
O'Melveny
Baker &
McKenzie
Mayer
Brown
1,0
Jones Day
0,5
0,0
0
50
100
150
200
1 Plus Jones Day, Baker & McKenzie, Mayer Brown, and DLA
Piper
© 2011 Dr. Klaus-Peter Weber
250
300
350
400
450
500
550
Number of equity partners
SOURCE: Am Law 100 (US firms); Global 100 (UK firms); The Lawyer.com (UK firms);
OneSource; Hoover's;
Web searches; McKinsey analysis
7
The World Order
in 2007
8
TOP 30 MOST PROFITABLE FIRMS
WITHIN THE TOP 60 FIRMS BY REVENUE1
Source: Am Law 100 (US firms); Global 100 (UK firms); The Lawyer.com (UK firms); OneSource,
Hoover‘s; Web searches; McKinsey analysis
2. The Impact of the Financial Crisis and Survival
Strategies for Law Firms
9
http://galerie.designnation.de/bild/29751
The Financial Crisis - Consequences
1. From 15 September 2008 on, complete loss of confidence in the
market, for nearly 9 month – replaced by Euro-Crisis
2. No funding for business activities available
3. M&A-activity and capital markets-transactions came to a halt
4. Mass lay-offs in UK and in the US
5. Law Firm insolvencies (Dewey being the most prominent example)
6. Surplus in demand (until 2008) developed into surplus in supply –
almost overnight
10
5,000,000
PEP
4,500,000
The World Order in 2012
Wachtell
4,000,000
Group A
3,500,000
Slaughter & May
Group B
Cravath
Sullivan
Paul Weiss
3,000,000
Milbank
2,500,000
Cadwalder
Wilkie
Debevoise
2,000,000
Fried Frank
1,500,000
Cleary
Simpson
Weil
Davis Polk
Group C
Skadden
Gibson Dunn
Latham
Dechert
Paul Hastings
O'Melveny
Shearman & Sterling
Orrick
Herbert Smith
Ashurst
Group D
Clifford Chance
Freshfields
Linklaters
Allen & Overy
White & Case
DLA Piper
Mayer Brown
1,000,000
500,000
Group E
0
0
100
200
300
400
# partners
500
5,000,000
PEP
4,500,000
The World Order in 2012
(incl. B&McK and Jones Day)
Wachtell
4,000,000
Group A
3,500,000
Slaughter & May
Cravath
3,000,000
Sullivan
Paul Weiss
Group B
Cleary
Simpson
Skadden
Gibson Dunn
Weil
Cadwalder
Davis
Polk
Latham
Wilkie
Dechert
Debevoise
Freshfields
Paul Hastings
Linklaters
Clifford Chance
O'Melveny
Allen & Overy
Fried Frank
Shearman & Sterling
Orrick
White & Case
Herbert Smith
DLA Piper
Ashurst
Mayer Brown
Milbank
2,500,000
2,000,000
1,500,000
Group D
1,000,000
Baker & McKenzie
Group E
Jones Day
500,000
Group C
0
0
100
200
300
400
500
600
700
# partners
800
900
5,000,000
PEP
4,500,000
Different growth strategies:
strategic positioning of Norton Rose
Fulbright
Wachtell
4,000,000
3,500,000
Slaughter & May
Cravath
3,000,000
Milbank
2,500,000
Sullivan
Paul Weiss
Cleary
Simpson
Weil
Davis Polk
Skadden
Gibson Dunn
Cadwalder
Latham
Wilkie
Dechert
Debevoise
Freshfields
Paul Hastings
Linklaters
Clifford Chance
O'Melveny
Allen & Overy
Fried Frank
Shearman & Sterling
Orrick
White & Case
Herbert Smith
DLA Piper
Ashurst
Mayer Brown
2,000,000
1,500,000
Baker & McKenzie
1,000,000
Jones Day
Fulbrigth & Jaworski
Norton Rose
500,000
# partners
0
0
100
200
300
400
500
600
700
800
900
1000
State of play today
1. Many law firms struggling with their market and their business model
2. Many law firms try to pursue a premium strategy, restructuring their
practices to get costs under control
3. Other firms are pursuing an aggressive globalisation (swiss vereins etc.)
4. Severe cost pressure, even for premium firms
14
Income/FE
1000000
Weil Gotshal & Manges
Germany 2011/2012
Shearman & Sterling
Hengeler Müller
900000
800000
Freshfields Bruckhaus
Deringer
Cleary Gottlieb Steen &
Hamilton
700000
Allen & Overy
Latham & Watkins
600000
P +P
Pöllath + Partner
Mayer
Brown
500000
Linklaters
Gleiss Lutz
Clifford Chance
White & Case
Noerr
Görg Flick Gocke SchaumburgHogan Lovells
Baker & McKenzie
DLA
Piper
Heuking Kühn Lüer Wojtek
Bird & Bird
Beiten Burkhardt
400000
GSK Stockmann
Luther
CMS Hasche Sigle
Taylor Wessing
300000
200000
0
100
200
300
400
500
# lawyers
600
15
Income/FE
1000000
2005-2012 – Growth Trends in Germany – 1st tier
Shearman & Sterling
900000
Hengeler Müller
800000
Freshfields Bruckhaus
Deringer
Cleary Gottlieb Steen &
Hamilton
700000
Allen & Overy
Linklaters
600000
Clifford Chance
500000
Gleiss Lutz
400000
300000
0
100
200
300
Data Source: Juve Database
400
# lawyers
500
600
Income/FE
550000.0
… 2nd and 3rd tier firms
Baker & McKenzie
500000.0
White & Case
Hogan Lovells
450000.0
CMS Hasche Sigle
Noerr
400000.0
GSK Stockmann
Heuking Kühn Lüer Wojtek
Luther
350000.0
Taylor Wessing
300000.0
250000.0
0
100
200
300
400
500
# lawyers
600
3. The Spanish Legal Market
18
Spanish legal services market – an overview
-
the problems of the Spanish economy also have an impact on the Spanish legal services market:
- 25 % unemployment rate
- dropping consumption rate
- decreasing investments (e.g. transactions / M&A)
- banking sector
- As a consequence of this: dropping growth rate of total revenues (Top 25 law firms):
- 2005: + 13.5 %
- 2006: + 15.6 %
- 2007: + 16.2 %
- 2008: + 11.2 %
- 2010: + 4.1 %
- 2011: + 2.6 %
- And: dropping growth rate of profitability – revenue per lawyer – of Top 25 law firms (2011
only + 0.4 %)
19
Source: Expansion/Juve Oct 2012
Spain and other european countries
E
Number of lawyers
G
UK
I
F
154,953
146,910
3.38
1.79
99,533
46,580
11.36
24.99
29.54
Average revenue per lawyer (€)
72,233
165,303
212,915
83,702 216,751
Top 25: Avg. revenue per lawyer
197,000
506,000
669,000
?? 500,000
64
117
669
??
87
Top 25: Avg. number of lawyers
329
237
1,338
??
227
Top 25: Total number of lawyers
8,217
5,932
32,113
??
5,677
Top 25: Total revenues (€ mio.)
1,597
2,925
16,723
??
2,163
Lawyers per 1000 population
Number of legal enterprises
Value of market (€ bln)
Top 25: Avg. total revenues (€
mio.)
139,789 213,081
2.27
47,765
3.55
0.74
29,093 145,501
51,646
Source TOP25: Juve 10/2012; Expansión; Source European figures: Regulatory Policy Institute, August 2012
20
18.18
11.36
Income/FE
400,000
The Spanish Market 2011/12
Uría Menéndez
350,000
Elzaburu
300,000
Baker & McKenzie
DLA Piper
Cuatrecasas Concalves Periera
250,000
Hogan Lovells
CMS Albinana & Suárez Gómez-Acebo
des Lezo
& Pombo
Cremades & Calvo-Sotelo
Maniega & Soler
Roca Junyent
Ramón y Cajal
Broseta
Auren Abogados y Asesores
BDOFiscales
AbogadosErnst & Young Abogados
Ramón Hermosilla & Gutiérrez
KPMG Abogados
de la Roza
Vialegis Dutilh
Ecija
PwC Tax & Legal Services
Lener
Deloitte Abogados y Asesores
200,000
150,000
Garrigues
Tributarios
100,000
Pedrosa Lagos
50,000
0
21
200
400
600
800
1000
Source: Expansion/Juve Oct 2012
1200
1400
1600
# lawyers
1800
2000
Income/FE
400000
The Spanish Market 2011/12 (without Garrigues)
Uría Menéndez
350000
Elzaburu
300000
Baker & McKenzie
DLA Piper
Cuatrecasas Concalves Periera
250000
Hogan Lovells
CMS Albinana & Suárez des Lezo
200000
Gómez-Acebo & Pombo
Cremades & Calvo-Sotelo
Maniega & Soler
Roca Junyent
Ramón y Cajal
Broseta
Auren Abogados y Asesores
Fiscales
BDO Abogados
Ramón Hermosilla & Gutiérrez
de la Roza
Vialegis Dutilh
Ecija
Lener
150000
100000
Ernst & Young Abogados
KPMG Abogados
PwC Tax & Legal Services
Deloitte Abogados y Asesores
Tributarios
Pedrosa Lagos
50000
0
22
100
200
300
400
500
Source: Expansion/Juve Oct 2012
600
700
800
# lawyers
900
1000
4. Client Expectations
“Don’t waste my
time”
“Solve my problem
completely”
“Provide exactly
what I need,
where I need it,
when I need it,
and at the best
rate”
© 2011 Dr. Klaus-Peter Weber
Internal and external legal spend
1st half
1990s: 50%
vs. 50%
Since then
until mid
2000s:
40% vs.
60%
Today: 33%
vs. 66%
1980s:
55% intern vs.
45% extern
Source: Mathias Otto, Mandantenerwartungen an die Führungspersönlichkeiten einer Kanzlei, AnwBl 2010, p. 303 ff.,
J. Bellis 2003
Inhouse hourly rates and cost/lawyer
290€
Int. Cost/Lawyer x 1.000
267€
270€
254€
250€
Internal Rate
241€
224€
230€
210€
190€
176€
170€
150€
134.00€
141.00€
148.00€
125.00€
130€
110€
97.00€
90€
70€
50€
2005
25
2007
2009
2011
2013
Survey amongst the 150 leading companies in Germany;
Source: Henning, Rechtsabteilungs-Report 2013
Criteria for the selection/instruction of law firms
Expertise
Trust
Personality
Price
Reputation
Service
Recommendation
International Reach
Track Record
0
20
40
60
80
Survey amongst the 150 leading companies in Germany;
Source: Henning, Rechtsabteilungs-Report 2011/2012
100
120
In existing client relationships:
What is important, what is (only) helpful?
Industry Knowledge
Relationship Partner
Lower Fees
Proactive Information
Understanding economic needs
Important
Quicker Results
Helpful
Better Availability
Think as Supporter
Altern. Billing
Better Reporting
Further Services
0
10
20
30
40
50
60
70
80
90
100
Survey amongst the 150 leading companies in Germany;
Source: Henning, Rechtsabteilungs-Report 2011/2012
In a nutshell: What Inhouse Lawyers expect
from their external advisers
Business Acumen
Ownership and
Legal Management
Accountability
Rigour
Risk & Cost
Management
•Know your clients! Think of them!
•Think! Be imaginative!
•Adapt your advice to fit the business
•Manage internal and external ressources wisely
•Understand the elements of legal advice and service provision
•Taking clear position
•Hold yourself accountable
•Precise. Comprehensive. Meticulous...
•... all that what lawyers are (or should be)
•Don‘t shy away!
•Keep an eye on costs!
... in two words: Adding value.
Source: T. Werlen 2010
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5. The „New Breed“ – Lawyers for the Future
Business Acumen
Ownership and
Legal Management
Accountability
Rigour
Risk & Cost
Management
•Know your clients! Think of them!
•Think! Be imaginative!
•Adapt your advice to fit the business
•Manage internal and external ressources wisely
•Understand the elements of legal advice and service provision
•Taking clear position
•Hold yourself accountable
•Precise. Comprehensive. Meticulous...
•... all that what lawyers are (or should be)
•Don‘t shy away!
•Keep an eye on costs!
Source: T. Werlen 2010
29
Porter‘s 5 Forces in the Legal Industry
Potential Entrants
(Boutiques, MDP, Spin
Offs etc)
Suppliers
(High Potentials)
Industry Rivalry
Substitutes (LPO)
30
Buyers (Bargaining
Power 
hypercompetition)
Three major trends can be identified:
1. The „More-for-less“-Challenge
2. Digitalization (growing importance of IT, legal knowhow „for free“ on the internet)
3. Liberalization (deregulation, new competitors, future of reserved activities?)
Source: Richard Susskind, Tomorrow‘s Lawyers, 2012
31
Future Models of Law Firms
Today:
Expert
trusted
advisor
Enhanced
practitioner
Routine
Worker
P
Senior
Associate(s)
32
Source: R. Susskind, The End of Lawyers?, 2010
Junior Associates
Tomorrow: Doughnuts and Glazed Doughnuts,
Networks and Eco-Systems?
Expert trusted
advisor
Expert
trusted
adviser
Enhanced
practitioner
Enhanced
practitioner
Process/Project
Manager
Partner
(Senior)
Associate
33
LPO
Provider
Project
Manager
Law Firms vs. LPO Provider
34
© Bruce MacEwen 2013
Future Jobs for Lawyers?
–
–
–
–
–
–
–
–
–
–
35
The Expert Trusted Adviser
The Enhanced Practitioner
The Legal Technologist (specific IT for the legal profession)
The Legal Hybrid
The Legal Process Analyst
The Legal Project Manager
The Legal Management Consultant
The Legal Risk Manager
…
…
© Richard Susskind: Tomorrow‘s Lawyers, 2012
What do young lawyers need for their professional future?
1. An excellent legal education
2. “Lawyering I” – understanding clients
3. “Lawyering II” - the application of legal knowledge in today’s business world
4. Training in professional ethics
5. A solid education in business administration
6. A solid understanding of the dynamics of the legal market
7. Basics of leadership and management in law firms; Soft Skills Training
36
What do young lawyers need for their
professional future?
1. An excellent legal education
2. “Lawyering I” – understanding clients
3. “Lawyering II” - the application of legal
knowledge in today’s business world
4. Training in professional ethics
5. A solid education in business
administration
6. A solid understanding of the dynamics
of the legal market
7. Basics of leadership and management
in law firms; Soft Skills Training
The voice from the US:
Future lawyers must also
be capable of connecting
law with collateral
disciplines ranging from
corporate finance to game
theory to cognitive
psychology.
(Prof. Epstein, WSJ 6 May 2013)
37
The Navarra Master-Program – starting to address
these needs
1. Two programs, four days each, in November 2012 (L. Empson/CASS
Business School) and March 2013 (M. Hartung/Bucerius CLP)
2. Goal: To provide students with 1st class insights and training in
management and leadership issues
3. Content:
1. Fundamentals of corporate and law firm strategy
2. The Business Model (i) and (ii)
3. Motivation of lawyers and corporate governance of law firms
4. The Legal Market in Spain and elsewhere
5. Setting Strategy (i) and (ii) incl. practical exercises
6. Client Expectations
7. Personal Business Development
38
Management Program
for Lawyers
Master Class
Bucerius Leadership
Program
(Modul 2-7)
© Bucerius Education GmbH (2011). Alle
Rechte vorbehalten.
Thank you.
Contact:
RA Markus Hartung
Director
Bucerius Center on the Legal Profession
E-Mail: markus.hartung@law-school.de
40