Practice Change

Law is a famously conservative profession, but it’s not immune to market pressures. After six years of strong growth, law firms are seeing less demand for some legal services, changing client attitudes, more competition from legal specialists and other vendors, rising associate salaries, and, locally, competition from law firms on the East and West Coasts.

All have helped shrink profit margins, says Brad Hildebrandt, chairman of Hildebrandt International, a New Jersey–based consulting firm that follows the legal industry. “[Last year] was a very strong year, but 2008 is weaker. Costs have gone up faster than revenue and profit growth, and that puts pressure on law firms,” he says. “Salaries have gone up, occupancy costs have gone up, technology costs have gone up.”

In the Twin Cities, law firms say that they’ve seen a decrease in corporate business. “It’s not a surprise that, with a slowing economy, transaction work is slowing down,” says Marianne Short, managing partner at Minneapolis-based Dorsey & Whitney, LLP. She says that her firm is seeing an increased demand for the legal work required for restructuring and acquiring distressed companies.

“We’re extremely busy in the litigation group,” says Cooper Ashley, chair of the governance committee at Maslon Edelman Borman & Brand, LLC. He notes that financial services and estate-planning lawyers are also busy.

At Minneapolis-based Gray Plant Mooty, Partner Bruce Mooty notes that employment law, acquisitions, bankruptcy work, and litigation are all in full swing. “Bankruptcy is in more demand in tough economic times, as is litigation,” he says. “In better times, they can’t be bothered. In worse times, they’ll argue over the money.”

They’ll also sometimes argue over intellectual property rights. “We had a record May for billable hours,” says Randy King, CEO and managing director at Minneapolis-based Merchant & Gould, which specializes in intellectual property work. “But we do see the economy in slower collections.”

Seeking Specialists and Specials

In this economic cycle, big local firms face increased competition from the East and West Coasts for large, publicly traded clients assigning business-critical projects. “Many times your very largest clients feel pressure to make a ‘safe’ choice for legal representations on their very biggest transactions,” says Tom Morgan, chairman of the management committee at Minneapolis-based Faegre & Benson, LLP.

Local multi-practice firms also compete with smaller specialists like Anthony Ostlund Baer Louwagie & Ross, P.A. in Minneapolis. “Our business model is to offer high-end, highly qualified business litigation services,” says Rich Ostlund, a principal at the firm. “We don’t try to be everything—we try to be among the very best at what we do.”