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Law firm forecast sees declining profits

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Declining profits could be on the dockets of many law firms again this year.

New Jersey legal consultancy Hildebrandt International expects profit-per-partner, a measuring stick of firm success, to decline 5 to 15 percent.

If the forecast released earlier this month proves accurate, it would mark the second consecutive year in which the average profit for law firms has fallen, a dubious distinction almost unheard of in the legal profession. Profits ranged from between flat and minus 10 percent in 2008, Hildebrandt said. Companies battered by the reeling economy are scaling back on legal counsel, unless of course they need bankruptcy advice. To compensate, firms are taking such drastic measures as reducing bonuses, freezing associate salaries, postponing new initiatives, instituting layoffs, and weeding out unprofitable partners.

Mike Williams, managing partner of Indianapolis mid-size firm Krieg DeVault LLP, thinks the mega firms that have locations in the "money centers" - Chicago and coastal cities - are hurting the most.

Krieg DeVault has weathered the storm relatively unscathed, Williams said, although at least a handful of local rivals have trimmed support staff to cut costs.

"There's no question that with the downturn in the economy, some of the legal services that clients have used law firms for, it's not happening now," Williams said.

Real estate, financing, and merger-and-acquisition activity is particularly slow. Conversely, the deepening recession is generating more lawsuits driven by massive layoffs.

The Hildebrandt report said the gloomy conditions provide law firms a chance to adjust their business models to appeal more to clients, including offering them alternative billing options.

The billable hour is as outdated as the law library, advocates for alternative billing say. The more hours billed, the more money a firm makes, which could encourage inefficiency, they say.

The option that could challenge the billable hour is a fixed-fee structure that gives clients a more accurate upfront estimate for the cost of services, allowing them to better budget for the expense.

A contracting economy arguably is fanning the argument for fixed fees, said Bob Birge of Law Firm Marketing Network, who has supported the fixed-fee model for years. Yet, firms have been reluctant to abandon billable hours because they've driven profits.

"Things have been good," he said. "Why shake it up when everybody's been making money?"

If billing correctly, firms can maintain profits while keeping clients satisfied, Birge said. If a fee for a real-estate transaction typically ranges between $5,000 and $10,000, for instance, a firm might charge $7,000.

But, Birge added, "Because nobody else does it, no one does it."

Indeed, the Hildebrandt report said some firms would have a difficult time making changes it recommended.

"We've gone through a period where everyone got used to growth and expansion," said James Jones, a vice president of Hildebrandt, in a statement. "People haven't really had to look at doing more with less."

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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