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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The billable hour is as outdated as the law library, advocates for alternative billing say.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. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  2. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

  3. It's a big fat black mark against the US that they radicalized a lot of these Afghan jihadis in the 80s to fight the soviets and then when they predictably got around to biting the hand that fed them, the US had to invade their homelands, install a bunch of corrupt drug kingpins and kleptocrats, take these guys and torture the hell out of them. Why for example did the US have to sodomize them? Dubya said "they hate us for our freedoms!" Here, try some of that freedom whether you like it or not!!! Now they got even more reasons to hate us-- lets just keep bombing the crap out of their populations, installing more puppet regimes, arming one faction against another, etc etc etc.... the US is becoming a monster. No wonder they hate us. Here's my modest recommendation. How about we follow "Just War" theory in the future. St Augustine had it right. How about we treat these obvious prisoners of war according to the Geneva convention instead of torturing them in sadistic and perverted ways.

  4. As usual, John is "spot-on." The subtle but poignant points he makes are numerous and warrant reflection by mediators and users. Oh but were it so simple.

  5. ACLU. Way to step up against the police state. I see a lot of things from the ACLU I don't like but this one is a gold star in its column.... instead of fighting it the authorities should apologize and back off.

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