Saul Ewing in Philadelphia recently investigated a client’s potential corporate acquisition under a six-week flat-fee engagement. The matter was handled about 10% more cheaply for the client than it would have been under a billable-hour deal, said Mr. Antzis, the managing partner. He said “it was still fair to the firm” because “we were incentivized to get done in 10 hours what another lawyer at another firm may have spent 12 hours doing.”

_______________________________________________________________

(Ed: A different slant for the next few Fridays: something that caught my eye and speaks for itself.)

WSJ’s Law Blog has a bit more tempered view of this report here, with the banner: “Has BigLaw Turned the Recession Corner? Yeah, But . . .” Finally, the NLJ completes the picture with an article entitled: “Survey Suggests Law Firm Economics May Be Stabilizing.”

This sort of stuff put a little wind beneath your sails as you make that final trip to the beach ahead of back-to-school time and a later-than-usual Labor Day.

When you look closely at the Hildebrandt press release, a few things readily become apparent. First, cost controls may do something in the short term about firm profitability, but they certainly have nothing to do with client demand and its related pricing. Many law firms deal with costs as a short-term tactic, not part of a longer term strategy.

Then you see these nuggets on demand, pricing and outlook:

Demand, as measured by billable hours, was down 7.3 percent in the second quarter compared with a year earlier. However, there are some signs that demand may be beginning to stabilize. Bankruptcy work continued to be strong. Litigation work was down from a year ago, but may be stabilizing. Transactional practice areas, including corporate, mergers and acquisitions, capital markets, and real estate were substantially lower but should show signs of recovery in the second half of the year if the general economy continues to improve.

Rate growth continued to be weak, up only 3.2 percent from a year earlier. Among practice areas, bankruptcy showed the strongest rate growth, up 6 percent. Litigation rates managed to increase 5 percent. IP litigation rates were basically flat. Antitrust and M&A were among the weakest practice areas, declining 1 percent and reflecting a lack of activity in many corporate sectors.

“Demand and pricing volatility will continue to pose challenges for firms in the coming months,” said Lisa Smith, vice president, Hildebrandt. “However, the legal industry’s success in systematically reducing expenses will give firms greater confidence and leeway in exploring new approaches to the law firm business model, such as alternative compensation and pricing models, to position themselves for continued success in a low-growth environment.”

The demand and pricing excerpts can be explained in one sentence, outside of a few practice areas, both are bad, and may still be getting worse. I believe that many firms still haven’t seen the low point of this downturn, since their current workload is a lagging indicator, one that tracks client decisions made years ago or relationships forged decades ago.

So let’s look briefly at the last excerpt, which to me is the most interesting. The premise is this: cutting expenses will give law firms more leeway in exploring new business models, particularly in a low-growth environment.

Here’s hoping, but I don’t expect anything across-the-board change amongst the so-called BigLaw firms. Changing a model in real time takes a lot of courage, and large amounts of leadership and consensus. Not easy tasks to initiate or manage.

What I really think is going on is that many firms hope that things will get better just in the nick of time to avoid the pain and uncertainty of making major changes.

If I’m correct, this leaves an opening for a few intrepid firms to develop a coherent strategy, and wrap it around a more flexible business model.

That would be interesting, even newsworthy.

Cynthia Cotts of Bloomberg goes deeper into the trend of large law firm departures here, profiling a notable defection from DLA Piper (Ron Schiller leaving for Hangley Aronchick Segal & Pudlin); other firms are mentioned as well. DLA Piper co-CEO Francis Burch puts on a brave face, with good reason for now:

“There is no partner who could walk out the door and create any material economic problems for the firm,” Burch said. “We are too big, too well diversified, and our business base is too well-institutionalized. Our global revenue for 2008 was $2.26 billion.”

(I first stopped reading after the “We are too big…” and pondered for a moment. –Ed).

With some exceptions, many big-firm lawyers with a healthy book of business aren’t going across the street to a similar big firm. They are going smaller, boutique, or virtual. Lower costs equals staying in the game; fewer conflicts and more flexibility are the icing on the cake.

It’s not just that clients are becoming increasingly demanding about cost. They are starting to talk about it. And over time they will become even more informed. Some law firms will have the critical mass to charge a lot, stay large and perhaps grow. But not as many–certainly not 200, maybe not even 50.

It can’t be easy being an Admiral on a BigLaw battleship as you try to change course in an increasingly shallow corporate legal bathtub.

The joke around Detroit is that GM went through bankruptcy in less time than it took outsiders pre-filing to get a response to voicemails and schedule a meeting. You have to hand it to GM and government lawyers, as well as lead counsel Weil Gotshal. They also benefited from being second in line after Chrysler, changing a few pages in the playbook along the way.

It’s still uncertain how the economy will do, how GM will do in it, and how long the government will have a majority stake.

The GM saga has spawned a cottage industry in speculating how it informs issues in the legal industry like BigLaw firms or legal education.

I tend to think that GM is a special case. Law firms have been spectacularly profitable for years; GM, not so much. I doubt there are many takers in the Am Law 200 to roll the dice with a Section 363 gambit (not least of which because law firms have few real assets save for the relationship partners that walk out the door every night). The biggest challenge facing the largest law firms is peering through their past success and seeing what awaits about 80% of them in the next 18-24 months.

Surely doing something decisive in the next 40 days isn’t easy, given the vacations planned, and Labor Day running late this year…

So let’s leave that messy business for another day; The New York Times notes today that the new Camaro is proving to be a hit; so I guess it’s OK for hard-core import owners to go out and buy one.

It turns out that this goes beyond corporate law and extends to cornflakes. The Economist
($$) drills into this issue and quotes Eric Anderson, associate professor of marketing at Kellogg School of Management, Northwestern University:

The study will alarm packaged goods groups, as the most loyal customers – those choosing one brand for more than 70 per cent of their purchases in a category – should also be their most lucrative.

“Defection is top of mind for brand managers now because they’re the most profitable customers…”

You could link that excerpt to convergence and ponder it for awhile. The good professor continues:

“Price and promotion have become so salient at retail, that what we thought was the loyal customer can be moved with discounts…”

“Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.”

Let’s assume for a moment that some of this retail phenomenon applies to professional services. My question is: will the flight work return to the largest law firms once the economy turns around?

My hunch: some maybe, most no. (The efforts of certain firms to hold on by giving discounts in consideration for future work is noted, but it will get a separate post.)

Certainly these so-called “branded” firms may have to try something different, marketing-wise, to make that happen.

One idea: how about this splashed across the firm home page?