At Thomson Reuters' annual Law Firm COO & CFO Forum, held virtually, panelists focused on what law firms are doing to best navigate the current pandemic
The COVID-19 pandemic and economic crisis that ensued has dramatically altered how law firms have done business over the past eight months, and law firms by necessity have moved quickly to stabilize their business operations and manage costs.
Now, as the pandemic continues on, the legal industry has to start looking at how their operations may be permanently altered and what that means for lawyers, partners, and firm managers, according to a panel of law firm operations leaders. “The legal industry has learned that it can do hard things,” said Christopher Kraft, General Manager of Operations and Finance Solutions at Intapp. “The timing and nature of how we’re going to fully go back to work has yet to be explored.”
Kraft’s comments came during a panel that he moderated, The Risen Deep: Assessing Law Firm Operations in the COVID-19 Era, which was part of the Thomson Reuters Institute’s the 19th Annual Law Firm COO & CFO Forum, a two-day virtual event that focused on how law firms are weathering the storm of the current pandemic and what new directions law firm management is pursuing to best navigate the turbulent market.
Leading a panel of law firm COOs, Kraft outlined three top issues — real estate, workforce management, and technology adoption — that are now in flux and likely will be the key issues law firms must grapple with as they determine how to move forward both during and after the pandemic.
“Real estate is top of mind for everyone,” said panelist Steven Petrie, Americas Chief Operating Officer of White & Case, adding that firms are assessing their individual portfolio of office leases to find flexibility. “Everyone is thinking about how they’re using their space and how that space could be reconfigured if needed.” Trends in this assessment processes will run toward looking at space being used for meetings and collaboration rather than for individual work, he added.
Panelist Jane C. Koehl, Chief Operating Officer at Faegre Drinker Biddle & Reath, agreed, saying we likely will step back into our comfort zones around using office space and determine how that space will allow us to best serve clients. “The pandemic has made lawyers experience a great deal of forced adaptability,” she said. “We learned there are different ways of doing things, and now, we have to take a hard look at how we come up with a strategy for issues like real estate.”
For many law firms, these issues were “pre-COVID concerns” that were already leading many lawyers to question traditional law firms models. “We’re all evolving,” said panelist Robert K. Burger, Global Chief Operating Officer at Sterne, Kessler, Goldstein & Fox. “We’re all looking to each other as to what to do, whether in real estate, managing our workforce, or technology.”
Panelist Ralph Allen, Chief Operating Officer at Allen Matkins Leck Gamble Mallory & Natsis, noted that the time of the pandemic has given law firms another tool in their kit. “We have proven that we can have parts of our firm not in the office and members of our staff working remotely,” Allen said, adding that each firm will have to figure this out for themselves. “From firm to firm, we will see a mix of ways to coming back to work.”
Since many law firms place a high premium on managing their people, office space, and technology, it is unsurprising that these areas will be focal points for firms wanting to establish how they will work in the future. Further, it’s likely that this re-evaluation process will last past the pandemic into whatever the next new normal looks like.
“We haven’t learned all we can learn from this,” Allen added. “We will find new opportunities to learn and move the ball forward.”
State of the legal market
Prior to the panel, James W. Jones, a Senior Fellow at the Center on Ethics and the Legal Profession at Georgetown University Law Center, and Gretta Rusanow, Head of Advisory Services in the Law Firm Group of Citi Private Bank, offered a reading on the current state of the legal market.
In the decade since the end of the Great Recession, law firms have performed reasonably well, notching acceptable levels of profitability, while being able to aggressively increase rates and control costs, said Jones, adding that this was expected this to continue, but then the pandemic hit.
“I think you saw in 2018 and ’19 especially, some very good years in regard to firm performance,” he explained. “And in fact, judging by the first couple of months in 2020, we were on track to have another strong, possibly record-setting year.” By March, however, as the pandemic began to dramatically impact the business world, including the legal industry, those pathways quickly closed.
Once firms got over the shock of the pandemic, however, they were quick to adapt to the need to work remotely and then focus on the business and on clients. “Within weeks, law firms were able to move to fully remote operations,” said Rusanow. “But then very quickly the focus shifted from continuity of legal operations to cash flow management.”
Law firms moved to reduce headcount, though they were less likely to discharge fee earners, with just 12% of large law firms reducing non-partner fee earners, according to data from Thomson Reuters Peer Monitor. Firms were more likely to trim support workers, with 26% of large law firms discharging and 40% furloughing support staff.
Firms also acted aggressively to control cost, slashing discretionary spending (with a whopping 91% of large law firms doing this); cutting the salaries of non-partner lawyers (43%) and support staff (40%); and suspending partner draw-downs (50%).
Because of these actions, many law firms were able to greatly stabilize their operations and return to some semblance of operational effectiveness. “While it’s likely that full recovery might take some time — and a general consensus seems to point to the third quarter of 2021 — law firms may actually finish the year better than they had originally feared at the beginning of the pandemic,” said Jones.