'Hot' and 'Cold' Trends

Surviving in the “new normal” requires recognizing both “hot” and “cold” trends. Twice a year, our firm publishes a report on “What's Hot and What's Not in the Legal Profession,” not only in the United States, but also elsewhere in the world. In order to grow ' or even just survive ' in today's changing profession, firms must capitalize on the hot trends and avoid the cold ones. These are some of the most significant trends in each category that we discuss in our current Midyear Update.

Practice Areas

Some practice areas are hot or even red hot. Firms that already have a practice in these areas should continue to invest in growing them. They include:

• Energy. The “shale rush” along with advances in fracking technology have revitalized the natural gas industry, and the establishment of offshore oil deposits in the Gulf of Mexico have all combined to attract global companies to invest in the U.S. And there's no client resistance to the high fees.
• Financial Services. Bank failures, Internet commerce and, of course, new laws such as Dodd-Frank are fueling this area. And it's not just at large firms. Smaller regional firms are also capitalizing on their historic strength in this area.
• Regulatory. It starts at the Federal level with health care reform and the EPA, and flows down to the state and local levels.
• Health Care and Insurance. These have been hot for several years. Now that the Supreme Court has spoken and Medicaid is becoming a controversial issue in many states, both areas will get red hot.
•  Intellectual Property. This is due largely to the increase in so-called “patent trolls” as well as a dramatic increase in copyright and trademark infringement suits.

On the other hand, certain areas that have been the mainstays of large firms have cooled down. Firms and lawyers who have prospered due to these areas should lower their plans and expectations.

• IPOs. They dropped 20% in 2011. The Facebook fiasco just made things worse. However, some sources report there is pent-up demand, so IPOs could get hot again this Fall.
• Mergers & Acquisitions. Not only has the total number of deals declined but also the number of large deals over $1 billion is at the lowest level since 2008.
• Securities Class Actions. A number of smaller firms have enjoyed huge revenues thanks to these cases. However, a study by Stanford University Law School and Cornerstone Research says the trend has been toward far fewer cases and smaller settlements. This trend is not expected to reverse itself in the near future.

Marketing and Business Development

While social media has been a hot marketing strategy for several years (and also as a practice area for firms that counsel their clients on drafting policies), a chilling wind has started to blow. In late May, the NLRB warned that social media policies may violate employees' rights depending on how posts are worded and how the policies are written and interpreted. This won't make social media any less hot, but it does mean that firms should plan on reviewing their own policies as well as those of their clients.

The “conventional wisdom” in business development is that relationships are the principal reason clients select a lawyer. Now, according to a recent PwC survey, recent relevant experience is the Number One reason clients pick a lawyer ' relationships are Number Three.

Trends and Issues

There are certain new trends that firms should recognize and address because they are either already hot or will likely become hot very soon.

• Cybersecurity. As hackers increasingly target law firms, lawyers are being asked to encrypt messages, resist using free Wi-Fi connections and regard text messages as potential security threats.
• Predictive Coding. This is a term referring to computer programs that use algorithms to determine which documents are relative to a case. Another program used in discovery is keyword searching. Both programs reduce the amount of human review, but many lawyers say there is no adequate substitute. Whether these two programs become hot or not, the high cost of discovery means firms must continue to explore other technological alternatives to simply assigning an army of lawyers to conduct human review.
• Corporate Procurement. These departments are having a greater voice in selecting outside counsel, which is confounding the business development and proposal processes in some firms. However, they are still learning the legal services sector and how to collaborate with their legal departments. While it's possible their involvement and influence in the selection process may cool down after a while, firms would be wise not to count on it.

Other trends that have been hot may be starting to cool down but they must still be recognized at least for a while.

• Cost Pressures. Altman Weil's annual survey of general counsel says 56% of them reported an increase in their 2012 budgets for outside counsel. However, the increase in total budgets may well be the result of increased litigation and regulation that may only result in GCs pushing firms even harder to reduce the cost of individual cases and matters.
• Alternate Fee Arrangements. AW's survey also stated that AFAs accounted for only 14% of total fees for outside counsel. Other surveys state GCs say AFAs need to better control costs, provide greater accuracy in fee estimates, promote greater lawyer efficiency and better allocate risk. It is possible that, unless those issues are resolved, AFAs may cool down.

Non-Lawyer Investors

There is one other issue that may be getting hot, at least in the United States ' non-lawyer investors. This issue may become red-hot very soon.

Robert W. Denney, a member of this newsletter's Board of editors, is President of Robert Denney Associates, Inc., a firm that provides strategic management and marketing counsel to law firms throughout the United States and parts of Canada. The firm's website is www.robertdenney.com. Mr. Denney can be reached at 610-644-7020 or [email protected].

Surviving in the “new normal” requires recognizing both “hot” and “cold” trends. Twice a year, our firm publishes a report on “What's Hot and What's Not in the Legal Profession,” not only in the United States, but also elsewhere in the world. In order to grow ' or even just survive ' in today's changing profession, firms must capitalize on the hot trends and avoid the cold ones. These are some of the most significant trends in each category that we discuss in our current Midyear Update.

Practice Areas

Some practice areas are hot or even red hot. Firms that already have a practice in these areas should continue to invest in growing them. They include:

• Energy. The “shale rush” along with advances in fracking technology have revitalized the natural gas industry, and the establishment of offshore oil deposits in the Gulf of Mexico have all combined to attract global companies to invest in the U.S. And there's no client resistance to the high fees.
• Financial Services. Bank failures, Internet commerce and, of course, new laws such as Dodd-Frank are fueling this area. And it's not just at large firms. Smaller regional firms are also capitalizing on their historic strength in this area.
• Regulatory. It starts at the Federal level with health care reform and the EPA, and flows down to the state and local levels.
• Health Care and Insurance. These have been hot for several years. Now that the Supreme Court has spoken and Medicaid is becoming a controversial issue in many states, both areas will get red hot.
•  Intellectual Property. This is due largely to the increase in so-called “patent trolls” as well as a dramatic increase in copyright and trademark infringement suits.

On the other hand, certain areas that have been the mainstays of large firms have cooled down. Firms and lawyers who have prospered due to these areas should lower their plans and expectations.

• IPOs. They dropped 20% in 2011. The Facebook fiasco just made things worse. However, some sources report there is pent-up demand, so IPOs could get hot again this Fall.
• Mergers & Acquisitions. Not only has the total number of deals declined but also the number of large deals over $1 billion is at the lowest level since 2008.
• Securities Class Actions. A number of smaller firms have enjoyed huge revenues thanks to these cases. However, a study by Stanford University Law School and Cornerstone Research says the trend has been toward far fewer cases and smaller settlements. This trend is not expected to reverse itself in the near future.

Marketing and Business Development

While social media has been a hot marketing strategy for several years (and also as a practice area for firms that counsel their clients on drafting policies), a chilling wind has started to blow. In late May, the NLRB warned that social media policies may violate employees' rights depending on how posts are worded and how the policies are written and interpreted. This won't make social media any less hot, but it does mean that firms should plan on reviewing their own policies as well as those of their clients.

The “conventional wisdom” in business development is that relationships are the principal reason clients select a lawyer. Now, according to a recent PwC survey, recent relevant experience is the Number One reason clients pick a lawyer ' relationships are Number Three.

Trends and Issues

There are certain new trends that firms should recognize and address because they are either already hot or will likely become hot very soon.

• Cybersecurity. As hackers increasingly target law firms, lawyers are being asked to encrypt messages, resist using free Wi-Fi connections and regard text messages as potential security threats.
• Predictive Coding. This is a term referring to computer programs that use algorithms to determine which documents are relative to a case. Another program used in discovery is keyword searching. Both programs reduce the amount of human review, but many lawyers say there is no adequate substitute. Whether these two programs become hot or not, the high cost of discovery means firms must continue to explore other technological alternatives to simply assigning an army of lawyers to conduct human review.
• Corporate Procurement. These departments are having a greater voice in selecting outside counsel, which is confounding the business development and proposal processes in some firms. However, they are still learning the legal services sector and how to collaborate with their legal departments. While it's possible their involvement and influence in the selection process may cool down after a while, firms would be wise not to count on it.

Other trends that have been hot may be starting to cool down but they must still be recognized at least for a while.

• Cost Pressures. Altman Weil's annual survey of general counsel says 56% of them reported an increase in their 2012 budgets for outside counsel. However, the increase in total budgets may well be the result of increased litigation and regulation that may only result in GCs pushing firms even harder to reduce the cost of individual cases and matters.
• Alternate Fee Arrangements. AW's survey also stated that AFAs accounted for only 14% of total fees for outside counsel. Other surveys state GCs say AFAs need to better control costs, provide greater accuracy in fee estimates, promote greater lawyer efficiency and better allocate risk. It is possible that, unless those issues are resolved, AFAs may cool down.

Non-Lawyer Investors

There is one other issue that may be getting hot, at least in the United States ' non-lawyer investors. This issue may become red-hot very soon.

Robert W. Denney, a member of this newsletter's Board of editors, is President of Robert Denney Associates, Inc., a firm that provides strategic management and marketing counsel to law firms throughout the United States and parts of Canada. The firm's website is www.robertdenney.com. Mr. Denney can be reached at 610-644-7020 or [email protected].