Law Firms Sharpen Up as Recession Cuts Legal Sector to Size

LONDON, March 22, 2010 -

    - Recession accelerates change in legal sector by 10 years
    - Inefficient sector now puts value and efficiency first
    - Hourly rate billing gives way to value billing
    - Clients hold power in legal supply relationships
    - General Counsel rises in status
    - Magic circle category increasingly redundant

( Photo:
www.newscom.com/cgi-bin/prnh/20100318/382713 )

A new report warns law firms that they need to modernise or lose out as a
major power shift is taking place in favour of the in-house client. The
report, which canvassed the opinions of 130 General Counsel and 80 law firm
partners around the world, reveals that 78% believe that the recession will
have a lasting impact on the profession, and that value and efficiency are
now the non-negotiable attributes a client looks for in a legal partner.

The report - 'Law firm of the 21st century - The clients' revolution' -
commissioned by international law firm Eversheds, also reveals that the
recession has had a major impact on how 'magic circle' law firms are viewed,
with just over half (51%) of clients and 46% of partners citing the term as
defunct. When asked if this revision, to the traditional law firm hierarchy
would be a welcome development for the market, an overwhelming 94% of clients
and 81% of partners agreed.

While the recession has proved to be a key catalyst for this change, the
report also highlights several other factors that have contributed. The
primary factor identified by over a third (37%) of all respondents was
globalisation, particularly the move to the East, with many international law
firm leaders, as with other business sectors, considering moving their
headquarters from the West to the East.

An additional driver for change is the increasing status and
professionalism of the in-house lawyer (35%). Three-quarters (74%) of General
Counsel said they now occupied a far more senior commercial advisory role in
their companies compared to before the recession, with 55% assuming more
responsibility for corporate governance.

Technology has also been a factor for change - over half of clients (58%)
had used technology to deliver legal services more efficiently. The Legal
Services Act, for UK lawyers, was seen as having the least impact, with only
8% believing it would have a transformative impact.

Commenting on the findings, Bryan Hughes, chief executive at Eversheds,
said:

"When we conducted our first report into the legal sector - 'The 21st
Century Law Firm' - two years ago, we found that many law firm partners were
resistant to change, despite their clients asking for it. For example, two
years ago, only 22% of clients and 48% of partners saw value billing as a
trend for the future. Now, 86% of clients and 88% of partners say they often
or sometimes use value billing.

"As well as globalisation and the increased use of technology to deliver
efficiency, the key change is the shift in power to the client, which is
largely due to in-house counsel taking a more important commercial role
within their companies. This will prove to be a real shake down for the legal
sector and its workings, and law firms will need to really to prove their
worth as in house teams expand their expertise."

The report also tracks the demise of the hourly rate, which is now seen
as just one tool among many. While many law firm partners are adapting to
change, particularly in the area of alternative billing structures and
added-value offerings - 63% of clients reported seeing better value for money
since the recession started through add-ons such as free-of-charge secondees
- many are still not delivering what their clients want. Two-thirds of
General Counsel have demanded lower fee rates from their external lawyers,
and 47% of partners recognise that this is their clients' number one
priority. However, only 25% of partners are actually delivering reduced
rates.

Bryan Hughes continues:

"Law firms need to demonstrate where they can add real value to a
client's in house team - 87% of clients now say that value-added services
such as secondees or free access to knowledge management resources are a
crucial factor in their decision to instruct external law firms.

"The change that was predicted to take place over the next 10 years is
here now, and it will be those firms who respond to the trends identified in
the report who will see the real benefits."

Richard Given, Legal Director, Emerging Markets, at Cisco, adds:

"Law firms need to make sure they listen to their customers, understand
their needs and recognise that change will happen. Firms cannot go on
believing that the hourly rate is still an acceptable way of billing; the
market is at a tipping point, and it is those who can address the change that
will be the 'next generation'."

Notes to editors

About Eversheds

Eversheds LLP and its world wide offices have over 4,500
people providing services to the private and public sector business and
finance community. Access to all these services is provided through 47
international offices in 29 jurisdictions. Eversheds combines local market
knowledge and access with the specialisms, resources and international
capability of one of the world's largest law firms.

www.eversheds.com

Photo:
www.newscom.com/cgi-bin/prnh/20100318/382713

Imogen Lee, For Eversheds International, Tel: +44(0)207-919-4566, Mobile: +44(0)771-511-7085, E-mail: imogenlee at eversheds.com; A full copy of the report can be obtained by emailing clientsrevolution at eversheds.com