There is a cautious optimism among law firm leaders for 2013 as their clients await the outcome of the fiscal cliff negotiations and navigate an ever-changing regulatory landscape. That's the message a panel of law firm leaders delivered Thursday during a discussion at the 2012 National Law Journal Regulatory Summit in Washington.
The panelists also tackled issues like alternative fee arrangements, the war for talent and clients and the lateral market forecast. Vice president and editor in chief of ALM, Aric Press, served as the moderator.
"We are occupied in observing the train wreck going on at Capitol Hill that is the fiscal cliff," said Bobby Burchfield, the co-head of McDermott Will & Emery's Washington office. "A lot of our clients are concerned about it. The uncertainty is freezing their business activity."
And while it may not be the best for clients, firms are certainly benefiting from the uncertainty in the short term. Burchfield said that tax lawyers are being kept busy as they present different fiscal cliff tax scenarios to clients. He said the high activity in healthcare, regulatory, investigatory and advisory law would likely continue into the coming year.
Burchfield said that President Barack Obama would likely use regulatory policy more in the second term in part because he no longer has a filibuster-proof Senate.
"We think the administration will use the issuance of regulation rather than Congress to handle its business," Burchfield said. "We expect quite a bit of administrative litigation to challenge the validity of those regulations."
Richard Alexander, the managing partner of Arnold & Porter, said he's more cautious about 2013. For him, the legal industry isn't insulated from the harsh economic climate. "We are not immune to the fiscal cliff in the states or the economic dislocations in Europe," he said. "The economic uncertainty created by that is daunting."
Couple that, Alexander said, with the dramatic structural changes to the legal profession and it creates significant headwinds for the business. Firms, he said, are facing increasing pricing pressure from clients and an evolving staff model in the way firms deliver services. He said those changes are only going to accelerate in 2013.
Wiley Rein chairman Richard Wiley said the firm was prepared for the uncertainties of 2013 because many of its practices "mirror" the work of the government. He also said that because the majority of its lawyers are in Washington, the firm is better able to control costs.
"I do think that clients will look for the ability of the law firms to manage costs," Wiley said. "They will expect law firms to price accordingly and look for alternative fee arrangements"
Wiley said that the firm's strong regulatory practice helped give the firm "four or five of the best years in the firm's history." The firm also had lots of activity in litigation, intellectual property and communications. Overall, he said he is optimistic about 2013.
For R. Bruce McLean, the chairman of Akin Gump Strauss Hauer & Feld, the current year has been less rosy. He said that the firm saw increases in public policy and regulation during 2012, but that it wasn't enough to protect it from the uncertainty of clients. McLean predicted that Congress would reach a deal on the fiscal cliff, but that it would punt on the issue of corporate tax.
"I think 2013 is going to be an active year from a regulatory standpoint," McLean said. "Just dealing with the fiscal cliff will give the economy enough of a boost that the pricing pressures will abate slightly."
McLean said the firm had hired a pricing officer who is involved in alternative fee arrangement decisions and rate issues. "[Clients] are moving away from billable hours and looking at some other ways of buying legal services," McLean said.
However, Wiley said he is not completely sold on setting fixed price fee arrangements.
"Usually when a cap is set, it's always wrong," Wiley said. Lawyers, he said, "promise more than they can deliver. I always see if they can get into a range or agree on a kicker or a bonus if the firm delivers. A static cap usually means a discount for us and that is a mistake. We like our business model. We are what we are."
Regarding the lateral market, Alexander said it is a "war for talent and clients." He said changes to Arnold & Porter's business model was driven in part by that ongoing war. "The reason that we feel we need to be in the markets that we are [in] and grow even further is because we want to succeed in those talent and client wars," he said.
Burchfield said that firms and clients put a high value on lateral talent and the desire for qualified attorneys won't dissipate.
"As law has become a more sophisticated business, I believe the war for talent has accelerated both at the entry level and the senior level," Burchfield said. "We are in a phase now where clients are not objecting to paying for top talent."
Arnold & Porter managing partner Richard Alexander; co-head of the McDermott Will & Emery Washington office Bobby Burchfield; Wiley Rein chairman Richard Wiley; Akin Gump Strauss Hauer & Feld chairman R. Bruce McLean; and ALM vice president and editor in chief Aric Press. Photo by The National Law Journal's Diego M. Radzinschi.