"Unsustainable Trends Tend to Come to an End"

The American Lawyer is out with its annual survey of AmLaw 200 leaders and they are, as Aric Press succinctly puts it, "a confident bunch."  And why shouldn't they be?  The heck with 9/11 and the heck with the 2000 bubble melt-down:  88% are optimistic about next year.  Revenues are up more than 6% for the fourth year in a row—and since fully 89% of firms plan to raise rates again next year (the median hike being about 5%), and 73% foresee profits per partner rising more than 5%, what's not to like?

But dig, or read, a bit deeper and I see a protracted collision with reality in the offing.  Consider:

• 52% of these senior leaders report meeting with five or fewer of their firm's top 20 clients to discuss performance, and a truly shocking 6% report meeting with none.  In other words, these firms are collaborative and collegial in name only, with zealous turf guardians still de facto in charge.
• For help on management issues, firm leaders turn almost exclusively to "C"-level professional staff rather than their partners—91% of firms report five or fewer lawyers spend more than half their time on management.  (Stated differently, only a handfull of lawyers are seriously engaged in firm management.)
• But for all their reliance on COO's, CFO's, etc., those professionals are second among equals.

*"None" serve on the executive committee at 46% of firms. 

So what we have resembles the Cold War era Soviet Politburo, where an elite class with a somewhat arcane selection process are the titular rulers, but where the actual factories and trains are run by a subservient group of professional managers.  Am I being too harsh?  Consider that to crack the AmLaw 100 requires revenue north of $180-million/year.   That's a sizable enterprise by any measure.  How long will the increasingly indispensable C-level class stay down?

To be sure, there are some signs of ferment in this model:  While nine out of ten firms, as noted, plan to raise rates, two-thirds also report clients complaining about fees and demanding discounts.  And an astonishing 26% of firms report they're on the prowl for a merger partner.  Both of these results portend deeper changes ahead.

My read?  First of all, that there are in the economic sense no "substitutes" for the counsel of an AmLaw 200 firm; this is the primary explanation for the relative price-inelasticity of demand (despite the bitching).  Second, the AmLaw 100 have more pricing power than the AmLaw 101--200; but/and at this point in the profession's evolution the barriers to entry into the AmLaw 100 are steep and daunting.  So mergers are a logical response to the desire for ever-greater pricing power.

Do we live in fascinating times, or what?