ADR: A Silver Lining within the Legal Industry’s “New Normal”

Most pundits of the legal industry agree that the Great Recession of 2008-2009 changed the practice and the business of law forever.  A number of widely read reports has identified these seemingly permanent changes as the “new normal.”   The new normal has had a marked impact on the alternative dispute resolution (ADR) industry, but much of that impact comes directly from the new dynamics between law firms and their clients.  ADR providers have been keen observers of these trends and are learning to react creatively and nimbly in order to stay relevant and financially healthy, and to continue to provide the best service possible.

Within the law firm environment, changes representing the new normal include a flattening, or decline, in demand for outside legal services, sustained pressure on billing rates, increased involvement by inside counsel, increased use of outsourced legal services and a higher use of alternative fee arrangements.  Of course, these are just some of the shifts from the heady days of the pre-2008 legal industry, and they have indeed led to a new dynamic, where law firms must run themselves more like businesses.  This requires a much more intensive and introspective look at how legal services are delivered and how to better serve a corporate clientele, who are operating under the same post-recession economic constraints.

It is worth noting that some of the trends mentioned above are part of a normal cyclical process, while others may be more permanent.  True, double-digit growth in revenue and profits per partner in larger law firms was the norm in the 2001-2007 time frame, but that wasn’t always the case.  Clearly, there is more room in boom years for rate increases and perhaps higher use of outside counsel and even less scrutiny over the bills that they produce.  However, not all firms realized that same growth, and in previous years, some law firms saw lean times.

What seems most certain is that the current set of dynamics defining the new normal isn’t likely to change any time soon.  We are now arguably in the seventh year of a slow-growth economy, where most large law firms are eking out single-digit revenue gains based primarily on rate increases, lateral partner hires and geographic expansion and mergers, and the next few years don’t look any different.

The recession has also hit the public sector hard, leading in many jurisdictions to the closing of courthouses, courtrooms and court-annexed dispute resolution programs; staff furloughs; and significant delays in the time it takes to get a civil trial into court.  In California, Chief Justice Tani Cantil-Sakauye recently said that “we are not dying, but we are certainly on life support” and that “[w]e believe that we are operating in an entirely new environment, where we will never see what we saw and had three to five years ago.”

Whether some of these trends are temporary or permanent, a relevant question is whether ADR has been affected the same way as other parts of the legal industry.  ADR has become an integral part of the U.S. civil justice system over the past few decades.  The vast majority of civil cases end in settlement through the use of mediation or some type of negotiation.  Continue reading...