A recent survey by Altman Weil, a legal management consultant, found that US law firms project an average overall increase in rates of 3.2% for 2010. Given that the US was hit particularly hard by the GFC, this is somewhat surprising and prompts queries about potential increases in charge-out rates of law firms in Asia…
Potential Increases
“We believe that similarities to the US approach are likely to apply in Asia,” said Sheena Brand, principal at Professional Development Asia, a member of Altman Weil Global. “There is substantial competition in the Asian legal market and therefore, similar to the position in the US, any rate increases are likely to be in areas of specialisation where the competition is less and the need for targeted advice more.”
Certainly, any increase in charge-out rates will be dictated by the forces of supply and demand. “In some practices where the number of lawyers exceeds the available workloads, we won’t see any rate increases,” said Blane Prescott, senior vice president at Hildebrandt, a professional services management consultant. “But for those lawyers who face overwhelming demand, and who truly provide high-value advice, clients are consistently willing to pay whatever it takes to secure their services.” Lawyers and practices in extraordinary demand may increase rates anywhere from 6% to 12%.
However, the legal services market has undergone a serious change as a result of the GFC and overall demand has dropped significantly. “The change in the legal profession is that prior to the recession, we experienced a period of overwhelming demand for most lawyers and practices,” said Prescott. “But the downturn has switched this from a sellers’ market to a buyers’ market, and there are far fewer lawyers who are perceived as being so extraordinary that they can continue to achieve significant rate increases.”
Nevertheless, some law firms may still make the move to increase rates. “Firms who have not raised their charge-out rates for some time may feel the need to do so now, particularly in Hong Kong with the signs of an improved economy. But similar again to the position in the US, law firms are likely to be selective in the clients and the areas they target – if increases do occur they are unlikely therefore to be applied across the board but rather to particular clients and particular areas of practice,” said Brand. Corporate and finance lawyers may find that their rates are flat in 2010, particularly for existing clients, but litigation and insolvency lawyers may be able to raise rates.
Movements
Han Kun is one law firm in China that is making the move to increase charge-out rates. “Associate rates will go up one level in 2010 but we will hold our partner rates,” said Cao Yinshi, partner at Han Kun. The firm declined to provide any specific details about the rate increases but did disclose the reason for its decision. “This is to keep pace with the market conditions and also with our competitors,” said Cao.
Others are taking a more conservative approach. For example, Jun He has decided not to increase its charge-out rates. “We believe that most of our clients have been hit hard by the financial crisis, and we suffered too. In order to facilitate a recovery we want to go with the client,” said Gong Jun, partner at Jun He. “We want to control our own costs and lower our profit margin to support our clients.”
Reactions from clients
Any attempt to increase charge-out rates will be met by intense scrutiny from clients. “If rates were to increase, I would certainly have to ask why,” said Michelle Hung, general counsel at COSCO Pacific. “I would also make it clear that every major company is trying to control expenses and in this kind of climate and situation we hope they understand and co-operate with us.”
Law firms will have to be prepared to justify any increase. “The only thing that I could see would be justifiable is if they have had a fairly extensive recruiting drive in order to get back to 2008 levels of employees,” said Jane Niven, Asia-Pacific general counsel at real estate and financial business Jones Lang La Salle. “I know a lot of firms let a lot of people go… but I haven’t seen any evidence in Asia that salaries have increased dramatically so to be quite honest I think it would be quite difficult to justify an increase at this time.”
Despite the pick-up in legal work in Asia, law firms should still be cautious when determining whether or not to increase rates. “Pressure on fees is unlikely to disappear and clients, particularly substantial ones, will not wish to see rate increases and will be looking to their law firms to provide a more transparent billing process,” said Brand.
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