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  • Writer's pictureHeidi Bayer

My View: Challenges increase for small, midsize Arizona law firms.

- While debates continue regarding how great a recession this will be, Arizona’s smaller and midsize law firms are increasingly trending toward mergers, absorptions, and dissolutions. The trend has been anticipated for some time, but the onset of the pandemic created dual outcomes. It caused uncertainty in the legal community, redirecting the focus of many of its leaders, and conversely, PPP loans, in addition to the unanticipated acceleration of business, resulted in law firms having record-breaking years and bought these firms more time. While many of them continue to thrive, the challenges experienced by some small and midsize firms persist.

  • In 2016, a new Arizona Supreme Court rule became effective, mandating attorneys have a succession plan for their clients’ cases, files, and related property. The key to successful law firm succession planning is early strategizing, and regrettably, many attorneys haven’t been proactive or adhered to this advice. Subsequently, these firms are top-heavy, with senior partners nearing retirement or they’ve simply been unsuccessful in bringing in the next generation of attorneys. Either way, they have an insufficient number of younger partners to take over their clients or develop new clients of their own, both of which are critical to pivot a firm into the future.

  • The challenges go beyond the partner level. Increasingly, the inability to retain and attract Associate-level attorneys is weakening some smaller firms. Associate compensation skyrocketed in recent years, so many small and midsized firms cannot compete with the salaries offered by larger firms.

  • Another growing pressure facing some smaller firms is the demand for deeper and broader legal expertise – larger firms, as a rule, have more diverse practice areas. First, clients often favor their various needs being handled by one firm, and second, when attorneys can refer work internally, they benefit financially and there is a greater likelihood of retaining the client.

  • Relatively speaking, the law remains a more antiquated profession, which may be a greater concern for some small and midsize firms. Examples include inadequate maternity/paternity leave policies, a lack of attorney diversity, and inferior benefits. Larger firms, generally, boast better healthcare packages, 401K programs, etc. and if not locally, at least, nationally/internationally, have greater representation with respect to diversity and inclusion.

  • A lack of resources is another impediment for some small and midsize firms. Relative to their larger counterparts, they may be understaffed or unable to spend on the technology and other services needed to elevate their firm. For instance, the increasing costs related to cybersecurity and compliance can be substantial investments.

Of course, not all smaller and midsize firms are going to dismantle, merge, or be absorbed; fortunately, many of them are doing well. They are pivoting with the times, have given great thought to creating a successful succession plan, and are attracting the talent to take them into the future. This is crucial, because attorneys and their clients have different needs, so while larger firms are more likely to weather an economic downturn, we can be confident the best of the small and midsize firms will endure.

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