Outlook for 2019: What the world is telling us in uncertain times

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“I begin with writing the first sentence – and trusting the Almighty God for the second.” Laurence Stern, The Life and Opinions of Tristam Shandy, 1759.

Latin America constantly lives in uncertainty. Some may argue that that uncertainty not only prevails in certain Latam countries generally, but it is worse now with our growing unstable political and economic environments, which make predictions and planning equivalent to the work of magicians and fortune tellers. Although that might hold some truth in certain aspects, I think that overall it has been the case ever since I can remember. We simply live in a region where planning and investing for the future is hard. And yet, that is the practice that the best organizations and law firms continue to employ. Even when they know that planning and investment might occasionally appear to be worthless, it is a major key in the maintenance of a leading business in our industry.

However, the current situation is not that unpredictable; there are always indications as to what trends and behaviors could be more productive into the future. Every year I like starting with an analysis of what the legal industry has been doing outside our region during the previous year and what are some of the main lessons that we can learn from them. One of my favorite reports is the Citi-Hildebrandt Advisory Report that gives an excellent picture of what happened the year before and the forecast for the next. Let´s see what can be derived from the 2019 version:

  1. The legal industry has continued growing in the US, but mainly that growth took place in the larger and smaller segments of the market. In a very disperse and volatile market, brand and reputation has made a big difference. Being different is more than ever key for success. Although firms tend to analyze markets in groups per country, practice area, etc. assuming that trends apply more or less in the same way to all firms in the same segment, more frequently I hear different assessments and opinions by firms in the same segments in terms of level of activity, growth, etc. That indicates that some firms actually find ways of being different and collect the rewards of that strategy.
  2. The more relevant aspects of those firms include (i) client focus, (ii) development of market strengths, and (iii) the protection of the firm´s culture. They make significant efforts to institutionalize clients, especially given a volatile market of lateral hires. It is true also that the lateral market has not been very successful, but that is because clients also recognize value in the firm´s platform when it is well built and provides effective solutions for them.
  3. The previous point relates to the value these firms give to partners collaborating for the benefit of the whole firm and favorable effects of cross selling. These firms avoid economic and cultural incentives that prioritize individual performance over group or firm performance.
  4. The economic model of the billing hour continues to be questioned by the growth of the Alternate Fee Arrangements (AFAs), although it is still not predominant in the US market. Many clients still prefer hourly billing, eventually with discount arrangements. But the general trend continues towards more AFAs.
  5. Regardless of the above, more firms are developing pricing and project management models (supported in many cases by experts and managers) in order to become more efficient for clients and cost-wise. In a growing market, the leverage with associates has increased again, but also led to a more diverse structure of roles and improved efficiency for clients.
  6. Associates are expected to be more entrepreneurial and not just good technical experts and hard workers.
  7. The partnership structures are also facing growing challenges in regard to retirement and succession of partners. Central in this discussion is the clients´ “succession” and how the firm will make sure clients will not be lost when partners retire. Again, this brings the issue of how clients are institutionalized and become the firm´s clients.

When you observe these highlights of the Citi-Hildebrandt report, it can be concluded that the challenges to be faced by Latin American firms during 2019 are not that different from those in the US market. I would point to three main areas:

  • Market and services. In order to keep a leading position and a profitable practice, firms will need to work harder to create a distinctive reputation and brand in the market. That reputation should be based on a solid platform of services that can solve effectively the clients´ problems, but which clients can distinguish from other options available in the market. In an industry where it is hard to be different from others, this will be a critical ingredient for success and even survival. Technology and pricing/project management will be increasingly relevant. A good strategy that could focus on specific segments and products could help being more successful in finding the right clients.
  • Talent attraction and development. More than ever, having the right people feeling they have the right career perspective will be indispensable to remain competitive. The best talent is increasingly looking for options outside the legal industry and it is becoming harder to attract and retain them. Effective strategies to counter this should be high on every firm´s agenda for 2019.
  • Internal systems and culture. A lot of firms´ difficulties fall around internal issues like compensation and governance, which ultimately create negative and ineffective cultures. It is essential that firms build compensation and governance systems around a particular vision and strategy, and not merely a compromise between partners with differing views. An organization of professionals requires a strong culture that can align them behind specific values and goals. If the culture is weak and the systems controversial it is likely that partners will spend too much time on internal discussions and quarrels, instead of being collectively focused on clients and the market.

Old truths remain applicable despite changes in the market. As in the phrase of Laurence Stern at the beginning, sometimes we can only write the first sentence and then pray that circumstances will help in these uncertain times to be able to write the next sentence. “Sure bets” are a luxury that we can seldom enjoy in our region, but that should not be an excuse for not doing the things that need to be done to improve the long-term effectiveness of our firms. I hope we can all find the clear mind and courage to concentrate on that in 2019.