1. Consulting Services
Overview:
State of The Legal
Industry
Steven P. Daitch, with Dave Cunningham
August 24, 2008

2. 2008 Legal Industry
Executive Briefing
Pre-Briefing Survey
Results
2

3. Methodology
• 105 Managing partners and executive directors from the AmLaw
150, UK Magic Circle, Canadian LEXPERT Top 30 attended the
third Legal Industry Executive Briefing in May.
• 50% of the attendees completed a pre- Briefing e-mail survey.
Survey was designed to identify current issues for content
presentations.
3

4. 2008 Outlook
When compared to 2007, do you expect your firm's 2008 billings to…?
Almost two-thirds of attendees expect their 2008 billings to increase compared to 2007
100% -
5% Drivers of Growth:
Stay the
Same - Increase in rates (91%)
75% -
29 - Addition of attorneys/staff (74%)
- More billable hours (41%)
% 50% -
38%
- Added practice groups/areas (27%)
- Added international offices (18%)
Decrease Increase
- Merger or partnership (9%)
6% 65% 25% -
15%
0% -
5% 6-10% >10
%
4

5. 2008 Outlook
When compared to 2007, do you expect your firm's 2008 billings to…?
Many attendees foresee an increase in year over year billings, but not as optimistic as last year
100% - 96%
80% -
65%
60% -
Increase
Decrease
40% -
Stay the same
29%
20% -
2% 2% 6%
0% -
2007 2008
Survey Results Survey Results
5

6. 2008 Outlook -
Opportunities
• The most commonly mentioned opportunities for law firms
include:
– Expansion of existing or new practice areas (16 mentions)
• Litigation activity commonly mentioned
– Improve overall performance/efficiency/matter management
(12 mentions)
– Increase productivity/utilization/billable hours (11 mentions)
– Expansion into new geographies/markets (9 mentions)
– Expansion with existing clients/cross selling (8 mentions)
– Cost reduction/manage expenses and hiring (5 mentions)
– Strengthen current relationships during time of economic
pressure (4 mentions)
6

7. 2008 Outlook - Risks
• The most commonly mentioned risks for law firms include:
– Economic conditions/recession (45 mentions)
– Slowdown in business (10 mentions)
– Rate pressures (5 mentions)
– Associate retention/utilization (5 mentions)
– Higher expenses (2 mentions)
– Lack of focus (2 mentions)
– Not enough attorneys (2 mentions)
7

8. Practice Area Growth
or Decline
What do you expect will happen to the overall volume of litigation or
corporate/transactional work at your firm over the next 12 months?
 Almost two-thirds of attendees expect litigation volume to increase over the next 12 months
96%
 On the flip side, 60% of attendees expect the volume of corporate/ transactional work to decrease
>10% 1-4%
To what degree do you
Increase 62 expect it to rise?
6% %
33 5-10%
Stay the same
%
35%
>10%
Decrease 6% 1-4%
To what degree do you
60% expect it to fall?
0% 25% 50% 75% 5-10%
Litigation Corporate/trans
8

9. Practice Area Growth
or Decline
What do you expect will happen to the overall volume of litigation or
corporate/transactional work at your firm over the next 12 months?
 Estimations for litigation volume has declined from a year ago but it is still expected to grow
 Corporate/transactional estimates is substantially different from last year
Litigation Corporate/Transactional
100% - 100% - 93%
85%
75% - 75% -
62% 60%
50% - 50% -
33% 35%
25% - 25% -
7% 11% 6% 7% 0% 6%
0% - 0% -
2007 2008 2007 2008
Survey Results Survey Results Survey Results Survey Results
Increase Stay the same Decrease
9

10. Practice Area Growth
or Decline
Which practice area(s) at your firm do you expect to see the greatest growth/fall?
Litigation Growth (n=36) Corp/Trans Decline (n=38)
IP (8 mentions) Construction (2 mentions) Mergers & acquisitions (8 mentions)
Bankruptcy/ restructuring (5
White collar (4 mentions) Private equity (4 mentions)
mentions)
Banking & Finance (3 Real estate/ real estate financing (4
Securities (4 mentions)
mentions) mention)
Product liability/torts (4
Structured finance (2 mentions)
mentions)
Litigation practice areas receiving one mention: Commercial, Corporate/transactional practice
General Litigation, Employment, Health care, Consumer, areas receiving one mention:
International Trade, Regulatory, Antitrust, International Bankruptcy, Capital Markets,
Arbitration, Business Tort, Complex Litigation, Class Actions, Securities, Securitization
Accountants Liability, Corporate Investing
Litigation decline received one mention: Tort, general business
10

11. Practice Area Growth
or Decline
Do you use a suite of applications to help manage litigation ?
 Over half of the attendees have a suite of applications to help manage litigation
 Most firms have a combination of home grown and purchased applications
Don’t
Providers mentioned:
know 75% -
Microsoft, Concordance,
31% Interwoven, Introspect, Elite
50% - 43%
36%
Yes
25% - 21%
54%
0% - 0% 0%
No
Combination Multiple Don’t Home Single
15% of home
grown and
providers know grown provider
purchased
11

12. Key Mid-Year
Metrics
12

13. THE WIDENING
PROFITABILITY GAP
Substantial and widening differences in PPEP within each tier of profitability occurred during 2000-2006 and will likely intensify in 2008
PPEP – Top Tier PPEP – Middle Tier PPEP – Bottom Tier
12.6%
$2,000 Superior CAGR $1,200 Superior 13.6% $1,000 Superior
$1,800 Average Average CAGR $900 Average
$1,600 Under $1,000 Under
6.2% $800 Under 13.5%
$1,400 CAGR
$700 CAGR
$800
$1,200 8.5% $600 7.0%
CAGR
$1,000 $600 $500 CAGR
3.2%
$800 4.2% $400
CAGR
$600 $400 CAGR $300 4.3%
$400 $200 CAGR
$200
$200 $100
$0 $0 $0
2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006
• Database includes 133 firms broadly representative of • Each tier divided into 3 segments based on PPEP growth
the legal industry in the United States (2000-2006)
• Firms divided into 3 tiers based on PPEP (top, middle, – Superior Performers
bottom) – Average Performers
– Under Performers
13

14. PROFIT PER EQUITY
PARTNER
The downturn in the economy in 2001 and upward pressure on expenses in the years leading
up to 2001 caused profits to be flat and this is likely to recur – and worsen – in 2008
14.8%
Profit per
Equity Partner
Yearly Growth 11.2%
10.4%
10.2%
9.3% 9.0%
PPEP Growth
3-Year CAGR = 10.3%
6-Year CAGR = 9.3%
0.2%
2001 2002 2003 2004 2005 2006 2007
14

15. REVENUE AND EXPENSE
GROWTH
2007 saw margin compression for the first time since 2001 –
a dynamic that will worsen in 2008
Revenue and Expense
Yearly Growth Revenue Growth
13.2%
12.2%
3-Year CAGR = 10.3%
11.2% 10.9%
10.4% 10.3% 6-Year CAGR = 9.8%
9.5% 9.6% 9.2%
8.8% 9.0% 8.8% 8.9%
Expense Growth
3-Year CAGR = 9.2%
6-Year CAGR = 8.5%
3.3%
Revenue Growth
2001 2002 2003 2004 2005 2006 2007 Expense Growth
15

16. PROFIT EXPECTATION
Profit growth expectations continue to wane as the majority of MPs expect growth to lag that
of the last 7-8 years
100% -
Level of
90% -
Projected Growth Additional Observations
80% -
Expected Primary Drivers of Net Income
70% -
• 72% of respondents see demand increases as a
63% primary driver of income growth
60% -
• 55% of respondents see increases to their stated
50% - 47% rates as a primary driver of income growth
• 18% of respondents think discounting pressure will
40% - 35% strongly impact profit growth
32%
31%
30% -
20% - 17% 15%
10% 13% 3rd Quarter 2007
10% - 8% 8% 8% 9%
4% 4th Quarter 2007
1%
0% - 1st Quarter 2008
Decrease Unchanged < 5% 5% - 10% > 10%
16

17. Global Presence
AmLaw Designation
REVENUE AND EXPENSE Regional View
While firms across all segments continue to experience margin compression in
1Q08, the AmLaw 100 has been harder hit
Revenue (% change) vs. Expenses (% change)
12.8%
12.0%
9.9%
5.1% 5.8%
5.4% 5.0%
Revenue
Expenses
0.3%
AmLaw 100 AmLaw 200 Other All Firms
Preliminary 1Q08
17

18. CASH CYCLE
Most firms improved their cash conversion cycle through 2006 but saw the cycle
lengthen in 2007, a sign that it may prove difficult to shorten the cycle in 2008
Net Cash Conversion Cycle (Number of Days)
130
120 115
111
110 106
100
90
80
70
60
50
2000 2006 2007 Flash
18

19. THE IMPORTANCE OF
FOOTPRINT
International firms experienced double digit PPEP growth in 2007 while regional firms
outperformed national firms
15.6%
14.2%
12.8%
10.8%
8.9% 9.0%
8.4%
7.2%
5.9%
4.9% 5.0%
2.5%
1.7%
0.8% 1.1%
Global International National Regional All Firms Global International National Regional All Firms Global International National Regional All Firms
Net Income (% change) Equity Partner FTE (% change) Profit per Equity Partner (% change)
Global Presence Growth Rates 2007 over 2006 Flash Results
19

20. Key Trends in
Litigation
20

21. Practitioners’ Perceptions
“Work is up from last year, which was a kick-ass year”
“It’ll rise, if not significantly. As long as the economy is in decline it
will continue to rise. Companies are faltering, or at least defaulting
on loans, contracts etc.”
“The litigation market will remain choppy this year . . . In
securities we will see work when deals blow apart.”
“When business opportunities are lost, all [companies] have
left are claims, and they pursue them.”
21

22. Practitioners’ Perceptions
“In a downturn clients are less likely to litigate and
open the spigot”
“Not generally affected in litigation by a downturn in the economy.
Not quite counter-cyclical.”
“There is usually a spike in recessionary times, but I am not
sure we’ll see it this time because litigation is now so
expensive”
22

23. Clients’ Perceptions
“We get sued when we don’t do what we saying we’re going to do . .
. [and] there are a huge number of lawsuits where we didn’t do
anything wrong but we get sued because we’re huge and someone
got mad”
“Whenever we do something new, boom, there comes the law firm
suing us”
“Class Action du jour”
Litigation follows inexplicable cycles, with waves followed by
wonderful, brief periods of calm”
23

24. Corporate Legal Spend
($bn)
$31bn Litigation or related
Corporate Legal Spend (2006-08)
$70
$60
$31B circa
Expenditure ($,Billion)
$50
8% growth
$40
Bet the Company Litigation
$30
Class Action
Investigations
$20
IP Litigation
Regulatory
$10
General Litigation
Rest of Market
$0
2006 2007 2008
(projection) Source: BTI Survey of Corporate Counsel
24

25. Growth in Corporate Legal
Spend ($bn)
~60% Litigation or related
Breakdown of Growth in Corporate
Legal Spend ($,Billion)
$0.90
General Litigation
$1.57 Regulatory
IP Litigation
Investigations
Class Action
Bet the Company Litigation
$0.58
Rest of Market
$0.16 $0.31
$0.23 $0.09
Source: BTI Survey of Corporate Counsel
25

26. Messages for Managing
Partners
• Litigation is not • Work-types and business sectors can
homogeneous move independently of the economy
and each other
• Some firms are booming, • If your litigators are struggling is it the
while others are not overall market, a sector issue, or that
they are failing to compete effectively?
• Plaintiff firms are • Likely to appear in new areas of work
diversifying
26

27. Messages for Managing
Partners
• Clients seem to prefer • International arbitration and mediation
the courts to arbitration remain popular
• Costs are a truly • Perceived efficiency in staffing and
important issue project management are key
competitive strengths
• E-Discovery is a major • But this presents opportunities for firms
burden for clients to manage the process well
27

28. Focus: Litigation
Consulting
Services
John Sweeney, President
Litigation Consulting Services,
a Thomson Reuters Company
28

29. Focus: Strategic
Technology
Assessment
David B. Cunningham, Managing Director
Baker Robbins & Company
29

30. Law Firm
Technology Scorecard
• Developed with a consortium of
law firms to provide more
integrity and depth than industry
surveys and anecdotal
observations.
• Established a standardized
approach and industry database
for costs, staffing and process
maturity.
• Establishes a 360 degree view of
technology effectiveness to
provide context for the
benchmarks.
30

31. IT Maturity Model
31

32. IT Maturity Model,
continued
32

33. Rebalancing the Value
of the IT Department
IT Operations IT Internal Consulting
(Infrastructure, PCs, (Business Analysis,
Support, Facilities, etc.) Application Management,
Practice Liaisons, etc.)
• Usability and
• Costs Lawyer
• Risks Effectiveness
• Staffing • Business Process
Improvement
• Information
Integrity
33

34. IT Process Maturity (1 of 4)
34

35. Comparison of IT Maturity and
Cost
- 40 Technology Scorecard Firms 2006-2008
$14,067
Costs per Employee
$11,413
$6,302
Level 1 Level 2 Level 3
IT Maturity/Risk
35

36. Consulting
Services
RESPONDING TO LEGAL
INDUSTRY CHALLENGES
36

37. Market Increasing Intensifying Increasing Growth in
Consolidation, Competition Competition Need for Costs of
Segmentation, and for Talent for Clients Cost Control Litigation
Global Expansion
Law Firm Leadership Client Infrastructure Litigation
Strategy Development & Development & Cost Control Readiness &
Talent Management and Growth Support
• Strategy • Leadership • Strategic Business • Procurement and • Corporate Litigation
• M&A Advice/Counsel • Talent Management Development Records Management Readiness
• Business Development & Services • Litigation Support
• Compensation and • Organization
Performance Development Marketing Dept Analysis • Strategic Technology Services
Management • Pricing Strategy Services • Project Management
• Talent Integration
• Firm Management • Client Feedback • Managed Technology Services
• Practice Management Services
• Existing Client and Market
Share Intelligence • Financial Systems
Analysis Implementation
• SAM-Legal [Strategic • Records, Risk
Account Management] Management &
Compliance
• Rainmaking Advantage
• Practice Group
• Client Retention Automation
Strategies Through
Business Intelligence • Intellectual Property
Practice Management
• Insightful Client
Relationship • Web Portal Design
Development • Merger Technology &
Process Integration
37

38. Law Firm Advisory
Services Overview
Market Consolidation, Increasing Intensifying Increasing Growth in
Segmentation, and Competition Competition Need for Costs of
Global Expansion for Talent for Clients Cost Control Litigation
Brad Hildebrandt Brad Robbins John Sweeney
Client Infrastructure Knowledge Strategic Client E-Discovery Managed
Development (Buying Services) Management/ Technology Relationship Services Services
& Growth ----------------------- Information Planning/ Management ----------------------- -----------------------
Nick Quil John Sweeney Jamie Berry
----------------------- ----------------------- Access Facilities ----------------------- ----------------------- -----------------------
Silvia Coulter Alan Nathanson
ED | CFO ----------------------- ----------------------- ----------------------- MP | LM | CIO | CTO MP | LM | CIO | CTO
----------------------- Peter Buck Dave Cunningham
----------------------- CMO
MP | CMO | HR Steve Falkin
CIO | CKO
-----------------------
CTO
Law Firm Leadership Financial Risk Business Litigation Litigation Computer
Strategy Development Systems Management/ Intelligence Services Readiness Forensics
----------------------- & Talent (Assess & Compliance ----------------------- ----------------------- ----------------------- -----------------------
Lisa Smith Don Gibson Jim Mittenthal Pam Downs
----------------------- Management Implementation) ----------------------- ----------------------- Eric Mazur
----------------------- ----------------------- Meg Block ----------------------- David Rohde Jamie Berry
MP | ED | COC CMO | CBD
Larry Richard ----------------------- MP | LM | CIO | CTO ----------------------- -----------------------
----------------------- Nathan Bowie
Barbara Schane MP | ED | CFO | GC MP | LM | CIO | CTO MP | LM | CIO | CTO
MP | HR
Jackson (HI)
-----------------------
ED | CFO | CIO
38