The report, Law firm of the 21^st century - The clients' revolution, commissioned by international law firm Eversheds, warned that law firms need to change and modernise to avoid losing out in the future - particularly as the big work moves East, and in-house lawyers gain more status and power.

According to the report - based on the opinions of 130 general counsel and 80 law firm partners worldwide - professionalism of the in-house lawyer has increased during the UK recession, with three-quarters of general counsel saying they now occupy a far more senior commercial advisory role in their companies compared to before the recession.

Aside from the recession, the report showed that globalisation is considered the primary factor contributing to change, with many international law firm leaders, as with other business sectors, considering moving their headquarters from the west to the east.

The report also illustrated that the recession has had a major impact on how Magic Circle firms are viewed, with 51 per cent of clients and 46 per cent of partners citing the term as defunct. Ninety-four per cent of clients and 81 per cent of partners agreed that a revision of the traditional law firm hierarchy would be a welcome development for the market.

Bryan Hughes, chief executive at Eversheds noted the change in findings since they first conducted the report two years ago.

"When we conducted our first report into the legal sector - The 21^st Century Law Firm - two years ago, we found that many law firm partners were resistant to change, despite their clients asking for it," he said.

"As well as globalisation and the increased use of technology to delivery efficiency, the key change is the shift in power to the client, which is largely due to in-house counsel taking a more important commercial role within their companies.

"This will prove to be a real shake down for the legal sector and its workings and law firms will need to really prove their worth as in house teams expand their expertise," Hughes said.

The demise of the hourly rate was also focused on and the need for alternative billing structures. The report revealed that while many law firm partners are adapting to change in this respect, many are still not delivering what their clients want.

"Law firms need to demonstrate where they can add real value to a client's in house team...the change that was predicted to take place over the next 10 years is here now, and it will be those firms who respond to the trends indentified in the report who will see the real benefits," Hughes said.