For Many CA Firms, 2012 Turned Out Better Than Expected Financially

A recent article in the Recorder, SF’s legal newspaper, reports on CA firm financials for 2012.  While revenue gains were modest, many firms noticeably increased their profits.  The article attributes the increase partly to expense cutting, but mainly to reduced headcount, particularly among firm partnership ranks.  The increases experienced by firms whose biggest offices are in Silicon Valley were the result of increased demand for their tech expertise, rather than trimming ranks.  In fact, some Silicon Valley firms actually increased headcount.   

There are several interesting insights into big law firm business operations that will be useful to those of you heading to large firms (or considering interviewing with them in the fall).

Looking Back: Law Firms Experienced Only Modest Growth in 2012; Looking Ahead: More of the Same

Thomson Reuters Peer Monitor — in conjunction with Georgetown University Law Center’s Center on the Study of the Legal Profession — recently issued its annual report on the legal market, which you can find here.    Some highlights of 2012:

  • growth in demand for legal services up by a mere .5%
  • the number of lawyers increased by 2% (which put growth in productivity, i.e., number of hours a firm bills divided by number of lawyers, in negative territory) 
  • profits per partner grew modestly at 3.58% (partners at non-AmLaw 100 firms fared better than those from AmLaw 100)
  • it was a banner year for global expansion of U.S. and international law firms (96 cross border law firm mergers took place)

The report analyzes some of the longer term trends behind these numbers.  It’s a must-read.

As for 2013, the authors of the report predict “that most firms will continue to struggle to maintain profitability as the combined effects of slow demand growth, declining realization rates, and persistent overcapacity will continue to eat into profit margins. We do expect to see some growth in revenues and continued rigorous efforts to manage expenses, but overall we anticipate that there will be only modest growth in profits per equity partner in the current year – probably in the low single digit range.”

Geographic Regions With Fastest Growing Professional, Scientific and Technical Services Sectors

Urban Studies expert Joel Kotkin discusses a list of the metropolitan areas with the fastest growth rates for high-wage sectors in : The Cities Winning The Battle For The Fastest Growing High-Wage Sector In The U.S.  He notes Chicago’s absence from the top 10 as well as “the big metropolitan areas of the Northeast and California that have traditionally dominated high-end business services. The only exception is the third-ranked San Francisco-Oakland-Fremont metropolitan statistical area. . . . Yet the other leaders on our list are generally smaller, growing metro areas whose expansions have been propelled by a rapid increase in employment in technology and professional management services. These include our top-ranked metro area, Austin-Round Rock-San Marcos, Texas, which enjoyed over 46% growth in employment in professional services since 2001; fourth-place Raleigh-Durham, N.C.; and No. 5 Salt Lake City, Utah. These areas have enjoyed strong net-in migration of educated workers, and have poached companies from more expensive regions. More surprising still has been the rapid ascent of such unheralded regions as second-place Jacksonville, Fla., and Oklahoma City (sixth place).”

3rd Quarter 2012 Update on the Large Law Firm Market

Those of you who follow our blog, know that we regularly share with you the results of law business consultant Hildebrandt’s quarterly reports on the state of the large law firm market.  Their report for the third quarter of 2012 (ending September 30th) is now out.

Like the last report (for Q 2), it’s not positive.

Key findings:

  • overall demand for legal services dropped by 0.8%
  • demand was down in every practice area with the exception of labor and employment, which was up by 2.5%
  • IP litigation, which was a practice area that had performed relatively strongly in the recent past, was down by 3.6% in Q3.
  • mid-sized firms performed relatively better than the largest firms
  • demand in NY was up 4%, but down in LA, Silicon Valley, DC, and Chicago  
  • attorney headcount continued to grow, but the growth rate slowed
  • the attorney replenishment ratio remained at 1.3 (about where it’s been for the rest of 2012)
  • productivity (the measure of the ratio between capacity and demand) fell 2.5% (the third consecutive quarterly decline)   

 Bottom line is that Hildebrandt finds no reason to alter the prediction contained in its Q2 report that the large firm legal market will continue its “sluggish, largely flat trajectory” [Hildebrandt’s language] for the foreseeable future.

Must Read: NY Times On the Future of “Big Law”

Tuesday’s Dealbook section of the NY Times is devoted to the legal industry (primarily large law firms, or “Big Law”) and its future.

Check it out here.

To Future Lawyers: “Invest Time Understanding the Intersection Between Law And Technology”

Prof. Bill Henderson from Indiana University Law School wrote an interesting article for the most recent issue of the National Jurist.  He is an expert on the legal industry and writes often about fundamental changes the industry is experiencing and will likely face in the future.

Read the whole thing here

His conclusion:     “Invest time understanding the intersection between law and technology. Read [author and legal futurist Richard] Susskind’s books.  Subscribe (via email or RSS feeds) to the many publications in the network, including the Law Technology News, and the ABA Daily Journal (most content is free).  Some terrific blog include Law21, Strategic Legal Technology, 3 Geeks and a Law Blog, or The Legal Whiteboard (my own blog).  Identify some of the new, innovative companies and ask for informational interviews—don’t be shy.  These companies will be flattered.  And remember the advice followed by countless successful people: ‘luck is when opportunity meets preparation.'”

Update On Legal Market for Large Firms — Q 2

Hildebrandt and Citibank Private Bank both recently issued reports on the large firm legal market as of the end of the second quarter of this year (June 2012).  We regularly blog about their quarterly reports.

The latest reports are not positive. 

Among the key findings:

  • demand for legal services fell slightly (0.2%)
  • law firms’ expenses are continuing to rise faster than their revenues; however the pace of the increase has slightly slowed in Q 2
  • the growth in attorney headcount slowed slightly (the associate replenishment ratio went from 1.4 in Q 1 to 1.3 in Q 2
  • productivity (a measure of the ratio between capacity and demand) fell 2.5% (productivity also fell in the previous 2 quarters)
  • clients continue to exert pressure on pricing

The reports caution that hiring may slow as the year wears on, as firms realize that market demand does not currently justify adding additional capacity.  They predict that the large firm legal market will continue its “sluggish, largely flat trajectory” [Hildebrandt’s language] for the foreseeable future.

Employment Stats for 2011 Law School Grads

NALP recently published some selected findings from its national law school grad employment survey (which collects information on employment 9 months after graduation).  They relate to the Class of 2011 (stats for the Class of 2012 will not be published until next year). 

We published the results of the Berkeley Law grad employment survey last Spring.  You can find them here.   

Here are some key comparisons.

Nationally, the employment rate for 2011 law grads was 85.6%.  Our 2011 grads had a 94.16% employment rate. 

Nationally, only 65.4% of those employed were in jobs requiring bar passage.  Here, the figure was 92.07% (An additional 4.14% of 2011 employed Boalt grads are in “JD preferred” positions).

Nationally, 49.5% of employed graduates obtained a job in private practice.  53.1% of our employed 2011 grads immediately entered private practice (another 12.76% of our grads went off to clerk for a judge immediately after graduation).

Only 16.2% of private practice jobs nationally were with large law firms (+500 attorneys).   In contrast, 59.74% of private practice jobs accepted by our 2011 grads were in firms of 501 or more attorneys. 

Conversely, jobs at firms of 50 or fewer lawyers accounted for 59% of all private practice jobs nationally whereas that figure was 15% at Boalt.  

Public interest organizations, including public defenders, accounted for 7.5% of post-law school grad jobs nationally.  15.52% of our grads went to work for public interest organizations in 2011.

Latest On the BIGLAW Legal Market

Demand for large law firm legal services was, on average, up slightly for the first quarter of 2012, according to a recently released report by the well-known legal business consulting firm, the Hildebrandt Institute.  Its quarterly Peer Monitor Index Report contains information about key law firm business metrics.    

We’ve regularly blogged about the Peer Monitor system before, but to refresh you , it is a service that allows law firms to access their peers’ financial data (in the aggregate) in exchange for supplying their own data to the system for others to access (on a normalized and aggregated basis). There are 35 Am Law 100 firms, 35 Am Law 200 firms and 30 NLJ 250 firms in the system. You can find more information about the Peer Monitor system here.

While demand is up, the report sounds several cautionary notes:

First, demand is not up across the board.  Employment and IP litigation are up modestly, but corporate work is slightly down.

Second, firm expenses have increased by a higher percentage than demand, which has an effect on profitability.

Third, the replenishment ratio for associates is up slightly (to 1.4) in anticipation of increased demand that has “not materialized at a pace that fully utilizes the talent that is being added.”

The increase in demand for large firm legal services was highest in Silicon Valley (up 4% as a result of a concentration of IP-related work).  LA was next highest, with a 3% increase in demand (NY and CHicago were up 2%).  

Looking at all these factors together with the lingering uncertainty in the larger economy led the drafters of the report to conclude that “2012 could be one of the most challenging years in recent memory for law firms.”

NALP Report: Last Year’s Recruiting Volumes Slightly Up, Number of Summer Positions The Same

NALP, the Association for Legal Career Professionals, recently completed crunching the numbers from last summer/fall’s recruiting season.  There is a nice summary in the National Law Journal.

Bottom line:  slightly more offers, slightly more callbacks, but overall (nationally) the average size of summer classes at large firms in 2012 is the same as it was for the summer of 2011.