Hildebrandt Baker Robbins and Citigroup’s Citi Private Bank division just issued a joint Client Advisory, which among other things, predicts that revenue (and profits) at large law firms will be flat to ever so slightly up for 2010.
The report also identifies a number of trends observed in 2009.
Hildebrandt is one of the largest and best known business consultancies to large law firms. Citibank’s Private Bank provides financial services to some of the largest firms in the country. We’ve blogged about their excellent client advisory reports in the past (e.g., here).
You should read the entire report, which you can find here. Also, the American Lawyer’s AmLaw Daily published a helpful summary here.
Among some of its key general findings are:
- Its no surprise that 2009 was a horrible year for law firms, but the report calls it “the worst . . . in at least the past half century.”
- there were some hopeful signs in Q4 2009, but there is “little prospect of a robust recovery” for 2010 and, when the recovery does begin, it will be “quite gradual.”
- over the next several years, the “fundamental economics of legal practice” will be re-evaluated and significantly changed.
Some key specific observations and predictions include:
- Demand for large law firm services fell 4% in 2009 (contrasted with the period from 2001-07 during which demand increased by 4% each year).
- At the same time, clients increased pressure to obtain discounts, fee caps, and alternative fee arrangements, which caused realization rates to decline.
- Collectively, 5,259 large law firm lawyers were laid off in 2009, which amounts to 4% of the total NLJ 250 lawyer population and nearly 9% of the total associate population; in 2008, these firms increased their lawyer population by 4%
- In addition to payroll, firms did quite a bit of cutting on the expense side (a 5.6% reduction in 2009, which contrasts with 9-10% yearly increases in prior years back to 2001).
- Q4 of 2009 showed some signs that the market has bottomed out (M&A, general corporate, tax, capital markets, and real estate practices showed some improvement)
- Profits per equity partner (PPP) were essentially flat in 2009, which contrasts with a 3% drop in 2008 and 11.5% (average) yearly increases between 2001-07.
- Because the recovery will be “quite gradual” and because of expected continued pressures to keep fees low, “law firm revenues will be flat to only slightly higher for 2010.”
- Law firms will need to continue cutting expenses — one of the only places left is among its partners — they need to thin their non-equity partner ranks and weed out marginally performing equity partners
- PPP in 2010 will be flat to up by, at most, 5% on average
- The first 100 firms on the AmLaw 200 list of largest firms will continue to be harder hit by the economy than the second 100 firms and some regional firms
The AmLaw Daily published two recent articles here (focussing on California firms) and here (providing the national picture) about how large law firms finished the year financially.
The upshot is that most firms were either flat or up or down by a few percentage points, which is better than many experts predicted earlier in 2009. The result is attributed mainly to firm cost-cutting measures (the lay-offs; starting associate salary reductions, etc.) Read both pieces to get the full perspective.
The American Lawyer published the results of its annual Law Firm Leaders Survey. The details are available by subscription only, but they are accompanied by an interesting article from AmLaw’s publisher, which you can find here.
Among the key findings:
A majority of the heads of the 142 of the AmLaw 200 law firms reported “seeing a ‘fundamental shift’ in the legal marketplace.”
80% used flat fee arrangements in 2009
75% had collected at least one incentive or success fee
25% outsourced some of their work
If you are an AmLaw subscriber, you can see the complete survey results and the feature story here. CDO (and the Main Library) should have the print version in its library by next week.
The AmLawDaily had a brief article about a survey released by Wachovia’s Legal Specialty group. You can find the article here.
BigLaw revenue is down over 8% as compared to the third quarter of 2008. Billable hours fell 10%.
A story in today’s law.com summarizes the results of this year’s NLJ 250 sruvey. Among the more interesting findings are:
1. Many firms’ attorney head count had dropped to their 2005 levels
2. The number of associates at the top 250 firms had dropped an average of 8.7%, reversing a trend of rapid year on year growth since 2004
3. 45% of the NLJ 250 firms deferred their incoming associates
4. 42% of graduates heading to NLJ 250 firms were deferred
You should read the whole article, which contains lots of detail about specific firms.
The National Law Journal has an interesting read (via the NY Law Journal’s online edition) about out-of-town law firms opening up L.A. offices with Entertainment Practices. It includes a useful overview of entertainment law practice.
The National Law Journal contains a story about an expert study predicting a 4.3% decline in corpoarte legal spending in 2010. While spending on regulatory work and litigation is expected to increase slightly, the prediction is it will not be enough to offset declines in spending in the areas of real estate, corporate, intellectual property transactional, tax, and environmental work.
We’ve written about this before (here), but a recent article in the National Law Journal (via law.com) makes the point that more regional firms in cities whose economies were not so tied to capital markets are faring better during the current economic crisis. Some are even taking advantage of the crisis to take on new talent and expand into other regions.
The Recorder, one of Norhtern CA’s legal dailies, published its annual associate salary and bonus survey in its October 5th edition. We could not locate an online link, but the Library and the CDO both subscribe to the Recorder if you are interested in looking at the whole article.
In reading the article, it becomes obvious that large law firms are still trying to figure out what to do in this area. There seems to be a consensus that each law firm is likely to respond differently, but that the status quo (annual, lock-step increases) will likely not hold.
It notes that only a few firms have officially announced that they are stepping back from the $160,000 first year BIGLAW starting salary, but that none have affirmatively announced a definite intention to stick to it going forward. The suggestion was that firms will quickly conform to what they perceive their competition to be doing.
The author interviewed a legal business consultant who noted that firms were realizing savings in other ways — layoffs, salary freezed, deferrals — and most notably by simply hiring alot fewer new associates. He speculated that large law firm hiring is down by one-third to one-half.
The article has an accompanying chart that makes it easy to compare compensation figures for 20 large CA firms.
Interesting article focusing on litigation boutiques in the National Law Journal (via the New York Law Journal’s website). These are small law firms that do “BIGLAW” types of cases. They are often started by lawyers from large law firms and are often the target of law firms looking to expand their business in certain areas through acquisitions.
One resource for finding boutique firms is the website of the International Network of Boutique Law Firms.