Career Exploration

What’s Ahead for the Large Law Firm Market in 2017?

Citi Private Bank and Hildebrandt consulting recently issued their 2017 Client Advisory.

It predicts another year that will look like the past 6 — low single digit growth in revenue and profitability, continued emphasis on holding down expenses, and relentless focus on improving efficiency, which would include reducing office space and shifting leverage models.

Behind the overall low growth numbers, we can expect to see the forces of dispersion and volatility assert themselves in the market.  Some firms will do much better than others, but they may not be the same firms that outperformed the prior year or the year before that.

The anticipated growth is expected to come from more so in transactional practices (particularly M&A and Capital Markets).  We are likely to see a decrease in US agency-driven regulatory related litigation work under the new administration.

You should read the Client Advisory in its entirety.  The last section identifies some key characteristics of the firms that have been the most successful in this post-recessionary environment.

Another Source: 2016 Just An OK Year for Biglaw

The Citbank/Hildebrandt assessment of the first 3 quarters of 2016 is consistent with Well’s Fargo’s, which was the subject of our post 2 weeks ago.

Demand for Biglaw legal services is essentially flat (+0.3%); revenue was up 3.8% but only because of rate increases; and lawyer productivity is down.

Underlying data comes from surveys of 41 Am Law 1-50 firms, 35 Am Law 51-100 firms, 53 Am Law 2nd 100 firms, and 76 additional firms.

2016: At Best, Just an OK Year for Biglaw

Wells Fargo’s Private Bank (specifically, its Legal Specialty Group) recently surveyed large law firm managing partners at the end of Q 3.  Among the key findings, is that, while revenue is up 3.8% (over the first nine months of 2015), that is not due to an increase in the demand for legal services, but rather owing to rate hikes (an average of 3.6%).  Moreover, productivity (billing hours worked per lawyer) was down.  And a largely unanticipated increase in associate salaries that took place over the summer added to the expense side of the equation.  Despite all this, attorney headcount increased 2.2%.

In an interview with the AmLaw Daily, a Wells Fargo representative said, among other things, that “[t]he industry will probably have to become more aggressive managing attorney head count to the state of demand.”

The findings were based on survey results from 130 large firms, 60 of which are in the AmLaw 100.

Demand for Law Firm Legal Services Drops in Q2 — First Time Since 2013

Demand for large and mid-sized law firm legal services fell 0.9% in Q2 of 2016 according to a recently released report by Thomson Reuters.  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).  Data from Am Law 100 firms, Am Law 200 firms, and mid-sized firms are included in the system. You can find more information about the Peer Monitor system here.

Key observations include:

  • The drop in demand was the biggest quarterly drop in more than 3 years.
  • The drop was across nearly all practice areas:  real estate was down by 2.3%, tax was down 3.4%, litigation was down by 1.8%, labor and employment was down 0.3%.  Corporate work was actually not down, but it was essentially flat (up by a mere 0.1%).
  • Productivity (hours worked per attorney) was down 2.8%.
  • Attorney headcount was up 1.7% and the replenishment ratio was 1.26, which means that capacity was increasing at a time of largely falling demand.  It seems as though firms (wrongly) bet that Q2 and the rest of 2016 would bring continual increases in demand (as had been the case for the previous 2 plus years).

Key conclusions:

  • Firms may need to reevaluate their staffing levels and hiring plans to avoid further drag on profitability.
  • Though demand year-to-date is still positive (just barely at 0.1%), most of the key trends are not pointing in an encouraging direction as we move into the second half of the year.

Not Quite Biglaw Rankings

As a follow up to our May 8 posting on Biglaw rankings, The American Lawyer has now published its 2015 AmLaw Second Hundred rankings. Firms are ranked in a number of different ways relating to their financial performance: growth rates, profitability, revenue, etc.

Firms in the Second Hundred tend to be elite specialists, smaller firms in major markets or big regional players.

Check out the data and analysis at their rankings landing page.

How Law Firms Are Innovating To Stay Relevant

Great article in the Legal Intelligencer on how law firms are changing their business models and practices to keep up with the pace of change in the legal industry and to meet changing client demands.

Some key takeaways:

  • even firms that are smaller (100 lawyers), older and not thought of as innovators are doing things differently, like creating outside board of legal industry expert advisers, investment funds for the firms to support innovative ideas, and creating spaces within their offices so startups and entrepreneurs can interact.
  • firms have largely eschewed innovation and have not traditionally offered the breadth of services consultants do. But, they are uniquely situated to do so because of the scope of their business, political, philanthropic, global and local connections.
  • Firms of the future will have more professional resources embedded within to help identify what the client needs (and not just their legal needs).
  • Firms will need more people who are trained managers and understand business needs and generally be more business-minded.
  • Demographic trends will create a shortage of highly qualified lawyers to assume leadership positions at firms as well as a shortage of associates entering firms.  This will create increased competition between firms and their clients for legal talent.  Talent strategies, including professional development, advanced leadership training and retention programs, will become increasingly important.

2015 State of the Nor Cal Legal Market and Law Firm Guide

Every year, Jon Escher, founding partner of the legal recruiting firm, Solutus Legal Search, based in Silicon Valley, makes a presentation to students about the Silicon Valley legal market.

He also prepares a guide to Northern California law firms by practice area, which includes descriptions of those areas as they are practiced specifically in this geographic area.

We just posted to the 2015 version of the Guide on this page of CDO webcasts.  Unfortunately, the webcasting equipment malfunctioned, so we do not have a 2015 version of his in-person remarks this year, but we left the 2013 version up there in case you’re interested.

Biglaw Rankings 2015

The American Lawyer recently published its 2015 rankings known as the AmLaw 100.  Firms are ranked in a number of different ways relating to their financial performance:  growth rates, profitability, revenue, etc.

Check out the data and analysis at their rankings landing page.


A Look Back At the Large Law Firm Legal Market in 2014

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:

  • 2014 saw a modest increase (0.5%) in the demand for legal services, which is better than the drop in demand experienced in 2013, but overall indicative of a trend, which has extended over the past 5 years, of fairly flat demand growth
  • the growth has been in transactional practice activities (corporate, tax, and real estate); demand growth in litigation was actually slightly negative.  Litigation still accounts for about a third of all practice activities (though it was more like 40% twenty years ago). Corporate accounts for 23% (and tax and real estate come in at 3% and 6% respectively).
  • number of lawyers in US firms grew by 1.4% in 2014 (about a percent more than demand, which in turn led productivity to fall a bit)
  • despite all this, profits per partner (PPP) were up 3.1% (over 2013, a year during which PPP grew by only 1%)
  • if you adjust for inflation, business spending on legal services is down almost 26% from where it was in 2004

The Report also addressed the reasons why the legal market has not improved to the same extent that many other sectors of the economy have:

  • corporations increasingly keeping work in-house or farming it out to non-law firm service providers
  • general counsel finding litigation a less attractive option as it’s become more expensive (e-discovery)
  • continuing proliferation of new, non-traditional service providers (facilitated by the steady world-wide collapse of, or the finding of workarounds to, regulatory barriers that shielded law firms from such competition in the past)

Finally, the Report includes a discussion of another observed phenomenon: the fact that the rising economic tide is not lifting all boats at the same rate.  20 firms in the AmLaw 100 and about the same number in the second hundred are far outpacing their competitors in their respective “classes.”  Dubbed the Super Rich by the American Lawyer (see April 29, 2014 article (online) entitled AmLaw 100 Analysis: The Super Rich Get Richer available via Lexis), those in the first hundred grew their revenue by 20% and their PPP by almost 32% since 2008.  And they accomplished this with only modest growth (5% headcount increase and only 4.3% increase in equity partner ranks).

The elite high performing firms in the second hundred increased their gross revenues by 4.6% (compared to the 1.1% growth rate for the other 80 firms in the second hundred.  Their PPP increased 3% (compared to the other 80, which saw a growth rate of -0.8%).