American Lawyer Legal Intelligence just released a new report
“The State of the Big Law Market” which they have described as the first of what will be an annual report. The inaugural report was authored by Aric Press, Editor in Chief and Mary Cho, Legal Intelligence Analyst. It is not only the content and analysis that is new but the report represents a more in depth and historical treatment of law firm trends than ALM has undertaken in the past. Finally ALM is taking deep dive into the ALM Intelligence data archive they have been building for the past few decades. The ALM metrics are also supplemented with data from the US Census, Tymetric, Peer Monitor, Citigroup and Wells Fargo in order to provide multiple perspectives on complex and sometimes contradictory trends. I hope that ALM with continue to find new ways of utilizing their data archive to provide new insights into legal market trends.
The report is framed around 4 key trends with which we are all painfully familiar. Nothing has been the same since the collapse of Lehman in 2008.
Four Large Trends
Legal spending by corporations has still not recovered from the Great Recession, yet firms continue to increase their hourly rates.
Amlaw 200 firms have collectively increased their share of the market.
Fewer partners are getting a greater share of the profits.
The law firm market is increasingly segmented. The top 10 firms are getting richer and pulling away from the rest.
Despite the lower volume of legal work companies send to law firm, the rates paid by clients have increased.
In 2013 law firms set records for gross revenue and profits per partner. But in inflation adjusted dollars firms actually had the lowest profits per partner since ALM began tracking the AmLaw 200 in 1998.
Partnership ain’t what it used to be. It is less available, less permanent, and more transferable.
The ranks of non equity partners continue to grow.
Non equity partners get a bad rap but this report suggests that they offer a considerable upside if they can be managed effectively. Most law firms have not figured this out and non equity partners remain a drag on profitability.
Law firms are segmented by size, reach and economic success. Within each of these microcosms the gap between largest and smallest/ most and least profitable is growing.
The success segment. The top 10% have several things in common, most started in New York, most continue to get premium rates, and they can afford the best laterals.
More AmLaw 200 firms will disappear.
For all the hype about technology and nimble innovators, Big Law has still not been replaced by lower cost alternatives and they report suggests this will not happen any time soon.
Can Law Firms Create Client Needs?
The one conclusion I disagree with is that law firms can’t create client needs…Law firms must sit and wait for business. This, I assume is based in the traditional model of lawyers as litigators or dealmakers. They must wait for events to occur which are beyond their control and then compete for the opportunity.
Could law firms not create the need for specialized advisory and risk management services? Haven’t consulting firms generated huge revenue streams from selling their expertise? As commercial trade becomes more global and as regulations become increasingly complex … there is certainly an opportunity for law firms to “create the need” for preventive law and advisory services.
The Aggravating Conclusion
For all the great data and analysis I was expecting a grand overarching rubric for law firm success. Yet there was a recurring theme that some law firm trends simply defy analysis.
The report ends with some optimism about the future of big law. The final analysis seems to be that each law firm is so unique that it essentially exists in its own “micro-climate.” So firms using similar strategies may experience dramatically different outcomes. To use the prevailing trope… all law firm strategies are “bespoke.” There is no one answer that fits all law firms.
Are lawyers and large law firms doomed to a perpetual “Hunger Game”… forever competing for a dwindling pool of partnership opportunities, clients, profits and reliable strategies for the future?