The American Lawyer reports that law firm revenue growth in the first nine months of 2018 was the highest it’s been since 2007, and the outlook going forward remains positive. According to a new report, released by Citi Private Bank’s Law Group, overall revenue grew by 6.3 percent and demand was up 2.5 percent during the first nine months of 2018 compared to the same period in 2017. Many firms showed wider profit margins as a result of demand and billing rates grew at a level that outpaced an increase in expenses, the report revealed.
The Citi Private Bank’s report found that among the Am Law segments, size mattered, with Am Law 50 firms outperforming the other market segments in both lawyer rates and demand. Smaller, niche firms saw the greatest growth in revenue at 7.8 percent, and the second-greatest growth in demand at 2.5 percent. Looking at firms by geographic reach, the report revealed that global and international firms posted stronger revenue, demand and rate growth than national and regional firms, (as quoted in The American Lawyer).
“More than likely, this will be a year of strong top-line growth for the industry, but also characterized by expense pressure and continued dispersion among market segments,” notes Gretta Rusanow, research co-author and head of Citi Bank’s advisory services. “As firms end 2018 and look forward to 2019, it will be even more important to ensure that continued growth is profitable, particularly as this extended period of growth points to a looming downturn at some stage. Further, while our dispersion results show that some firms are enjoying even greater success than the average results of 2018 are showing, it also suggests that some firms are struggling mightily. We would expect this phenomenon to lead to further and perhaps accelerated consolidation ahead,” she adds.
Contact Bill Sugarman for more information.
Big law firms have always been pathologically conservative in updating their policies, but has this mentality begun to affect their overall profitability? The American Lawyer recently released an article investigating whether large firms’ aging partners, who often control a majority of the client base, habitually put their self-interests above the firm’s longevity—to the point that the partners’ “short-term gains could become the institution’s long-run catastrophe.”
The New York Times released a statistic in their Dealbook stating that nearly half (46 percent) of all managing partners are between 60 and 70 years old, with only 3 percent under age 50. And, according to The American Lawyer, these partners are hoarding their clients with an “eat what they kill” mentality–which, AmLaw argues, makes the eventual succession of new partners that much more difficult.
Interestingly enough, this problem does not go unnoticed at the big law firms. A 2011 survey by Altman Weil found that 47 percent of firm leaders identified the “retirement and succession of baby boom lawyers in their firms” as their greatest concern. Yet, in Altman Weil’s 2013 survey, “only 27 percent of managing partners reported that they had a formal succession planning process.”
The American Lawyer concludes that aging partners should work to “encourage long-term institutional stability,” through prioritizing client service, encouraging partner cooperation, helping partners prepare for their “second acts,” and encouraging them to sacrifice some self-interest for the long-term betterment of the firm.
However, while Big Law partners should certainly concerned be about the futures of both their firms and themselves, many big law firms are already feeling the heat from their stagnated approach. In 2013, a study of over $10 billion in client fee invoices by LexisNexis/Counsel Link found that mid-sized firms (termed “large enough” firms, of 201-500 lawyers) are quickly grabbing the market share from biggest firms (those with 750+ attorneys). In fact, the study found, while big law firms saw a drop in their market share from 2010 to 2013, ‘large enough’ firms successfully grew theirs from 18 to 22 percent.
So, while the biggest firms continue to turn a blind eye to future strategy, it’s safe to conclude that their mid-sized competitors are eagerly seizing the opportunity to thrive.