For purposes of this exercise, I simply took the posited relevant time frame of 2009—2013 (in AmLaw rankings) at face value. And I also assumed that CAGR was the best measure of growth in revenue, since it’s also cited approvingly (“continuing to grow at a CAGR of 4.1 percent over the past two years”).
I did, however, make two changes:
- Rather than limit the CAGR analysis to the past two years, and glide over the uglier first two, I calculate the CAGR for the full four-year period
- And I adjust for changes in lawyer headcount among the AmLaw 100, and for inflation.
Here’s what you get.
Total revenue for the AmLaw 100 firms:
- 2013 AmLaw 100: $73,400-million
- 2009 AmLaw 100: $64,809-million
- CAGR of revenue over the four-year period: 3.16%
Now, let’s adjust for inflation and AmLaw 100 lawyer headcount changes:
- CPI increase in total over the four year period (per the BLS): 8.84%
- AmLaw 100 headcount growth: 80,773 lawyers 2009—86,941 lawyers 2013, or a total growth of 7.64%
- Combined headcount/inflation growth (8.84% + 7.64%): 16.48%
The acid test:
- A total growth of 16.48% (headcount and inflation combined) over four years equates to a CAGR of 3.89%.
In other words—adjusted for headcount growth and in constant dollars—the AmLaw 100 were not even holding their own during the 2009—2013 period. Indeed, their revenue growth rate would have needed to be 23% higher than it was just to keep even with inflation and headcount growth.
But while we’re at it, I take issue with the 2009—2013 period as the most meaningful timeframe. By 2009, we were already into the trough, so one can rationally expect the numbers to be better, or less bad, than they would be if we compared the AmLaw 100 immediately before the Great Reset (2008) to the most current data (2013). Either it was the intent to produce better/less bad numbers, or the chosen timeframe was selected without much thought: Neither inspires confidence.
So let’s do the analysis over what I believe to be the more meaningful timeframe: 2008—2013.
Total revenue for AmLaw 100 firms:
- 2013 AmLaw 100: $73,400-million
- 2008 AmLaw 100: $64,451-million
- CAGR over the five-year period: 2.63%
Controlling for inflation and AmLaw 100 lawyer headcount changes:
- CPI increase in total over the five year period (per the BLS): 12.62%
- AmLaw 100 headcount growth: 77,818 lawyers 2008—86,941 lawyers 2013, or a total growth of 11.72%
- Combined headcount/inflation growth (12.62% + 11.72%): 24.34%
The “acid test,” namely calculating the CAGR of the “correction factor” (taking into account headcount growth and inflation): Growth of 24.34% over five years equates to a CAGR of 4.45%
Actual CAGR of AmLaw 100 revenue (again): 2.63%.
As expected and predicted, starting one year earlier makes the picture even uglier. Now, rather than needing to have grown their revenue 23% more than they did (2009—2013), firms would have needed to have grown their revenue 69% more than they did simply to “stay even” over the 2008—2013 period.
If this is resilience and growth, then I should have been a professional athlete; I could count on the bar being lowered every year and still be able to set annual records at the new diminished height.
Finally: We all know that averages mislead.
And in today’s environment, averages mislead more than ever. If anything is true about law firm performance in the post-Great Reset era, it’s that dispersion has never been wider. We have more highly outperforming winners and more poorly underperforming laggards.
But if you want to generalize? Out of “alive, well, and rich,” the evidence seems to support one for three.
In baseball, come to think of it, that’s not a bad batting average.
Update (30 July):
A reader who’s a better statistician than I writes from London:
Dear Bruce,
I enjoyed your article (as always). I think, though, that the numbers are actually slightly worse than you suggest, since the headcount increase and inflation increase should be multiplied.
So over the four-year period, the combined headcount and inflation increase is not 16.48%, but 17.16% (1.0884 x 1.0764 = 1.1716), CAGR of 4.04%; and over the five-year period, not 24.34%, but 25.82% (1.1262 x 1.1172 = 1.2582), CAGR of 4.70%.
This gives us the following comparison calculations:
- Four-year “comparable” (2009-2013): Actual AmLaw 100 CAGR of revenue: 3.16% vs. a required “steady state” CAGR of 4.04% (a 28% shortfall in revenue growth)
- Five-year “comparable” (2008-2013): Actual AmLaw 100 CAGR of revenue: 2.63% vs. a required “steady state” CAGR of 4.70% (a 79% shortfall in revenue growth)
That pro athlete career is looking better all the time.
