With the release a bit earlier this month of Legal Business’s annual “Global 100,” we have more data to scrutinize, should we care to. I’ll give you the highlights of the numbers here but even the most innumerate among us could not exactly misinterpret the message: The full title of this year’s release is The Global 100: Hitting the wall. Although the figures reported were for the firms’ fiscal years ending April 30—obviously well before the shocking Brexit vote—the headwinds the report cite include:

• Brexit itself, which will of course hit UK-based firms much much harder than US-based firms, just when anxiety about US firms gaining a serious lead in London was becoming ubiquitous;
• The deep chill of uncertainty infecting the entire transactional side of our industry in the UK and the EU; and
• Numerous observers reportedly citing the spike in the dollar’s value against sterling as “making New York a lot more expensive [for] the Magic Circle [who] are so heavily invested there that they can’t retrench.”

The first and second of these factors strike me as perfectly inarguable, bordering on the platitudinous. Yes, of course, indeed, to be sure.

The third, however, strikes me as oddly pessimistic, assuming the worst: If you posit that Magic Circle firms are losing money in New York, then, yes, if nothing else changes they’ll be losing even more money (accounted for in sterling). On the other hand, isn’t the quoted observer assuming a fact not in evidence a condition not preordained? After all, if the Magic Circle, or any other UK-based firm, were turning a profit in the US, they would report super-charged results in sterling.

Now may be the least propitious of times, and certainly sterling’s plunge in the immediate aftermath of Brexit was enormous (taking it back to a level not seen for over 30 years), but for the sake of perspective I feel obliged to note that for any firm doing business outside its home country, changing relative currency valuations are going to be a fact of business life. If your firm needs to or ought to do business abroad, that’s a highly material strategic decision. The second-order effect tagging along that perhaps you’ll be recognizing revenue and expense in more than one currency should make no more difference to the strategic choice than what standard outlet voltage is in the foreign country.

In short, currency exchange markets behave just as J.P. Morgan remarked when asked his prediction on the direction of the stock market: “It will fluctuate.”

So back to the numbers:

• Total revenue of the Global 100 grew 3% year on year to US$95.99-billion, but/and lawyer headcount grew 6% to 122,945. When headcount growth exceeds revenue growth, we have surely entered new territory in defining performance down.
• As you would expect and arithmetic would require, average revenue per lawyer (RPL) was down 2%, but so was profit per lawyer (PPL) down 2%; the figures were $781,000 and $308,000 respectively.

Over the longer run, the numbers are pretty much equally sobering:

• Using 2008 as a baseline—the last year before the Global Financial Reset—the revenue of the 100 has grown 26% (in non-inflation adjusted dollars) from $76.18 billion, but the growth in headcount of fee earners is nearly as great: 21%.
• RPL in 2008 was $751,000, so bringing it to today’s $781,000 amounts to an increase of only 4%. Using the US Bureau of Labor Statistics CPI calculator as a rough and ready proxy for the price inflation the Global 100 experienced, the $751,000 of 2008 would need to grow to $841,000 in 2016 just to stay even in constant dollars—a growth rate of just over 19%.
• The results for PPL are not meaningfully better: It’s up 8% in nominal dollars from $286,000 but would need to have grown to $320,000 to have lost no ground in real terms.

For those of you wondering if firms’ increasingly obsessive focus on profits per equity partner (PEP) hasn’t enabled them to achieve more impressive results on that score, well, we hate to disappoint. Yes, the growth in PEP was +14% from $1.4-million to $1.6-million, but still fell short of simply keeping pace with inflation.

Legal Business does its best to put this all in perspective, calling it “not upbeat reading,” “a stark reminder that the elite legal profession is stubbornly stuck in New Normal Land,” and sees more “severe headwinds” in the offing, including “a potential eurozone crisis [and] a charged US election.”

Their conclusion is hard to argue with: Will any of these firms respond with “something radical” by way of combinations among themselves, or some seriously creative rethinking of the business model?