It can be easy to remember the past Golden Era for BigLaw: Say, the decade preceding the 2008 Great Financial Meltdown. And you would not be wrong to recall it that way. No indulgence in nostalgia is required; that decade constituted an unheard-of run of economic strength for BigLaw.
You want proof? A few weeks ago, ALM Intelligence published the remarkable Jae Um’s Outwit, Outplay, Outlast: A Post-Recession View of the Survivors, which among other things included a sensational chart distilling the fiscal year performance of every AmLaw 50 firm for each of the past 20 years, 1998–2017. (Keep reading and you’ll come to it.)
We’ll start with the Golden Era: the years 1998 through 2007.
Of the 500 fiscal years represented (50 firms x 10 years), care to guess how many down years (revenue shrinkage) there were?
I won’t torture you: Four, or 0.8%. Meanwhile, the number of fiscal years of purely flat, zero-growth revenue was five. Put these together and any randomly selected firm’s odds of growing revenue from one year to the next was 98.2%–for an entire decade. All you had to do was stand there, in that cohort, during that decade. Under capitalism, this is unheard-of.
The years from 2009 through 2017 have constituted a dramatic departure.
Technical note #1: I omit 2008 because some firms were still benefiting from collections and other lags held over from the palmy days but others were hit early, the severity and speed with which firms were “hit” varied tremendously and was essentially random (I was front-row witness to the last months of Thacher Proffitt, which went from demand for 300+ associates churning out securitizations to 0 in about 24 hours), and also because no one had much time to react to the new economic order. But if you’re asking, 10 firms were down and four were flat that year
Technical note #2: I do include 2009 as the first year of our second time span because it was, after all, a real year and emblematic of our new era.
During that second 9-year span:
- 43 of the 50 have experienced one or more down years;
- 6 of the remaining 7 had at least one flat year; and
- One and only firm has put together an unbroken streak of up years.
The technical term for this is “volatility.”
What changed? Let’s take a closer look at US economic performance during those two periods, shall we? Perhaps the economy is to blame. Hardly anyone has experienced the last decade as a period of rampant prosperity. On top of incessant client rate pressures, the escalating arms’ race for lateral talent, de-equitizations, and stringent cost control, what if we’ve simply all been facing macroeconomic headwinds?
So I decided to take a look. (Almost all the following data comes from the St. Louis Federal Reserve’s priceless “Fred, which one of the Times’ best business journalists calls “an economic writer’s best friend.”)
The obvious place to start is GDP growth over those two periods. Shall we?
It grew from $11.9 trillion to $15.6 trillion in “chained” dollars, or about 37.1%. (“Chained” dollar series embed a more sophisticated and accurate adjustment for inflation than constant dollar series. Constant series rely on a static basket of goods and services to define the inflation rate, whereas chained series tie dollar values to an updated, rolling or “chained” basket of what people are actually purchasing during each pertinent time period. Next time you have a choice between citing the same economic data in constant vs. chained form, go for chained.)
And real GDP from 2008 to 2018:
Let’s look at a few other statistics arguably more indicative, or more closely correlated, with demand for BigLaw’s services than pure GDP.