We’ve never done a year-end review, and don’t count this (The “First Annual” if you wish) a precedent, but I thought it worthwhile to build one of the final columns of 2012 around what law firm leaders are saying. So without further ado, as the sportscasters say, “Let’s go to the videotape” (primary sources for what follows are The American Lawyer’s 2012 “Law Firm Leaders Survey“, LegalWeek’s “Partners scale back hopes for year ahead,” and The Lawyer’s “2012 Review of the Year“)
- “My sense is that a boom wants to happen, which makes me optimistic,” says Proskauer Rose chair Joseph Leccese. “But there are all these macro-level economic issues that are making clients hesitant, and that makes me pessimistic.”
- [I]n the absence of a clear upswing in the overall economy (and subsequent increase in demand for high-end legal services), leaders of Am Law 200 firms have sought to maintain profitability increases by relying on small-scale tactics, such as capital calls, deequitizations, and increased use of alternative staffing models. “Demand continues to be challenged as business’s appetite for new investments, expansions, and acquisitions remains constrained,” says Jeffrey Stone, cochair of McDermott Will & Emery. “We, like other firms, are trying to find that sweet spot of practice mixes, pricing, staffing levels, and fiscal stability.” Stone highlighted his firm’s increased use of alternative staffing arrangements that include nonpartnership-track attorneys.
- Another place where firm leaders see little potential for short-term growth is Europe. Forty-three percent of respondents said they expect the continent’s financial condition to decline further, and 47 percent said they expect it to stay the same. Still, few see pulling out of Europe as a viable option: Only one respondent (who could not be identified because the survey is confidential) said his or her firm plans to close an office there. “The European economy is foundering, and so it’s a less productive setting,” says Ralph Baxter, chair of Orrick, Herrington & Sutcliffe, which has offices in nine European cities. “But it’s mission-critical to be able to service clients in Europe and do cross-border transactions.”
- To cope with slack demand outside the litigation and IP spheres, respondents plan to use an array of staffing measures to maximize profitability. Sixty-seven percent of respondents said they had utilized contract attorneys in 2012, and secondments were even more popular, with 77 percent of respondents saying they’d used them in the past year. But firms show little inclination to increase their ranks of full-time associates. Sixty-eight percent of respondents described the size of their first-year class as the same as last year, an increase from 58 percent who gave that answer a year ago. The percentage of respondents who described this year’s first-year class as larger than last year’s declined 8 percentage points, to 21 percent.Associates have come under increased scrutiny too: Fifty-three percent of respondents said that their firm had implemented a competency model for these lawyers, a 10 percent increase over a year ago. Says Shook Hardy’s Murphy: “We’re having smaller associate classes, and we’re quite comfortable with the quality of candidates we get for contract attorney and staff attorney positions.”
- Equity partner rosters are also being constrained. Forty-five percent of respondents said they deequitized partners in 2012 (a 6 percent increase from a year ago), and 46 percent said they plan to do so in 2013 (an 8 percent increase from a year ago). The percentage of managing partners who indicated that they would ask between one and five partners to leave in the coming year remained steady at 55 percent, but there was movement among the smaller number of respondents who said that they would ask between 11 and 20 partners to leave—it rose to 5 percent from 1.2 percent a year ago. “There is less tolerance in the system to carry partners for longer periods of time after their performance has tailed off,”
- Weil Gotshal London managing partner Mike Francies said: “The world economy isn’t exactly booming, so it’s not surprising that lawyers are more cautious about the year ahead. People have been lowering expectations regarding the market – everyone has been concerned about the US fiscal cliff and the wall of debt.”The legal market isn’t growing, so now the question law firms are asking instead is what share of it they can get – it has become a case of being more clever about making more defined offerings.”
- In terms of priorities for the year ahead, partners still overwhelmingly view Asia as the market with the best prospects for growth, with 55% predicting the continent will be the best-performing region in 2013. The US and the UK were both selected by 15% of respondents, with Western Europe, the Middle East and North Africa identified by just a handful of respondents and Central and Eastern Europe chosen by none.
- Partners on business confidence
- 35% predict static or falling revenues at their firm over the next 12 months
- 10% predict double-digit growth over the next 12 months
- 55% identify Asia as the best-performing region for the year ahead
- 58% identify litigation as a top investment priority for the year ahead
- Here are some miscellaneous statistics of note:
