Revenue per lawyer and net income rose in 2017, making it one of the best years for Am Law 100 since the 2009 recession. These gains, says The American Lawyer, are despite anxiety-inducing trends. What about the industry’s long-term outlook? The April report breaks it all down.
In 2017, the RPL rose 3.2 percent to $936,655. By comparison, in 2016 it grew by only 1.5 percent, potentially signaling a slowdown. The 2017 increase is the second-best RPL growth since 2010; the top performance was in 2014 at 3.7 percent.
So, how is it possible that one of the best years could happen at the same time that clients seem to be demanding discounts of firms and atwitter about alternative legal service providers? Eric Seeger, a principal at law firm consultancy Altman Weil, explained to TAL.
“Demand rose slightly and firms were able to push through rate increases. As productivity bumped up, those incremental hours went straight to the bottom line. But there are still a number of headwinds. The majority of firms still report to Altman Weil that demand is below pre-recession levels. Celebrating RPL increases of 3.2 percent is a measure of how far expectations have fallen since the recession.”
Seeger added that “the good old days” have not returned quite yet.
More specifically with regard to the 2017 figures, the trend of bigger firms outpacing smaller firms in both revenue and growth accelerated.
- Top 10 firms: 25 percent of revenue; 38 percent of growth
- Firms 11-27: 25 percent of revenue; 25 percent of growth
- Firms 28-53: 25 percent of revenue; 20 percent of growth
- Firms 54-100: 25 percent of revenue; 17 percent of growth
And here’s the breakdown of profits per equity partner:
- Top 10 firms: grew PPP by 8.4 percent on average
- Firms 11-27: grew PPP by 5.8 percent on average
- Firms 28-53: grew PPP by 5.9 percent on average
- Firms 54-100: grew PPP by 3.4 percent on average
According to Altman Weil, when 10 of the largest firms are removed from the survey, PPP among the rest of the 90 firms increased 4.6 percent on average. Also, this uneven profitability growth was more dramatic in 2017 than 2016. According to Janet Stanton, a partner at law firm consultancy Adam Smith, Esq., industry competition is among a very few.
“Those firms — the top firms — are really only competing with each other. They are not competing with Axiom. They’re not competing with in-house, as the other firms are, which will put pressure on pricing. People go to these top firms, the ones that are pulling away, for the hardest, best stuff. And these firms can attract the best talent as a result. It becomes almost a virtuous cycle.”
While some of the stratification is due to the 10th largest firm in revenue, Norton Rose Fulbright, absorbing Chadbourne & Parke and a smaller survey sample size, firms Kirkland & Ellis, as well as Latham & Watkins, are also factors.
“Both firms have benefited from the work their management put in over the past few years recruiting star partners in high-rate practice groups including mergers and acquisitions, private equity and high-stakes litigation.”
Despite these big numbers for big firms, TAL report urges counsel not to “rest on your laurels” because the market is “hotly competitive” for most firms — big or small.