Business of Law

Belt-Tightening Saved BigLaw, and Lateral Hiring Could Boost Its Future

Belt-tightening saved large law firms in the short term, but it may not be enough to shore up profits in the long term, according to a law firm adviser.

Law firm leaders will need to begin thinking and acting like CEOs to grow revenue and control costs, according to an American Lawyer (sub. req.) article by Dan DiPietro, the head of client relations for Citi Private Bank’s Law Firm Group.

DePietro’s article accompanied an American Lawyer report that found the nation’s top law firms last year saw a slight average increase in profits per equity partner of .3 percent and am overall drop in gross revenue of 3.4 percent.

“What saved the industry was belt-tightening,” DiPietro wrote. Expense cuts exceeded revenue drops at most firms, he says, citing one sample that showed expenses were down by 5.6 percent, compared to the 3.4 percent overall decline in revenue. The problem, DiPietro says, is that “professional service firms can’t consistently shrink their way to profitability.”

One tactic that may work is aggressive lateral hiring, DePietro says. He notes an observation by one law firm leader who found his firm’s revenue growth in the last five years was fueled by lateral hires rather than homegrown partners. “I suspect that this is true at many firms and will be even truer in the coming years,” DePietro says.

Firms will also try to grow through mergers, or through global offices, particularly in the developing world where legal demand is increasing, he says. Some will try to differentiate themselves—through redesigned service models, alternative fees, or a focus on industry specialization.

To succeed, law firm leaders “will need to think and act more like CEOs,” he says. “They will need to innovate at the very time that many of their partners are reverting to complacency—a mind-set that will make it difficult to adapt.”

We welcome your comments, but please adhere to our comment policy and the ABA Code of Conduct.

Commenting is not available in this channel entry.