Posted Sep 06, 2012 01:01 pm CDT
Call it the Facebook effect.
The first half of the year was strong for many law firms, but a dropoff in work in the last six to eight weeks has many firms predicting a decline in revenues and profits this year, according to Kent Zimmerman, a consultant for the Zeugheuser Group. In a video interview with Bloomberg Law, Zimmerman referred to a survey by Citi Private Bank that found law firm expenses are growing faster than revenues during the first half of the year.
“A lot of our clients look at this report and they say it’s resonating with them,” Zimmerman said. “In the second half of the year, many of our clients have seen a material decline in demand. That decline is being led by a dropoff in corporate work, including in Silicon Valley, which was a bright spot until Facebook happened.”
Zimmerman says large law firms are pinched by companies exerting “dramatic fee pressure” and by a slowdown in corporate deals. Law firms need to respond by looking at layoffs, he advised. “In a word, they need to get lean,” Zimmerman said. “They need to reduce chronic underperformers, they need to reduce fixed overhead both in terms of attorney and staff overhead, they need to reduce excess real estate. Firms that get lean can come through this and have a lot of opportunity on the other side.”
Zimmerman saw many “stealth layoffs” at law firms in the first half of the year, and says there will “absolutely” be additional job losses. Many law firms have already planned layoffs, he said.
He also made some predictions for 2013. He wouldn’t be surprised to see more than one significant merger by the end of that year. And he expects more dissolutions in 2013 if the economy remains in the doldrums. “We believe there could be significant law firm failures, and when I say significant, I mean significant in number,” he said. “Three to five AmLaw 200 firms could fail by the end of next year unless they get lean and improve their financial performance.”