Index of law firm profitability jumps to record high after unusual pandemic year
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An index that measures the profitability of large law firms reached record highs in the second quarter, bolstered by big jumps from an unusual 2020 during the COVID-19 pandemic.
The Thomson Reuters Peer Monitor Index jumped to a high of 84 for the quarter, beating the previous all-time high of 70. The score represents a measure of the drivers of law firm profitability, including rates, demand, productivity and expenses.
Demand for legal services is now higher than it was two years ago, before the pandemic, according to Paul Fischer, president of legal professionals at Thomson Reuters.
“The law firm market has largely regained its footing after persevering through unprecedented challenges,” he said in a press release.
The metrics show strong law firm performance when compared to the second quarter of 2020, but the results aren’t as striking when compared to the second quarter of 2019.
“These figures, which may appear eye-popping at first, need to be viewed with a heavy dose of historical context,” according to an online summary of the results.
Among the year-over-year findings:
• Demand, measured in billable hours, increased 7.3% in the second quarter. The increase in demand was driven primarily by mergers and acquisitions, up 17.9% compared to last year; real estate, up 17.6%; and corporate, up 12.7%. When compared to the second quarter of 2019, demand was up only 0.6%, however.
• Productivity increased 7.3% in the second quarter. When compared to the second quarter of 2019, however, productivity decreased 0.5%.
• Rate growth increased 3.4%, a slower rate than other recent quarters. Compared to the second quarter of 2019, rate growth increased 8.4%.
• Overhead costs declined 4.1%, compared to a decline of 3.6% when compared to the second quarter of 2019. Investment in technology and knowledge management both increased, however.