Was 2013 a good year for law firms? It depends on where you're sitting
Two important studies of the legal profession’s 2013 performance were released within a day of each other, but just what those figures signify seems to depend on how you read them.
The study by Citi Private Bank’s Law Firm Group, detailed American Lawyer (sub. req.) on Thursday, called the 2.5 percent growth in general revenues “more modest.” But the Wells Fargo Private Bank’s Legal Specialty Group 2013 Financial Health Survey called its 2.2 percent growth figure “tepid.” The Wells Fargo survey is discussed in a separate American Lawyer (sub. req.) article published on Friday.
“Even more anemic” says Jeff Grossman, senior director of banking for Wells Fargo Private Bank, was the 1.6 percent growth rate for law firms’ net income.
Perhaps one reason for the difference in opinion is that the Citi report highlighted the performance of the Am Law 50 firms that responded to its survey. The survey says profits per equity partner were at 3.5 percent for the biggest of the BigLaw firms, down from last year’s 4.3 percent, but “a solid result, given the challenging demand environment we saw last year.”
Grossman also noted top performance from the largest firms: Am Law 100 firms posted a 3 percent growth in general revenue and 3.9 percent growth in net income, while all other firms surveyed showed only 1.6 percent revenue growth and went negative for net income growth. The Citi survey results are based on a sample of 180 firms, including 43 Am Law 50 firms, 37 other Am Law 100 firms, 46 Second Hundred firms and 54 additional firms. The Wells Fargo survey sampled 115 law firms, including 65 from the Am Law 100 and the rest from the Second Hundred and regional firms.
Both studies agree that demand in 2014 was, as Grossman says, “flat to slightly down.” And both agreed that the most successful firms were not only good at practicing law and commanding higher billing rates, but also at controlling costs.
Grossman notes a wide dispersion of reported results: General revenue ranged from 20 percent gain for the best to 20 percent loss for the worst. Net income ranged from a 32 percent gain to a 35 percent loss. “One third of the firms reported negative revenue and net income,” he says.
“We don’t think size made that much difference,” he says, noting that the winners are “firms that are the very best at what they do and at managing expenses.”
Looking at where 2014 is heading, the Citi report calls for 5 percent growth in profits per equity partner for the year, but that difference could be made up by controlling costs, including reductions in the number of equity partners. Wells Fargo Private Bank predicts an overall rate of 3 percent revenue growth for law firms.
“There is still an oversupply of attorneys,” Grossman says.
Updated at 10 a.m. to add link to additional coverage.