Picture is 'generally bullish' for midsize law firms, new report says
Growth in demand for legal services is greater, on average, for midsize law firms than for the nation’s 100 top-grossing firms, according to a new report by the Thomson Reuters Institute.
In the first half of the year, demand for legal services increased 1.7% for midsize firms, compared to the same period last year. That’s nearly on par with the nation’s second hundred top-grossing law firms, which saw a 1.8% increase in demand, and better than the 0.2% decrease in demand for 100 top-grossing law firms.
The picture is “generally bullish” for midsize firms, according to the 2022 Report on the State of the Midsize Legal Market.
This announcement summarizes the findings and provides access to the report, which was released last week.
Going into the latter half of 2022, midsize firms are “in a better position relative to the market than they were just a few years ago,” the report says.
The report uses the American Lawyer’s gross-profit rankings, which divides law firms into the Am Law 100 and the Am Law 200. The report defines midsize firms as those not in the 200 top-grossing firms in the American Lawyer rankings, according to coverage of the report by Reuters.
Factors likely fueling the demand growth include:
• Midsize law firms remain cost-effective alternatives to BigLaw.
• Midsize law firms are more regularly recognized as providing quality legal services, particularly for higher-volume work in which the stakes aren’t as great.
Also on the plus side, midsize law firms have generally done well in their ability to hold on to their attorneys. The Thomson Reuters Institute has found that those firms make up a disproportionate number of “stay” law firms with lower rates of attorney turnover.
While midsize law firms trailed other firms in percentage growth in lawyers, fewer additional lawyers translated to a better ability to stem a decline in productivity, the report found. In the first half of 2022, productivity decreased 1.8% in midsize law firms, compared to a 3.3% decreased for Am Law 100 firms and a 2% decrease for Am Law 200 law firms.
On the negative side, increasing overhead and higher associate compensation are a drag on midsize firms’ financial results, the report found.
Associate compensation increased an average 7.4% in the second quarter, year over year, at midsize firms, compared to increases of 15.3% at Am Law 100 firms and 12% at Am Law 200 firms.
Midsize law firms also trailed larger firms in terms of worked rates (the rates that a firm agrees to with particular clients for work on given matters) and fees worked (worked rates multiplied by demand hours). Worked rates increased 3.8% for midsize firms, compared to 4.8% for all law firms, while fees worked increased 5.4% for midsize firms, compared to 6.5% for all firms.
According to the articles, the report is based on data from 168 U.S.-based law firms, including 73 midsize firms ranging in size from 35 to several hundred lawyers.