The most anticipated issue of the American Lawyer, the AmLaw 100 (link to chart), is hitting the Internet and our in-boxes this week. Ohhhh, give me a bowl of popcorn and a strong cup of coffee … the numbers are in:
The 2009 AmLaw 100 – How Bad?? (really bad)
Nothing grows forever. For the first time since 1991, both average profits per partner and revenue per lawyer dipped last year among the Am Law 100 firms, the top-grossing firms in the nation. And, given the weakness in the market thus far in 2009, another decline seems likely this year.
There is plenty of blame to go around. We don’t pay much heed to the blanket criticism that many law firms grow just for the sake of growing. But we do pay attention to results. And here’s the bad news for firm managers and owners: At 71 firms last year, the percentage change in lawyer head count was greater than the percentage change in profits per partner. To put that more bluntly, the failure of two-thirds of the firms to restrain their lawyer hiring cost their partners money.
Ouch: The New York firms were the only category that, year over year, slid in gross, RPL, and PPP. This has led to much brooding that essentially predicts the end of the lucrative New York market as lawyers have known it [see Losing Their Balance]. Some of this has been served with a dash of schadenfreude.
To test that theory, we ran a couple of simple calculations. Many observers predict a 10 percent drop in gross revenues in 2009. If that’s true, and all lawyer head counts were to remain flat, PPP in 2009 would fall by about $360,000, to $925,000. Alternatively, if you assume a 10 percent drop in gross, you can hold PPP steady, on average, by cutting a little more than 10 percent of the lawyers, 84 out of the average-size firm of 820. The cuts don’t have to be confined to a single category: lopping off 66 associates and 18 equity partners will hold the line for the survivors.
There will be blood–2008 was not the bottom, just the beginning.
One thing is clear: “business as usual” in law firms is dead. The current business model worked when the economy was flush, rates were not an issue, the deals were flowing, and litigation was an option. The operating mode now is to reduce rates, reduce costs, conservative deals, and settle before fees get out of hand.
Clients are in the drivers seat, insisting that their law firms contain costs. Save for “bet the farm” cases, smaller, regional and boutique firms are more attractive than ever.
Firms need to look at their business models and make smart business decisions and adjustments. For some firms, this will mean a more conservative approach. For others, now is the time to get aggressive and take risks. For individual “AmLaw 100” attorneys, more and more are finding that the marquis-named firm might not be the best option for their clients, and their practice.
In any scenario, I predict that law firm cultures will continue to be challenged throughout 2009 and 2010. And I do concur with the American Lawyer’s prediction: “2008 was not the bottom, just the beginning.”