Big Law Is Driving Blind Into Familiar, Low-Growth Territory – Bloomberg Law
Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at the cloudy outlook for Big Law in 2023. Sign up to receive this column in your Inbox on Thursday mornings.
When Brad Hildebrandt and Gretta Rusanow put out their year-end report reviewing Big Law’s financial performance, they usually make detailed projections for the coming year. Not this time.
The outlook for Big Law is so cloudy that Hildebrandt said his team at Hildebrandt Consulting Citi Private Bank, where Rusanow is head of advisory services for the law firm group, decided not to even attempt a forecast.
“It’s one of the most difficult reports of our 15 years,” said Hildebrandt, a veteran law firm consultant. “This year, we just couldn’t figure it out. We just didn’t have enough data.”
The key message for the coming year is one that Big Law leaders should be familiar with at this point: Uncertainty.
Some firm leaders will be busy scrambling to undo decisions they made during the recent bull run. But many of the factors that will determine large firm performance in 2023 are out of managing partners’ control.
Will there be a recession? How deep will it be? Will geopolitical tensions ease? Can the tech sector and initial public offerings recover? What will happen with inflation and interest rate hikes by the Federal Reserve? How will that impact financial markets?
In the face of so many unanswerable questions, the easy answer is to be conservative. For Big Law, that means raise billing rates, prudently invest in top practices, and look for cost savings.
Where those savings will come from is perhaps the most important question for Big Law attorneys concerned that the answer will be to trim headcount.
Demand through nine months was down 1.2% compared to the same period a year ago, according to the Citi-Hildebrandt report. It does not anticipate a surge in demand, but rather a return to the slow-growth periods experienced after the Great Financial Crisis.
Lawyer headcount has grown 4.5% over the same stretch, driven mostly by increases in associates, while rising associate salaries have pushed expenses to surge by nearly 13%.
Over-hiring during the boom cycle of the last two years has already led to layoffs at Cooley. Other firms, including Kirkland & Ellis, have laid off attorneys under the auspices of an annual review process.
Firms are likely to seek higher attrition by letting go of “under-performing” attorneys during the review process, but Hildebrandt and Rusanow are skeptical that layoffs will sweep the industry. Many firms still regret the associate purge that followed the 2008-2009 recession, which left them with too few mid-level lawyers when the market rebounded.
“That’s a very clear memory for a lot of law firms,” Rusanow said. “And while it may be painful in …….
