The CDO Newswire

2016: At Best, Just an OK Year for Biglaw

Wells Fargo’s Private Bank (specifically, its Legal Specialty Group) recently surveyed large law firm managing partners at the end of Q 3.  Among the key findings, is that, while revenue is up 3.8% (over the first nine months of 2015), that is not due to an increase in the demand for legal services, but rather owing to rate hikes (an average of 3.6%).  Moreover, productivity (billing hours worked per lawyer) was down.  And a largely unanticipated increase in associate salaries that took place over the summer added to the expense side of the equation.  Despite all this, attorney headcount increased 2.2%.

In an interview with the AmLaw Daily, a Wells Fargo representative said, among other things, that “[t]he industry will probably have to become more aggressive managing attorney head count to the state of demand.”

The findings were based on survey results from 130 large firms, 60 of which are in the AmLaw 100.

Demand for Law Firm Legal Services Drops in Q2 — First Time Since 2013

Demand for large and mid-sized law firm legal services fell 0.9% in Q2 of 2016 according to a recently released report by Thomson Reuters.  Its quarterly Peer Monitor Index Report contains information about key law firm business metrics.

We’ve regularly blogged about the Peer Monitor system before, but to refresh you, it is a service that allows law firms to access their peers’ financial data (in the aggregate) in exchange for supplying their own data to the system for others to access (on a normalized and aggregated basis).  Data from Am Law 100 firms, Am Law 200 firms, and mid-sized firms are included in the system. You can find more information about the Peer Monitor system here.

Key observations include:

  • The drop in demand was the biggest quarterly drop in more than 3 years.
  • The drop was across nearly all practice areas:  real estate was down by 2.3%, tax was down 3.4%, litigation was down by 1.8%, labor and employment was down 0.3%.  Corporate work was actually not down, but it was essentially flat (up by a mere 0.1%).
  • Productivity (hours worked per attorney) was down 2.8%.
  • Attorney headcount was up 1.7% and the replenishment ratio was 1.26, which means that capacity was increasing at a time of largely falling demand.  It seems as though firms (wrongly) bet that Q2 and the rest of 2016 would bring continual increases in demand (as had been the case for the previous 2 plus years).

Key conclusions:

  • Firms may need to reevaluate their staffing levels and hiring plans to avoid further drag on profitability.
  • Though demand year-to-date is still positive (just barely at 0.1%), most of the key trends are not pointing in an encouraging direction as we move into the second half of the year.

Brief Legal Market Update

Legal business consultant, Altman Weil, just published the results of its 2016 Law Firms in Transition Survey. The Survey went out to 800 firms with 50 or more lawyers. They received 356 responses, including about 48% of the AmLaw 200 and 49% of the AmLaw 350.

Key findings:

  • Market demand for legal services has failed to return to pre-recession levels in over 60% of US law firms; and 62% of firm leaders believe that erosion of demand will be a permanent trend in the legal market.
  • Half of the respondents’ Equity Partners and over 60% of their Non-Equity Partners are not sufficiently busy, creating an ongoing drag on law firm profitability.
  • Corporate law department insourcing is taking work from 68% of law firms, including 84% of firms with 250 or more lawyers.
  • Although 94% of law firm leaders identified the need to improve the efficiency of legal service delivery as a permanent trend, only 43% of firms have significantly changed their approach to achieve greater efficiencies.
  • When asked why their firms aren’t doing more to change the way they deliver legal services, the top response from 64% of firm leaders is that their partners resist most change efforts.

Legal Industry Expert Moderates Expectations for Rest of 2015

Citibank’s latest report on the financial performance of the legal industry as of the end of the 2nd quarter 2015 is a bit less optimistic than their 2014 end of year report.

You can find the full report on the first half of 2015 — via the American Lawyer — here.

Revenue — as a result of increased demand for legal services — is up, but it is lagging behind the increases we experienced in the first half of 2014 (3.3% at the midpoint of 2015 vs. 4.4% midway through 2014) and expense growth is up.

The growth in expenses was largely due to the fact that firms paid larger bonuses at the beginning of this year (to reward lawyers for a relatively strong 2014). There was also an increase in operating costs due to expenditures on cybersecurity and health insurance, among other things.

Sounding a similar theme to the Thomson Reuter’s 2014 end of year report, it seems as though not all large firms have experienced the same impact.  The AmLaw 100 continues continues to experience positive momentum whereas the Second Hundred actually saw a decrease in demand.  Interestingly, it appears that the niche/boutique firm market outpaced both the AmLaw 100 as well as the Second Hundred.

Citi’s bottom line:  “While we remain optimistic that revenue and profit will both grow, we believe that they will now fall short of 2014’s results.”

Read more:

EIW/FIP Attire (Bumped)

Occasionally, we’re asked about appropriate on-campus interview attire.  We think our colleagues at the Yale Law School offer some good advice, which we’ve excerpted below.  Keep in mind that dressing appropriately is art, not science.  You should look at these simply as guidelines, not hard-and-fast rules.

Your attire should contribute to your professionalism.  Although employers may have different dress codes, err on the conservative side when interviewing.
Women (Advice for Men after the jump)

  • Skirt suits are still considered the most conservative, although women wear pants suits as well.
  • Black, navy and gray are the most conservative colors, but tans and other subtle shades are also acceptable.  Solids are preferable to patterns.
  • The skirt should be no more than two inches above the knee.
  • Wear a white or cream blouse (sometimes called a “shell”) with either short or long sleeves. Tank tops and camisoles are too casual. The blouse should either have a collar or a round neck. Avoid low-cut shirts.
  • Wear a white or cream blouse (sometimes called a “shell”) with either short or long sleeves. Tank tops and camisoles are too casual. The blouse should either have a collar or a round neck. Avoid low-cut shirts.

Read the rest of this entry »

Writing Style Guide from Silicon Valley General Counsel

Adobe Systems GC Michael Dillon recently announced the release of a writing style guide for the company’s in-house attorneys to use in their communications with their business unit clients and with each other.

There are lot’s of great suggestions for better, clearer writing, which is, after all, an essential tool of the lawyer’s trade.  It also could be an interesting topic for discussion during on campus interviews.

You can find some top tips here and the actual guide here.

Not Quite Biglaw Rankings

As a follow up to our May 8 posting on Biglaw rankings, The American Lawyer has now published its 2015 AmLaw Second Hundred rankings. Firms are ranked in a number of different ways relating to their financial performance: growth rates, profitability, revenue, etc.

Firms in the Second Hundred tend to be elite specialists, smaller firms in major markets or big regional players.

Check out the data and analysis at their rankings landing page.

How Law Firms Are Innovating To Stay Relevant

Great article in the Legal Intelligencer on how law firms are changing their business models and practices to keep up with the pace of change in the legal industry and to meet changing client demands.

Some key takeaways:

  • even firms that are smaller (100 lawyers), older and not thought of as innovators are doing things differently, like creating outside board of legal industry expert advisers, investment funds for the firms to support innovative ideas, and creating spaces within their offices so startups and entrepreneurs can interact.
  • firms have largely eschewed innovation and have not traditionally offered the breadth of services consultants do. But, they are uniquely situated to do so because of the scope of their business, political, philanthropic, global and local connections.
  • Firms of the future will have more professional resources embedded within to help identify what the client needs (and not just their legal needs).
  • Firms will need more people who are trained managers and understand business needs and generally be more business-minded.
  • Demographic trends will create a shortage of highly qualified lawyers to assume leadership positions at firms as well as a shortage of associates entering firms.  This will create increased competition between firms and their clients for legal talent.  Talent strategies, including professional development, advanced leadership training and retention programs, will become increasingly important.

2015 State of the Nor Cal Legal Market and Law Firm Guide

Every year, Jon Escher, founding partner of the legal recruiting firm, Solutus Legal Search, based in Silicon Valley, makes a presentation to students about the Silicon Valley legal market.

He also prepares a guide to Northern California law firms by practice area, which includes descriptions of those areas as they are practiced specifically in this geographic area.

We just posted to the 2015 version of the Guide on this page of CDO webcasts.  Unfortunately, the webcasting equipment malfunctioned, so we do not have a 2015 version of his in-person remarks this year, but we left the 2013 version up there in case you’re interested.

Biglaw Rankings 2015

The American Lawyer recently published its 2015 rankings known as the AmLaw 100.  Firms are ranked in a number of different ways relating to their financial performance:  growth rates, profitability, revenue, etc.

Check out the data and analysis at their rankings landing page.