As 2013 comes to a close, law firm managing partners are more optimistic about the year ahead than they were at the end of the third quarter, according to a recent survey conducted by Citi Private Bank’s Law Firm Group.
The bank’s quarterly Law Watch Managing Partner Confidence Index—which plots responses from a series of questions on a 200-point index, with 100 representing a neutral opinion and 200 representing absolute confidence—found overall confidence for 2014 at 109, six points higher than in September.
The survey culled responses from management at 71 firms, including 25 in The Am Law 200, another 24 in The Am Law Second Hundred, 15 firms that Citi considers niche, and four in the United Kingdom.
“They’re thinking 2014 will be a better year than 2013,” says Gretta Rusanow, a senior client adviser in the law firm group. Rusanow cites an increase in transactional work as one reason for the increased confidence, particularly for firms in The Am Law 50. “There’s a general sense that as the economy improves, that will translate into continued improvement in demand.”
The survey’s profit index came in at 96, with 10 percent of respondents anticipating a decrease in profits in the next 12 months. Another 15 percent predict the same level of profits, 51 percent expect growth below 5 percent, and 24 percent expect growth of 5 percent or higher.
Law firm leaders felt more optimistic about demand, citing an average confidence level of 136, with 67 percent of respondents expecting demand to rise. When it comes to expenses, less than 10 percent expect a modest decrease, while 27 percent say expenses will remain unchanged, 48 percent expect them to rise by less than 5 percent, and 15 percent anticipate higher expense growth of 5 percent or higher.
A rise in revenue is also predicted at the vast majority of the surveyed firms, with just 16 percent saying revenue is expected to stay the same or decrease.
Unlike last quarter, when managing partners said they planned to increase their equity partner ranks, this time around the majority—62 percent—told Citi that their equity partner numbers would decrease or remain unchanged while 28 percent say the ranks will increase less than 3 percent, and 10 percent expect more growth than that.
“This doesn’t surprise us,” Rusanow says. “Firms have become a lot more focused on their equity partner head count numbers. It’s not that they’ve stopped promoting star associates into equity, they’re simply a lot more focused on” culling the ranks through early retirements and asking underperformers to leave. “What we’ve seen … suggests more swing toward firms managing head count.”
Rusanow says her group revised its predictions a few months ago to say that the year’s revenue will end up relatively flat for the legal industry. Last year, she says, a busier-than-usual fourth quarter ended up being a boon to law firm revenue, but it’s “quite a mountain to climb” to expect the same good fortune to happen this year.
The American Lawyer’s own annual survey of law firm leaders found that, facing a tepid economic recovery and unshakable changes in the law firm business model, managers are cautiously planning their next move.