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The first quarter of 2014 has seen a slight increase in law firm managing partners’ confidence in the state of both the legal industry and the broader economy, according to a recent survey conducted by Citi Private Bank’s Law Firm Group.
For its latest Law Watch Managing Partner Confidence Index, which was released Monday, Citi polled 79 firm leaders—28 from The Am Law 100, 24 from Second Hundred firms, 23 firms that Citi describes as “niche” and four U.K.–based firms—to gauge their feelings about their own industry and the U.S. economy at large. The answers were plotted on a 200-point scale, with 100 representing a neutral opinion and 200 equivalent to absolute confidence.
The survey put the firm leaders’ overall confidence level at 115 for the year’s first quarter, six points above where it stood when 2013 ended. The first-quarter score was also two points higher than what Citi recorded during last year’s first quarter.
Gretta Rusanow, a senior client adviser in Citi’s law firm group, says improving market conditions have instilled firm leaders with the belief that the demand for legal services is on the rebound. “We measure demand through [lawyers' total billable hours logged] and, of course, the amount of work that comes the way of the firms is influenced to quite a large degree by what’s going on in the economy and what’s going on generally in the legal market,” Rusanow says.
The respondents’ confidence in the economy at large, meanwhile, rose seven points, to 123, over last year’s fourth quarter, while the survey’s profit index increased five points, to 101. Three out of four survey respondents said they expect at least some growth in profits over the next year, with one in four predicting growth between 5 and 10 percent.
The firm leaders are also more optimistic about demand, with an average confidence level of 138 in that category—a 2 percent increase since the end of last year. Half of the leaders surveyed expect a modest increase in demand for legal services over the next year, while 16 percent predict an increase in excess of 3 percent.
Most of the surveyed firm leaders are also expecting their revenues to grow this year, with only 15 percent saying they expect revenues to stay the same or decrease.
On the subject of discounting their fees, most firm leaders appear to believe the worst is behind them—at least for the moment—with the confidence rating in that category rising six points, to 81, in the latest survey. Fifty-eight percent of respondents said they expect their discounting efforts to be unchanged this year.
Over the last few years, Rusanow says, firms have been under intense pressure to continue offering discounts to clients reluctant to give up the discounted rates they got during the recession. “When you look at [2013 and 2014], it appears to be stabilizing, if not even, slightly, and that’s very heartening to see,” Rusanow says of firms’ discounting practices.
It seems that firm leaders remain cautious when it comes to increasing their equity partner ranks. As was the case in December, a majority of managing partners—62 percent—told Citi that their equity partner numbers would decrease or remain unchanged. Only 8 percent of respondents said they expect those ranks to increase more than 3 percent, while 30 percent predicted even less growth.
But Rusanow notes one way in which those numbers have improved: the percentage of firm leaders who expect the size of their equity partner ranks to remain unchanged increased from 38 percent in December to 45 percent, while the firms that predicted a modest decrease in the number of their equity partners dropped from 24 percent to just 13 percent. While many firms may not be looking to increase their ranks, Rusanow believes that more firms are at least looking to keep equity partner head count stable rather than making cuts.
“If anything, there’s been a swing toward law firms keeping a steady state when it comes to equity partner head count,” Rusanow says.