(Credit: Daniel Liev)

Ever since global economies began their tentative recovery from the financial crisis, the legal industry has debated what form the market might take once things finally settle.

The good news is that the so-called New Normal is probably already here. The bad news is that it’s characterized by a stifling mixture of flattening growth, widespread uncertainty, intense competition and severe pricing pressure from clients.

If anything, this year’s Global 100 survey suggests that conditions for the world’s largest law firms are getting even more challenging. Total Global 100 revenue rose just 2.8 percent in 2016, to $99.3 billion—the lowest annual gain since the recession and the second consecutive year of slowing growth. (Group revenue is still likely to pass $100 billion next year for the first time ever, however, requiring an increase of just 0.7 percent to hit that milestone.)

Having fallen by 2.1 percent in 2015, the group’s average revenue per lawyer (RPL)—a key measure of law firm health and efficiency—remained essentially flat last year, at $813,000. Global 100 RPL has increased by just 5.7 percent over the six years since the end of the recession—far below the rate of inflation.

An even more alarming picture is emerging at the bottom line, with total net income growth plummeting from 8.6 percent in 2015 to just 2.7 percent last year.

This resulted in the first decrease in average Global 100 profit per equity partner (PPP) in seven years, with that metric dropping half a percent, to $1.59 million.

Average profit per lawyer (PPL)—a far more accurate reflection of relative profitability than PPP—also fell slightly across the group, to $317,000. As with RPL, the Global 100 have collectively struggled to make meaningful gains in this metric, with total growth of just 9.2 percent over the past six years.

There are positives to be found, however. Latham & Watkins retained its position as the world’s largest law firm by revenue for the third year, having made significant gains across all metrics. The firm’s revenue increased for the seventh consecutive year, climbing 6.5 percent in 2016 to pass $2.8 billion on the back of significant investment in London and Germany, where the firm has made a number of high-profile lateral hires.

Despite a lack of overall growth in the market for high-end legal services, Latham has managed to add more than a billion dollars to its revenue since the peak of the recession in 2009, equivalent to a 55 percent increase over the past seven years. This hasn’t been as a result of merger or bolting on new practices: Its total attorney head count has only expanded by 21 percent over the same period.

In revenue, Latham is now more than $150 million ahead of second-placed Baker McKenzie, whose top line rose 1.9 percent last year, to $2.67 billion. Baker chair Paul Rawlinson says that geopolitical uncertainty, including the impact of Brexit on Europe, held back revenue growth over the most recent financial year. Meanwhile, the firm’s PPP remained flat at $1.3 million, primarily because, Rawlinson says, of increases in salary costs—particularly in the United States, where associate pay scales jumped—and various investments in technology and innovation. Baker McKenzie this past summer announced a collaboration space in Toronto designed for the firm’s lawyers to meet with clients and other tech companies, including IBM Canada, to rethink how they service clients.

The world’s largest law firm by revenue as recently as 2013, DLA Piper has dropped two places this year, to fifth, after its revenue fell 2.9 percent, to $2.47 billion. It is the first time DLA has placed outside the top three since we started treating its U.S. and international arms as a single firm in our surveys in 2011. DLA has now been overtaken in revenue by both Kirkland & Ellis and Skadden, Arps, Slate, Meagher & Flom.

Kirkland’s gross revenue leapt 15 percent last year, to $2.65 billion. The firm’s PPP also passed $4 million for the first time ever, rising nearly 14 percent, to $4.1 million. Kirkland is now the Global 100′s fifth most profitable firm by that metric, behind Wachtell, Lipton, Rosen & Katz (down 12.1 percent, to $5.8 million); Quinn Emmanuel Urquhart & Sullivan (up 13.5 percent, to $5.02 million); Paul, Weiss, Rifkind, Wharton & Garrison (up 7.2 percent, to $4.38 million); and Cravath, Swaine & Moore (up 18 percent, to $4.2 million).

It is only the second time in Global 100 history that U.S.-based firms occupy the top five spots in the revenue chart. In a sign of both the size of the U.S. legal market and the continued consolidation of the industry worldwide, American firms account for 81 of the Global 100, matching a record set in last year’s survey. The remaining places are taken by 12 British firms, three from Canada, two from China, one from Australia and one from South Korea. With France’s Fidal, Spain’s J&A Garrigues and Dutch firm Loyens & Loeff failing to return to the revenue rankings, there are once again no firms from continental Europe in the Global 100.

At the other end of the spectrum, the largest year-on-year fall in revenue was seen at China’s King & Wood Mallesons, whose top line crashed 21 percent, to $806 million. This followed the collapse of the firm’s European arm, which filed for administration in January ["King & Wood Mallesons In Europe: An Autopsy," January 2017].

British law firms also had a challenging year, with nine of the 12 U.K.-based firms in the Global 100 suffering a decline in revenue. (Another historically London-based practice, Ashurst, also recorded a sizeable drop in revenue, but is now classed as an Australian law firm for the purposes of this survey following its 2011 combination with Blake Dawson.)

Their disappointing showing was largely due to Brexit, although not in the way that you might think. While the country’s unprecedented decision to leave the European Union has cast a shadow of uncertainty over the market, many U.K.-based firms remained busy throughout the last fiscal year, including on Brexit-related matters.

Their figures were instead heavily skewed by currency fluctuations. The weakening of the British pound as a result of the Brexit vote actually inflated the results of U.K.-based firms with large international practices, as foreign revenue was favorably converted into sterling for consolidated accounts. (This currency boost was less pronounced at the bottom line, however. While the exchange rates mean that non-U.K. revenue is now worth more in sterling terms, so too are non-U.K. costs such as local office rent and staff salaries.)

Allen & Overy, Clifford Chance and Linklaters posted massive top line gains of between 9.8 percent and 16 percent, for example, although fellow Magic Circle firm Freshfields Bruckhaus Deringer struggled to even maintain its revenue in what the firm described as “a challenging year,” despite this hefty currency bump. Remove the currency effect and it would have fallen 5.4 percent. Shortly after Freshfields’ results were announced, managing partner Chris Pugh stepped down to return to full-time practice as a litigation partner—a move that partners attributed to the management team’s failure to deliver on financial targets.

This positive currency effect then became a negative when the U.K. firms’ results were converted to U.S. dollars for our survey. Since the EU referendum, sterling has dropped from $1.50 to below $1.30. In U.S. dollar terms, the revenue gains of Clifford Chance and Linklaters became slight falls, while Freshfields ended up with a more than 11 percent reduction to its top line, sliding from 8th to 14th place in the rankings as a result—its lowest ever position since our survey began in 1998.

Their performance is a far cry from the dominance of the U.K.-based firms over the Global 100 during the 2000s. British firms held three of the top five places in the rankings—including the number one spot—every year between 2001 and 2009. The highest-placed British firm in this year’s survey is Clifford Chance, in seventh place and almost $750 million behind Latham.

Two U.K. law firms, Berwin Leighton Paisner and Taylor Wessing, fell out of the Global 100 rankings entirely due to currency exchange. While both firms had reasonably solid years and posted increases in revenue in sterling terms, of 7 percent and 4.4 percent, respectively, they both suffered falls, of 5.3 percent and 6 percent, when their results were converted to U.S. dollars. (U.S. firms Fish & Richardson, Jackson Lewis and Schulte Roth & Zabel also exited the Global 100 this year.)

Just three U.K. firms managed to still record top-line gains after their results were converted to dollars: A&O; Bird & Bird and Clyde & Co.

A&O’s performance was particularly impressive, capped by a 2.8 percent increase in revenue (16 percent in sterling) and a 12 percent jump in PPP (26 percent in sterling). A&O managing partner Andrew Ballheimer said in an interview with sibling publication Legal Week that the firm’s breadth of currencies, practices and geographies—it has 44 offices worldwide—provided a natural hedge against what he describes as “volatile” market conditions. The firm also saw strong returns from its business lines that go beyond conventional legal services, including online legal risk management business aosphere and digital derivatives compliance system MarginMatrix.

London-based insurance specialist Clyde & Co’s revenue passed £500 million for the first time last year, leaping 14 percent to £508.1 million ($688.5 million). While 5 percent of this growth was attributable to currency fluctuations, it was largely driven by Clyde & Co’s continued aggressive international expansion, with the firm opening five new offices in the last fiscal year, in Chicago, Düsseldorf, Mexico City, Miami and Washington, D.C. (Clyde & Co has invested particularly heavily in the United States in recent years and now has nine offices across the country.) The past fiscal year was also the first full year of revenues from Clyde & Co’s 2015 merger with 45-partner Scottish firm Simpson & Marwick.

Having hit a record £665,000 in 2015, the firm’s PPP fell 2 percent last year, to £650,000 ($885,000), however. Clyde & Co chief executive Peter Hasson attributed the dip to an 11 percent increase in partner numbers and “heavy investment” in IT and other systems.

Bird & Bird, meanwhile, broke back into the Global 100 after a one-year hiatus. Unusually for a London-based firm, Bird & Bird reports its financial results in euros, which actually strengthened against the U.S. dollar last year. So while the firm’s revenue rose 5 percent, to 361 million euros, that equated to a 7 percent increase in our survey, to $411 million. Bird & Bird launched an international tax disputes practice in London with the hire of a five-lawyer team from PwC Legal, and also promoted 16 new partners internally—up from nine the previous year.

Bird & Bird is joined in the Global 100 by four other new entrants: Blank Rome; Crowell & Moring; Fox Rothschild; and Gowling WLG.

The highest-placed debutant is Gowling WLG, which was formed through the combination of Canada’s Gowlings and U.K. firm Wragge Lawrence Graham & Co in early 2016. The firm’s revenue is split almost exactly 50:50 between the two arms, which are not financially integrated. In an interview at the time of the tie-up, head of international projects Quentin Poole said that the firm intended to complete two additional combinations by 2020, with China and Germany high on its list of priorities. Earlier this year, the firm opened an office in Stuttgart, Germany, adding to its existing intellectual property-focused outpost in Munich, which WLG launched in 2008.

Blank Rome, meanwhile, achieved the highest growth in revenue among the entire Global 100, with its top line soaring 22.5 percent, to $422.5 million. The firm picked up more than 100 attorneys from Washington, D.C.-based Dickstein Shapiro, which went out of business in February 2016. In what has been a remarkable period of growth, around 60 percent of the Blank Rome’s 564 attorneys have joined the firm since 2011.

Looking ahead, the widespread uncertainty across core jurisdictions, continued global consolidation and disruption brought about by new technologies and alternative providers makes future market conditions all but impossible to predict. But the current environment of low growth and high competition has been around for long enough to suggest that it isn’t going away anytime soon. In fact, the trend of the past few years suggests that the pressures facing international law firms are only likely to intensify. A continued slowdown in the overall demand for legal services and subsequent squeeze on profits will no doubt be of particular concern to Big Law managers. For the Global 100, it all makes for a challenging and uncertain future.