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New Survey Shows Law Firm Leaders Gloomy About 2008
Citi Private Bank survey finds confidence down among managing partners; Hildebrandt says blues will probably prove justified
The Recorder
January 18, 2008
Uncommonly downbeat managing partners nationwide expect a weak 2008 to bring fewer equity partner promotions, longer hours and higher rates, according to a new survey released Wednesday.
Conducted in the last months of 2007, Citi Private Bank's Managing Partner Confidence Index found confidence had fallen for the fourth straight quarter of the year-old survey.
Overall confidence fell nearly 20 percent in 2007, dropping by larger amounts each quarter. Managing partners' feelings on the economy as a whole -- the survey's macroeconomic index -- fell nearly 25 percent between the third and fourth quarter alone, and 40 percent over the course of the year, according to the poll.
The bank, which counts 550 law firms as clients, began administering the survey in the first quarter of 2007. The fourth-quarter results comprise 112 responses. A spokesman for the bank would not say how many surveys had been sent out.
The results track an annual autumn survey of managing partners conducted by The American Lawyer, an affiliate of The Recorder and Law.com. For the first time since 2003, firm leaders say growth is not a given, the magazine reported in December.
Managing partners aren't alone in expecting a turbulent year.
"Our forecast is not going to be very upbeat," said Bradford Hildebrandt, whose eponymous international consulting firm will release its 2008 forecast soon.
But not all managing partners are gnashing their teeth and biting their fingernails.
"We're very positive about our outlook in 2008 and for the long term," said Ralph Baxter Jr., chairman of Orrick, Herrington & Sutcliffe, which posted a hearty 16 percent increase in revenue in 2007. Leaders at five other top firms in the San Francisco Bay Area market did not return calls for comment on Thursday.
Despite the fact that revenue expectations decreased last quarter, on average managing partners still expect revenue to grow a modest 5 percent to 10 percent in 2008, the index says.
"Our revenue projection will probably be something around 7 percent," Hildebrandt said.
Nearly 60 percent of managing partners told the bank that increased hours and rates will contribute to growth in revenues. That comes as no surprise, said Ron Beard, a consultant with Newport Beach, Calif.-based Zeughauser Group.
"A major part of profitability for the last seven years has been rate-driven," he said.
There was improvement in one area -- after three quarters of anticipating "moderate to severe growth" in expenses, the most recent survey found firm leaders expecting to keep expense growth under 5 percent this year.
Hildebrandt suggested the survey's one point of optimism may not be justified. "I think they could outstrip the revenue increases," he said.
Expenses will grow, he said, in part because the impact of associate salary hikes has yet to be truly felt, since many were put into effect toward the end of 2007.
If expenses do grow, 90 percent of managing partners told the bank, it will be the result of increasing lawyer salaries and benefits.
Managing partners also said they expect to see more new non-equity than equity partners promoted in the short term.
"I think we will see an increase in the use of ... non-equity partners," Hildebrandt said. "I also think that some of those ranks could be cleaned out in this downturn."
The report concludes by noting that only 20 percent of managing partners say they are considering mergers or acquisitions, something with which both Hildebrandt and Baxter disagree.
"Any law firm leader who is doing his or her job is thinking how best to advance the interests of his or her firm, and our market is consolidating," Baxter said. "I think more law firm leaders than that think about mergers."
"Our merger practice is busier than it's been in a long time," Hildebrandt said. "And I think the economy is actually going to produce some additional consolidation."
