Law Firm Managing Partners Pessimistic, Says Citi Survey

Brian Katkin

03-31-2009

With dissolutions, layoffs and salary freezes making headlines, when will law firms be able to thrive once again? Managing partners say not soon.

On Monday, Citi Private Bank Law Watch released its executive summary of its first quarter 2009 managing partner confidence index. Law firm managing partners' confidence in the financial health of their firms continued declining, as client demand keeps shrinking and expenses keep growing.

According to the survey, the end to the tough times for firms is not coming any time soon. Of the roughly 120 managing partners surveyed from mostly Am Law 100 and Am Law 200 firms, 64 percent believe legal business will drop even more over the next six months. The survey says firms should not expect major profit growth over the next year, as profits, if there are any, will likely not exceed 5 percent. The majority of managing partners believe revenue will stay flat or decline.

Through the first quarter of 2009, insolvency and restructuring practices have been the driving practices at law firms, while litigation -- which was a highly anticipated practice with the down economy -- has been slow given in-house counsel feeling pressure from their companies to tighten their belts.

In addition to clients scaling back their use of law firms, an uptick in expenses has also put pressure on firm profit margins. Over the next year, managing partners say expenses will likely grow by about about 5 percent to 10 percent with lawyer compensation significantly driving that growth. Managing partners, however, are also now pointing to nonlawyer compensation as a factor hiking up expenses.

Not surprisingly, plans to expand are not common. Only 8 percent of those who responded say they expect to open a new office in 2009.

This article first appeared on The BLT: The Blog of Legal Times.