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Hours are flat, but client spending is up for both partners and associates. Clients have increased the amount of work they're giving to Am Law 200 firms. And lawyers who are paid at least $800 per hour now account for an increasing cut of the U.S. legal market. These are the top-line results of an analysis of a remarkable data run from TyMetrix, the Hartford-based electronic billing giant. It permits us to gauge demand for legal services on the basis of what clients are actually buying rather than from reports of law firm billing activity or financial results. Those reports, which The American Lawyer, Citibank, Wells Fargo, and Thomson Peer Monitor regularly publish, are of course valuable, but not the last word on the state of demand for lawyers.
I asked TyMetrix's staff for help in discerning demand for high-end legal services. To meet that request, they went into their LegalVIEW database and isolated 37 substantial companies (eight Fortune 100, eight Fortune 101–500, and 21 others) for which they had consistent billing data from 2008 through the middle of 2012. Collectively these clients purchased $7 billion in legal services from 4,762 law firms, including 180 of The Am Law 200 over that time period. TyMetrix provided hours and fee data by quarter. The quarterly fees ranged from a low of $208 to a high of $68,336,309. The data went far beyond the rarefied $800-an-hour lawyer.
For analytical purposes, I compared the first two quarters of 2010, 2011, and 2012, the last being the most recent period for which TyMetrix had final data. This set includes alternative fee arrangements — TM converts them to hours for ledger purposes. This is only a snapshot of the legal market, but one that I think is big and broad enough to be representative. And, in my view, helpful, because it adds a dose of market information that may challenge or dilute some ardently held elements of the conventional wisdom. Some highlights:
Flat hours. Comparing the first two quarters of 2010 to 2012 showed almost no difference, just a slight bump from 2,761,334 to 2,796,077 hours, or a 1.2 percent increase. During the three years measured, the peak for hours came during 2011, when the total was 2,832,480 hours purchased.
More spending. Even if clients weren't buying many more hours, they were paying a good deal more for the privilege. Fees for the first two quarters of 2012 were $949.8 million, which was an increase of $122.3 million over 2010. That's a 14.7 percent hike. Between 2011 and 2012, spending increased $49.3 million, or 5.5 percent, despite the drop in hours purchased. Also, fees were up for both partners and associates, a 14.9 percent gain for partners and 14.7 percent for associates. This suggests at least three things. First, firms are getting rate increases from at least some of their clients. Second, despite the consternation over junior associates, customers are continuing to pay at least some of their bills. And third, as we'll see below, customers are buying more high-priced talent.
Changing market share. The purchasing of legal services by these 37 corporate clients grew by $122.4 million between 2010 and 2012. An astonishing $109.4 million of that increase went to Am Law 200 firms, moving that group's collective share of this market from 58 percent ($482.1 million) to 62 percent ($591.5 million). Recently there has been a lot of loose talk arguing that the principal way that big firms can succeed is by taking market share from other big firms, hence the lateral hiring stampede. These numbers suggest that a market share shift is happening, but that it's driven by large clients turning to large firms for their legal work rather than to smaller ones.
High rate fees. The Am Law 200 firms dominate this sector. Their share of the $800-an-hour-and-up sector went from 79 percent (139,774 hours) to 85 percent (179,768 hours). During the same period their fees jumped from $107.8 million to 140.9 million, a 34 percent increase. Perhaps more important, in 2012 this sector accounted for 14.3 percent of the hours purchased from Am Law 200 firms and 23.8 percent of their fees. In 2010 the $800-an-hour-and-up group represented 12.2 percent of the Am Law 200 hours and 22.3 percent of their fees. For the right talent, price is not the problem.
Practice areas. The billings were not equally divided among all lawyers. TyMetrix broke out four large practice areas: Corporate and General Business; Finance, Securities, Banking and Investments; Litigation; and Regulation and Government. Since 2008, those four accounted for 8.1 million billable hours. With 6.7 million hours or 82.4 percent, Litigation work was the bulk of the hours. Corporate was a distant second with 700,357 hours. The premium hours split differently. Again, Litigation had the most — 464,154 hours billed at $800 or more. But in percentage terms, Finance was the premium-billing leader. More than half of those hours — 54.7 percent or 209,570 — were $800 or more hours, followed by Corporate — 50.9 percent or 356,322 premium hours, and Regulation — 34.3 percent or 116,004 hours. Payments to the premium billers were not constant either. They peaked in the fourth quarter of 2011 at $95,505,098.
Geography. No surprise here. According to the TyMetrix LegalVIEW data, most of the premium billers practiced in six cities: Boston, Chicago, Los Angeles, New York, San Francisco, and Washington. The ratio is roughly seven-to-one. There is premium work elsewhere — roughly 10,000 hours every quarter since 2010.
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