Managing partners at midsize law firms across the country report guarded optimism about business during the year to come.
The results of a survey The National Law Journal sent to leaders at firms with fewer than 400 attorneys showed that most firms of that size planned to add lawyers—although not many—to their practices. They also expected higher profits per partner.
The responses came from 26 midsize law firms, 17 of which employed between 100 and 199 lawyers. The firms were based in major cities in the East Coast, West Coast, Midwest and Southwest.
Half of the firm leaders expected litigation to provide the most revenue growth, and 19 of the firms planned to add lateral attorneys in that area. Corporate work was the second-most cited growth practice, with four firms expecting increased revenue there and 16 planning to add laterals. Fifteen of the 26 firms said they expected deal flow to increase moderately; 10 expected it to remain flat.
Jeffer, Mangels, Butler & Mitchell attorney Stan Gibson echoed the expectations regarding litigation. He said that Jeffer Mangels, which is based in Los Angeles with 125 lawyers, saw patent litigation double this year. “Large companies have realized they can get first-rate service and big firm legal expertise from midsize firms, without the big firm rates,” said Gibson, chairman of the patent litigation practice.
Asked to identify practices facing the biggest challenges next year, 11 firm leaders pointed to real estate and seven to corporate work.
Washington and Los Angeles were targeted for the largest expansions. Only one firm expected to add laterals in New York, and only one to add laterals in Chicago. Fifteen of the 26 firm leaders expected their firm’s total headcount to increase by 1 percent to 5 percent. Six anticipated that their firms’ headcounts would rise by 6 percent to 10 percent.
At the same time, 17 of the leaders anticipated asking between one and five partners to leave.
Eleven firms planned to add more first-year associates in 2013 than they did this year, and 11 said the number would be the same. Three of the leaders expected the number of new first-year associates to be smaller in 2013. None of the firms laid off associates this year.
As for finances, 11 of the firm leaders expected profits per partner to grow, but by just 5 percent or less. Nine firms anticipated that profits per partner would climb by more than 5 percent and five firms said profits per partner would remain flat.
Law firm consultant Kent Zimmermann of the Zeughauser Group said that for midsized law firms to continue increasing revenue, they need to establish a shared vision among partners.
“There is still ample opportunity for small and midsize firms to thrive if they’re able to build consensus among their partners to focus on building the financial strength to compete,” he said. “The strongest firms typically have a vision that is both aspirational and achievable.”
With regard to partner contributions, 25 of the 26 firm leaders did not expect to make a capital call this year, and 24 said they had no plans to do so during 2013.
At the same time, 21 of the 26 leaders expected to increase billing rates during 2013, even as 20 of them reported that more of their clients are requesting fee discounts.
The level of bank or third-party debt reported was low. Eighteen of the 26 firms said they had incurred debt of less than $5 million, and seven firms reported no debt. Only one firm reported having between $5 million and $10 million in debt. Nineteen firms said that their current debt represented no more than 5 percent of net income. Four firms reported that their debt amounted to more than 15 percent of net income.
Twenty of the 26 firm leaders said that they had no mandatory retirement age, while six did. Firms were split regarding exceptions to any retirement rule, with 13 saying they made exceptions and 13 saying they did not.
Leigh Jones is a reporter for The National Law Journal, a Legal affiliate based in New York.