The most profitable firms in the Am Law 200 are pulling away from the rest of the industry.
That’s the takeaway from an analysis of data gathered by ALM Intelligence going back to the year 2000. A look at the top 25 firms by profit per equity partner (PPEP) in this year’s Am Law 200 ranking reveals a wide and still growing gap in profitability between the upper crust and everybody else.
Why might that be the case? Probably because the industry’s most elite ranks—firms that include Latham & Watkins, Kirkland & Ellis, and Davis Polk & Wardell—have been mostly immune from pressures to cut their rates. They are sought after to do the most complex, valuable M&A deals and the riskiest litigation.
Overall, the data cast doubt on the notion that law firms are getting less profitable. Some are, it’s true—but most of the big ones are not.
In terms of compound annual growth, the firms in the second tier (ranked 26 to 50) have seen PPEP increase about on par with what we might call the “ultra-rich” firms over the past five years. But they were starting from a lower base, and so in aggregate the ulta-rich are still pulling away — albeit a bit more slowly. What is becoming even more pronounced is the gap between the richest 50 firms and the other 150.
One likely outcome of this trend is more aggressive competition in law firm hiring. Right now the average partner at a “rich” firm is making some $2 million more per year than the average partner at a firm in the 51-100 tier and nearly $3 million more than a partner at a firm in the 101-200 bracket. As that gap gets wider (and it will), the wealthiest firms will have an even stronger hand to play in the lateral hire markets.
ALM Intelligence’s Legal Compass is the endpoint of over a thousand streams of data, bringing together detailed information on law firms, lawyers, and their clients. An indispensable tool for those in the legal industry, it provides access to the intelligence and research that professionals need to make the best decisions.