The drumbeat was steady. The observers, myself included, were relentless. External pressures on law firm business models were mounting and firms had to act fast. They just weren’t doing enough to meet new market realities—or, for some, to survive.
Maybe they listened. Maybe they had enough of the talk. But something happened in 2017, particularly in the second half of the year, that spurred law firms to post their best gains in about a decade. Perhaps a proverbial middle finger to the critics? Perhaps the critics were dead wrong? Perhaps the industry is turning a corner that no one saw coming? Or perhaps our definitions of success have shifted in a decade?
Yes it’s true that the top firms continued to outperform those lower on ouér annual list of the Am Law 100, but even firms in the second half of the ranking showed strong performances across key financial metrics. Demand was up, rate increases were slightly easier to push through. The economy was good to firms in 2017, even if clients were still tight with purse strings and doled out pieces of their work to alternative legal services providers. I heard more and more about clients pushing to return to fewer firms for work, rather than disaggregation.
Observers are split on just how long law firms will be able to look down their noses at the critics. The data reveals complicated questions as much as it provides answers on the state of the market.
There is a sentiment among some I’ve spoken with that these increases are good for 2018, but wouldn’t have been deemed so in 2007. There is a sense for some that the market factors everyone has been warning about—clients handling more work themselves, ASPs entering the market in greater force, the Big Four, accelerating commoditization and overcapacity—are still looming and haven’t made their full impact just yet. And, of course, there must be a downturn coming soon.
But others have come to the defense of firms, noting that they simply are much better managed than they were 10 years ago. The economy is humming along nicely. And as one observer notes in our articles this month, firms may feel more emboldened to raise rates this year after doing so well in 2017. He says the pendulum is swinging away from general counsel, who, he says, protested too much. Wow. That’s a different tune than we’ve heard for the last decade.
My take? Granted, this is from one of those observers who may have just had it all wrong last year. I think the economy is helping firms stay strong. I think we may see a slightly different picture for the Am Law Second Hundred (I’ll wait to eat my words until that issue publishes in June). And I think I hear a lot of the same comments from a lot of law firms, all trying to do the same things. It’s that part that has me worried. I have long expressed concern about overcapacity within an individual firm, but maybe the bigger overcapacity issue is in each market segment. How many elite New York firms are needed? How many global elite firms can survive? How much room is there in the market for dozens of international business firms? You get the idea.
But, lest I continue my tryout for SNL’s latest Debbie Downer, let me raise my glass to the Am Law 100, which undoubtedly worked their tails off to generate a stellar year. To 2018, and beyond!