The 2018 edition of the Am Law 200 is, in many ways, a study in contrasts. There is a clear and growing gap between the overwhelming success of the Am Law 100, which we wrote about last month, and the disappointing collective returns of the Second Hundred. And within the Second Hundred itself, there are plenty of firms that turned in sterling performances in 2017 even while the group as a whole lost gross revenue, profits per partner and revenue per lawyer.
In this year’s package you will find analysis of the numbers from every angle, providing both a statistical and anecdotal understanding of the overall health of the Second Hundred, and the entire Am Law 200. Our report takes a closer look at the legal marketplace in five distinct regions across the country, debunks a myth about consolidation and casts a wary eye toward the future as we wonder whether law firms will be prepared to handle the next inevitable recession. And in our detailed charts you can see how firms compare in a variety of key financial metrics.
The data was compiled over the course of several months by ALM reporters and editors in conjunction with ALM Intelligence and Legal Compass.
“Our impression is that law firms are doing nothing to prepare for a recession,” says Janet Stanton, a partner with Adam Smith, Esq. But with the consensus among economists that the economy will continue growing for at least the next two years, leaders still have time to take bold measures—namely, trimming bloated layers of their firm—to ensure long-term stability. The question is, will they?
A thoughtful look at the numbers reveals that the supposed consolidation happening in the U.S. legal market is more myth than fact, offering an important correction to the prevailing wisdom that has led firms to believe they need to bulk up—by merging, acquiring and hiring laterally—to avoid being at a competitive disadvantage.
The Second Hundred serve the same demanding, high-profile clients as their Am Law 100 brethren, but they rarely have access to the same financial resources. They have, by definition, smaller revenue streams and fewer lawyers. Their brands often extend only as far as their geographic footprint. And their ability to invest in discretionary business pursuits such as project management is limited. Their future success lies in the hands of their leaders.
I’ve come around to believing culture can seep into the business functions of a firm, but I wonder how much partnership values and culture are protecting firms and how much they are hindering efforts to adapt.
More than half of the 17 New York firms surveyed saw revenues grow by at least 5 percent last year, and partner profits for many firms grew even faster. A dozen of the 17 firms in the sample saw profits per equity partner increase more than 5 percent, and at six firms that number rose more than 10 percent.
No Second Hundred firm in Washington had its partner profits dip in 2017, and the group was led by Arent Fox’s ninth straight year of growth. “I think all of us have been surprised by just how robust the market is,” says Jeffrey Lowe, Major, Lindsey & Africa managing partner in D.C.
Six California firms in the Second Hundred climbed in the rankings this year, as a rebound in the Los Angeles market and a surging economy helped the Golden State fill Am Law 200 coffers.
Of the 13 Am Law 200 firms founded in Pennsylvania, all but two posted at least a slight gain in profits per equity partner in 2017, compared with the year before. Seven increased PPP by more than 5 percent—the amount of year-over-year PPP growth across the entire Am Law 200.
Only nine of the 45 Am Law 200 firms in Atlanta are homegrown. The rest range from small outposts to sizable operations, and the competition for work and talent is stiff. Although that number has only increased from 41 firms to 45 over the last five years, the mix has changed. Five firms have disappeared, while another nine have appeared.