Headlines like “The Last Days of Big Law” are great—eye-catching and search engine–optimized. If only they were true. While it’s always easy to use “anecdata” and argue, loosely, that the fate of one individual firm, say, the late Dewey & LeBoeuf, is a harbinger for the industry as a whole, that’s actually not the case when it comes to big law firms.
As Mark Obbie points out in his Slate article, the New Republic's cover story "looks at one sore throat and proclaims it a cancer pandemic." However, a deeper look at how the largest firms are doing, short-term and long-term, shows resilience and growth.
Take the latest results from The Am Law 100 for 2012. The 100 biggest law firms, ranked by their gross revenue, continued to post revenue and profit gains even as the U.S. economy sputtered. Revenue at these firms grew 3.4 percent, or $2.43 billion, to $73.4 billion—a new record—last year. Average profits per equity partner rose 4.2 percent, to $1.47 million on average, as firms kept their partner head counts flat in 2012. Profit margins, meanwhile, stayed at 38 percent.
Certainly, law firms are not in the heyday of the boom years. A decade ago, the industry watched profits rise 7–12 percent annually and gross revenue leap 8–12 percent every year. Aggregate revenues soared from $31 billion to over $67 billion between 2000 and 2008.
And the recession was tough on Big Law, too. As my colleague Chris Johnson pointed out, some $2.4 billion was wiped from The Am Law 200’s collective top lines in 2009—the first fall in overall revenue since we started tracking law firm financials more than two decades ago. But that amount was recouped within 12 months, with total group revenue rising $3 billion in 2010 and continuing to grow at a CAGR of 4.1 percent over the past two years.
During the recession, many firms continued to raise rates where they could, they cut their head count, and they entered into mergers or “verein” combinations that added to their top-line growth and footprint.
History shows exactly how durable this industry is. In 2012, as part of our 25th anniversary coverage of The Am Law 100, we looked at the firms that appeared on our first ranking in 1986 and compared it to the 2012 roster. Sixty-nine firms appeared on both lists, while 12 firms moved to the Second Hundred. The group of 81 firms generated $6 billion in revenue in 1986 and $58 billion in 2011.
Big Law nonetheless has plenty of problems: failure to retain women and minorities, unfunded pensions, lack of alternative ways to bill clients. Overcapacity is always a worry, and adapting to clients’ shifting needs is a never-ending struggle. But make no mistake, the giant law firms in this country are alive, well, and rich. Rumors of their demise are greatly exaggerated.
Robin Sparkman is The American Lawyer’s Editor in Chief.