The past decade was bookended by the dot-com bubble burst and the present economic crisis, but it’s easy to forget that the bulk of the decade was pretty darn good for the legal industry.
Rising profits and headcounts, abundant work, overseas and domestic expansion, mergers and stability marked the period between 2003 and 2007 for most large law firms. The largest 250 law firms in the country added 35,438 attorneys to their ranks between 2000 and 2008. That nearly 37% increase outpaced the growth of the 1990s, when the largest 250 firms grew 30% with an additional 20,559 attorneys.
Headcount growth allowed law firms to capitalize on the strong demand for legal services that came along with the prospering national and international economies, said DLA Piper Managing Partner Frank Burch.
“What you saw this decade was the bursting of the tech bubble, followed by a short recession, then year after year of growth in billable rates, revenue and net income for business law firms — up until the last 15 months,” he said.
Leverage grew during the mid-2000s with the addition of legions of associates, while the need for more bodies fueled ever-increasing starting salaries and competition between firms to land top prospects. The country’s largest firms paid new associates $125,000 starting salaries in 2000. That figure had grown to $160,000 by 2007.
Higher associate salaries were possible in part because law firm gross revenue and profits grew steadily throughout most of the decade. The average profit per partner among Am Law 100 firms was nearly $775,000 in 2000 and grew every year until 2007, when it peaked at $1.3 million.
The biggest factor in revenue growth was the steady climb of hourly billable rates, which firms tended to increase by an average of 6% to 8% every year. The current pushback from clients against higher legal costs had yet to take hold, and law firms maintained much of the economic power relative to their clients during the mid-2000s. Mergers were also hot during that time. DLA Piper; Dewey & LeBoeuf; K&L Gates; and Bingham McCutchen represent just a handful of the firms that were created through mergers during the decade.
— Karen Sloan