It was fun while it lasted. In 2007, The Am Law 100 — the top-grossing law firms in the US — finished the best sustained growth spurt since The American Lawyer began tracking firm financials in 1984. For the first time, the firms showed five consecutive years of better-than-average growth in both revenue per lawyer (RPL), the key measure of law firm financial success, and profits per equity partner (PEP), the metric that has turned law firm managers into contortionists.
How good was this run? Since 2003, average RPL has increased by $205,000 (£105,000). Before that, it took the firms 10 years — from 1992 to 2002 — to improve that much. The relative gain in profits was even more impressive. Since 2003, PEP has jumped by $438,000 (£224,000), to an average of $1.3m (£665,000). It took the Am Law 100 firms 15 years — from 1987 to 2002 — to make a similar gain.
This law firm golden age has been fuelled by surging demand for high-end legal services and unrelenting annual rate hikes. Partners reaped the benefits of hard work, and of pulling up the ladder behind them.
Stoking these gains has been a dramatic slowdown in the naming of new equity partners. Since 2001, the growth in equity partners has been above the 21-year annual average of 3.2% only once, in 2003. Last year, the average equity partnership grew by 2.6%, or almost five partners.
Even in these bountiful times, five was a big number. Thirty-seven firms shrunk their equity partnerships. Four held them flat. And eight increased them by one or two. A handful of firms managed to lose partners and PEP. Notable in that category are Dickstein Shapiro, Heller Ehrman and Akin Gump Strauss Hauer & Feld (which benefited from a contingency in 2006).
Other highlights from the Am Law 100 report:
- Total revenues reached $64.5bn (£33bn) — an increase of 13.6%.
- Two firms, Skadden Arps Slate Meagher & Flom and Latham & Watkins, each hopped over the $2bn (£1.02bn) barrier. It took Skadden 51 years to reach the $1bn (£510,000) gross mark, and eight more to hit $2bn.
- Nineteen firms had PEP of $2m (£1.02m) or more — four more than in 2006. Three of the 19 firms each decreased their equity partner ranks by 4% last year: Dechert, Milbank Tweed, Hadley & McCloy and Weil Gotshal & Manges. Once again, Wachtell Lipton Rosen & Katz led the pack, this time with a record-breaking PEP of $4.9m (£2.5m).
- Headcount grew by 6.8% to 77,816 lawyers. The fastest-growing category was non-equity partners, which now account for 35% of all partners. If these growth rates continue, the number of non-equity partners will exceed equity partners by 2015.
- The dominance of
The great run may be over. The sharp decrease in deal activity is well-known. And the classic counter-cyclical practices — litigation and bankruptcy — have not yet lifted all boats. Also, there is a structural indicator that points to weakness. For the first time since the bust of 2001, the growth in headcount noticeably exceeded the growth in RPL (in 2002, the two metrics essentially tied).
Coupled to the body count was the overly-analysed associate salary increases last year. Many consultants argue that those costs will be fully felt this year, precisely when demand for high-priced legal help may fall. Averages and year-to-year comparisons can often prove misleading. To add a little perspective, we ran a series of 10-year trend lines for the big firms. We found that some firms ended more or less where they started. But the story for 59 of the Am Law 100 firms in 1998 was more turbulent: 12 died or disappeared into mergers; 20 improved their RPL rank by double digits; 15 dropped by double digits; seven moved from the bottom half of the list to the top; five dropped from the top half to the bottom; and three firms that were not on the 1998 list — Quinn Emanuel Urquhart Oliver and Hedges, the litigation wunderkind, Finnegan Henderson, the intellectual property (IP) speciality shop, and Fish & Richardson, an IP and litigation house that scored a big contingency in 2007 — placed in the top 30.
The biggest upward movers: Dechert (up 35 places), Akin Gump (up 34), and DLA Piper (up 31). The biggest losers: Chadbourne & Parke (down 44 spots), and Dewey Ballantine, King & Spalding and White & Case all down 20.
We hope you weren’t working so hard that you didn’t enjoy the best seasons of your careers.
Click on the link below for the full Am Law 100 table.
Am Law 100 TableAmLaw100June2008
