The first quarter of 2013 was not particularly kind to large law firms. There’s no crisis at hand, but things aren’t exactly great either, with demand registering as slightly sluggish.
Citi Private Bank’s Law Firm Group, which possesses great insight into the legal industry because of Citi’s role as a leading law firm lender, just released its quarterly survey of managing partners’ confidence. The results are consistent with the general sense of “meh” that we’ve been anecdotally picking up from partners we hear from….
Here’s a summary of the survey results from Am Law Daily:
The beginning of 2013 has seen overall confidence in the state of the legal industry dip slightly among law firm managing partners, despite the same group’s growing optimism about which way the U.S. economy is headed.
That’s according to the latest Law Watch Managing Partner Confidence Index from Citi Private Bank’s Law Firm Group, which was released Wednesday and covers parts of this year’s first and second quarters….
For the period covered by the survey, the participating firm leaders’ overall confidence settled at an average score of 113 — a two-point drop from Citi’s previous report, which covered last year’s fourth quarter. A plurality of respondents, 47 percent, said their overall confidence remained unchanged since the last survey, while 33 percent said they felt “somewhat better.” Respondents feeling “somewhat worse” represented 14 percent of the group, while 2 percent said they felt “considerably worse” and 4 percent felt “considerably better.”
Overall confidence dropped slightly even though almost half of respondents had changed confidence and a third actually felt “somewhat better.” So we’re not exactly talking about confidence going over a cliff; one shouldn’t read too much doom into these findings.
And the survey results should come with an additional caveat: the respondents don’t necessarily represent the core of Biglaw managing partners. As a Citi spokesperson explained to Am Law, of the 65 respondents, 22 are Am Law 100 firms, 16 are Am Law 200 firms, and the rest come from neither list.
Law firm consultant Ed Reeser, a former managing partner himself, shared the following thoughts on the survey findings with us:
- The economy may be getting better, but law firms aren’t participating as much as hoped in the recovery (it isn’t much of a recovery party, but law firms still don’t seem to be invited).
- Business conditions for the legal profession are not improved.
- Profits expectations are declining (costs continue to increase at rates faster than revenues).
- Revenues expectations are declining (whether by organic growth or acquisition…the revenue isn’t out there).
- Expenses are better controlled, but still increasing. (We have cut everywhere we can, but it is not and cannot be enough to make the difference between success and failure.)
- Demand for services is weaker than expected. A lot of work firms used to do is being taken by non lawyer operations now competing with them, and that revenue is never coming back to law firms. The seagull just swooped by and took the hot dog off your plate, and what you have to eat is what you have left.
- Discounting pressure is slightly greater. It will continue to grow, not unlike when billing rates continued to grow year after year and clients couldn’t do anything about it; this is market correction “payback,” and it still has quite a way to go.
- Hiring of lawyers at all levels is decreased…. but especially at the equity partner level.
You can see that in the last box on the second page of the summary, under “Lawyer Hiring Indices.” Equity partner hiring sentiment is down by 20 points since the last survey, which makes it the biggest mover among the various survey components. This sounds like bad news for recruiters.
You can check out an executive summary of the survey via the link below. Thanks to our friends at Citi for sharing their findings with us.
Managing Partner Confidence Index: Executive Summary – 1Q/2Q 2013 [Citi Private Bank Law Watch]
Citi Survey: Firm Leaders’ Confidence Off as 2013 Begins [Am Law Daily]