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The Am Law 200 Is Out -- What Does It Tell Us About The Legal Landscape?

Sure the rich are getting richer, but what are the rest of the firms supposed to do about it?

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Today, the American Lawyer released the Am Law 200, which is to say they released the Am Law 101-200 after releasing the Am Law 1-100 last month. While most of us are starstruck by the top 100 and pore over that data for weeks, especially now that the schism between the haves and the have-nots has gravitated up from the Am Law 100 vs. Am Law 200 toward the Am Law 50 vs. Everyone Else threshold, the second hundred data tell some fascinating stories about the real meat and potatoes of the legal landscape.

And those fascinating stories are mostly tragedies.

At first blush, it was a dismal year for the second hundred firms in Am Law’s rankings. As Miriam Rozen points out, revenue growth is down. Revenue per lawyer is down. Profits per equity partner are down. It’s an across the board sob story, while the Am Law 100 — driven mostly by the top 25 — posted gains in each of those categories. But there’s some good buried in those numbers. American Lawyer’s editor-in-chief, Gina Passarella Cipriani, points out that the second hundred saw a bevy of mergers, closures, and acquisitions from 2017 to 2018, meaning smaller firms moved up into the top 200 this year and artificially dragged the numbers down. But compared with the accelerating growth of the very top, this may be cold comfort for most of this list.

Beyond the raw negative results, the Am Law numbers reveal that the same volatility inflicting the Am Law 100 is only amplified among the ranks of the second hundred. And while volatility can be either positive or negative, you can imagine which side of the coin turns up more often down here.

ALM Intelligence’s Nicholas Bruch points out that only 19 Am Law 100 firms shifted from growing to shrinking or vice versa last year, with more improving their station than not. Meanwhile, 36 firms of the second hundred flipped from growing to shrinking or vice versa last year… and the trend’s increasingly negative. The same can be said of PPeP, with 35 Am Law 100 firms seeing a flip, mostly positive, while a whopping 53 second hundred firms experienced a flip, mostly negative. Part of that might be that the second hundred firms were already running leaner to the bone such that any shift in fortunes was likely to flip their trend. But even if that’s true, it portends a deeper problem — that the second hundred don’t have the cushion needed to make the investments in business development and technology that the bigger firms are using to consolidate their advantages.

So what gives? Well, for one thing, the data show that costs per lawyer are up among the second hundred firms this year by the same amount as the first hundred. That wouldn’t be so bad, Bruch notes, until you remember that second hundred firms traditionally see cost per lawyer increases substantially slower than the Am Law 100. As you might suspect, the pressure to hike associate pay contributed mightily to this figure. Many of the second hundred firms jacked up salaries last year, with 17 fully matching the Cravath scale!

To some extent, this is the inevitable result of the Am Law 50’s invasion of the smaller markets that most of the second hundred consider their home turf. Yet the methodical encroachment of the elite firms into markets long left to the smaller firms (soon to be the subject of a full ALM report, we’re told) has left the second hundred in a talent bidding war with forces that have them largely outgunned. This has left them, generally, with dwindling headcount and higher costs per lawyer — not an enviable situation.

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Where does that leave the second hundred firms? Largely divided between stumbling forward into the headwinds or scrambling to forge a new identity now that they’re no longer the biggest fish in the smallest of ponds. Expand scope to become the premier regional firm, servicing those areas outside the major metropolitan center that DLA Piper just colonized? Try to find an elite firm interested in a ready-made branch office to acquire? Attempt to merge with another firm? What’s a firm to do?

On the other hand, some markets may tell a different story. While a long-standing Houston firm may be left in a quandary — unable to compete with the elite firms moving in, but too large to capture truly niche work like a boutique can — a midsized firm in Minneapolis may be ideally set to outcompete large firms that are still (and may always remain) reluctant to devote the resources necessary to crowd out a competitor capable of undercutting the bigger firm’s price point. It may just be that there’s no universal solution to the second hundred’s woes.

But they should probably start devoting some time to figuring out what their specific solution is going to be before it’s too late.

2018 Am Law 200 [American Lawyer]
The Second Hundred Are Being Lapped by the Top Tier

Earlier: Am Law 100 Released — A Lot Of Firms Made A Lot Of Money

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HeadshotJoe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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