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Report Proves What We Already Knew: Clients Will Pay Any Fee Hike To Get Brand Name Firms

Bellyaching aside, clients aren't quitting on the elite firms.

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Clients upon hearing Cravath will charge even more.

Whenever firms start chattering about a salary increase or a bump in bonuses, the same clients come out of the woodwork to complain that they will not under any circumstances pay more to finance these “exorbitant” associate salaries. Then every single one of them falls in line and pays the newly hiked fees and the whole legal world keeps on spinning.

At least that’s what happens at the elite firms. The mid-tier firms — which increasingly means “the Am Law 51-100” — don’t necessarily have that luxury. For these firms trying to keep up with the big dogs in the drive for talent, it’s harder to pass the cost onto the client, resulting in thinner margins and stressing the firm.

This has long been the conventional wisdom among legal industry observers, but the new Citi Private Bank Law Firm Group Report went out and actually gathered some hard data to see if our gut instincts are correct. It turns out… they are.

Despite past predictions that law firms would not be able to raise rates, our analysis demonstrated that firms did not sacrifice work as they increased their rates. Nor did the firms who saw the greatest growth in demand achieve this through slowing down rate increases. Rather, demand growth was determined more so by brand than by price. In our view, brand strength and product focus are among the most highly rewarded traits of a law firm in today’s market. In recent years, much of the demand growth has come from high value work—work that is typically undertaken by firms who enjoy a strong brand, and can command high rates. Firms who have established themselves as the go-to practice in a market—whether that be by industry, practice or region—have been able to increase demand for their services while also charging higher rates.

There’s an old saw, “no in-house lawyer loses their job by hiring Cravath.” You can replace Cravath with any of the other top-tier firms, but the point is clients aren’t going to balk at rate increases from firms they trust with high-stakes engagements. For now, those firms will keep taking advantage of this elasticity. For everyone else, this probably increases the pressure to merge or form strategic regional alignments with other firms. That’s why the report is convinced that consolidation is going to continue in a big way into 2019.

One more point about the 2019 outlook worth noting:

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Geographic growth opportunities. In Citi’s 2018 Law Firm Leaders Survey (see Chart 4), respondents once again singled out New York as the strongest opportunity over the next two years, followed by London—although many cite the challenges of attracting talent and work in these two highly competitive markets.

I wonder why it’s so hard to attract talent to New York? Could it be the way the market’s paying matching salaries to attorneys living in frigging Dallas? Texas attorneys offer me no end of flak for this take, but the reason New York attorneys should be making more has nothing to do with “how hard they work” and everything to do with maintaining the talent flow to the markets that require the best attorneys to exploit the best growth opportunities.

As Michael Corleone would say, “It’s not personal, Sonny, it’s strictly business.”

HeadshotJoe Patrice is a senior 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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