“Expect the worst and hope for the best.” That is a mantra that many of us recite to ourselves when we go into that big deal meeting, when we walk into the courtroom on the first day of trial, or when we seek to close that elusive big client. Indeed, that was the mantra of the entire legal community when the pandemic hit with full force in the United States in March 2020.
At the very beginning of the pandemic, the industry braced for some very rough financial waters. Firms cut staff, cut attorney salaries, and halted incoming graduates and summer programs in an effort to soften the blow of an industry downturn. Fortunately, however, that downturn never really materialized for most of the legal industry. Nine months later, many of the firms that initially made serious cuts are now restoring salaries and rehiring laid-off staff. In fact, a new report, called the 2021 Client Advisory, was just released that shows that law firms – particularly Big Law – have performed much better than they expected this year.
Accordingly, in this article, we are going to discuss the major conclusions of that new report in some detail and, more importantly, discuss how the performance of the legal industry in 2020 may mean good news for those looking to make a lateral move in 2021.
Revenue Growth for Firms, Despite the Pandemic
On December 1, 2020, Gretta Rusanow, Managing Director of Citi Private Bank’s Law Firm Group; and Brad Hildebrandt, Chair of law firm advisor Hildebrandt Consulting, published their report 2021 Client Advisory, which gave an overview of the health of the legal industry. In short, the news looks good for most law firms.
Even with the pandemic, Big Law has had a solid 2020. The largest law firms will, by year’s end, boast an average mid-single digit revenue growth and even better growth on profits. Here are some of the bigger ticket conclusions that came out of the 2021 Client Advisory:
- Big Law outperforms the industry. The 50 largest law firms in the U.S., according to the report, “substantially outperformed the rest of the industry,” seeing a 6.8 percent rise in revenue from January to September 2020.
- The smaller the firm, the lower the revenue growth. Revenue growth starts to decrease as you look at smaller firms. Thus, the 51st to 100th largest law firms experienced 2.6 percent revenue growth, and the second hundred largest firms experienced 1.3 percent revenue growth.
- Surprisingly high profits. Even with some slower revenue growth in smaller firms, the temporary austerity measures that virtually all firms put in place at the beginning of the pandemic boosted profits considerably. In fact, the report states that “more than a few firms” are projecting record profits in 2020.
- Remote work meant lower operating expenses. Given the smooth transition that most firms made to remote work for their employees meant a 5.3 percent decrease in operating expenses, while at the same time attorney compensation only increased by 1.9 percent.
- Most clients still paid on time. A common trend across the industry was a focus on billing and collections. While firms anticipated that clients would ask for discounts or to postpone their payments, those requests did not materialize.
- Easier to keep in touch with clients. Attorneys actually found it easier to keep in touch with clients during 2020 because the pandemic kept everyone at home.
2021 Might be a Year for Law Firm Mergers and Moves
While the report reflects good news generally in the face of a tough economic year, all law firms did not do equally well. Those uneven results for some firms might mean a pronounced increase in moves and mergers in 2021.
The report suggests that the pandemic may have shown midsize firms that they need to be on a bigger platform to succeed, and smaller firms might want to realize more regional growth. With those kinds of motivations in mind, firms will likely be looking to merge with one another or make similar lateral moves.
All of that is to say that 2021 may bring some significant shifts and combinations in the law firm sector. That kind of movement could also bode well for attorneys looking to make a lateral move.
Movement Among Law Firms Means Movement Among Lawyers
While it is of course difficult to predict how many law firm mergers will actually occur in 2021, the prospect of significant movement in the industry may well translate into increased opportunities for attorneys to make a lateral move. That is because firms seeking growth and efficiencies will have a strong demand for hiring attorneys with (i) established practices, (ii) experience, and (iii) a strong book of business.
Moreover, the pandemic has certainly exposed firms to the dangers of specializing too singularly in one area of practice. That means that firms in 2021 will want to be able to balance their areas of practice so that when one part of the firm slows down, another part may pick up the slack. Thus, the effort to quickly diversify a firm’s areas of practice will mean, again, a high demand for attorneys with experience in the desired area of practice. Having a book of business will only make the deal sweeter for the candidate looking to make a lateral move to a firm looking for his or her particular area of practice.
We expected the worst and hoped for the best and, fortunately, the pandemic has not hit the legal industry as hard as once feared. In fact, the recent report by Rusanow and Hildebrandt seems to tell us that the biggest law firms have actually done remarkably well in terms of revenue and profit during 2020.
Further, smaller and midsize firms might now have a strong incentive to merge or make bigger changes in order to diversify practice areas and work on a larger platform. The chance of significant movement during 2021 creates a significant opportunity for candidates to make a lateral move in their careers.