As noted in the report, although it’s a small sample, the results are substantially better than most analysts had predicted.
“The combination of the relatively soft drop in PPEP and 3.8 percent drop in (gross revenue) indicates that many of the firm’s managed to produce better-than-expected PPEP by cutting costs deeply, principally by reducing headcount. Notably, some firms are bringing on first-year- associates whose start dates had been deferred earlier than expected,” the report said.
It goes on to state that the lateral market is entering “a state of hyperactivity” because of “inexorable pressure to grow the top line in the face of continued rate pressure.”
The report also touches on the narrowing profitability gap between the biggest law firms and the rest of the market. It notes the gap has closed the past two years, but it likely isn’t sustainable in the long-term.
“We believe this is a temporary phenomenon, and that the top firms will resume their pace-setting profitability trajectory as the economy strengthens,” the report notes.
While BigLaw appears to have weathered last year’s economic storm, the study warns circumstances are likely to remain difficult.
“Market conditions are forcing firms that had two consecutive years of weak performance to take a fast and sharp knife to expenses, including continuing to counsel out chronically under-performing lawyers at all levels,” the report reads. “Under-performing non-equity partners will continue to be at risk through 2010. Firms in the lateral market need to place greater emphasis on vetting laterals than ever before.”