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Am Law 200 Shows Bad News for “Hollow Middle”
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Summary: The American Lawyer released the top 200 revenue-generating law firms this week.

On Wednesday, American Lawyer released its list of the top 200 law firms, ranked by their revenue, and the data showed that there is a “hollow middle” existing between high-end attorneys and cheap commodity work. Essentially, clients are either shopping at Chanel or Forever 21, and they are just not willing to go to the in-between space.

  
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The term “hollow middle” refers to generic law firms that try to do it all. While BigLaw firms have various departments and can also provide a one-stop-shop for clients, they also have the advantage of being the best of the best–hiring attorneys with the top grades from the top schools and grooming them to fit an elite standard. The hollow middle does not have the same resources as the Goliaths of the legal world, and without any type of specialization, they are apparently overlooked by clients who either have the funds to get the best or want basic services similar to what’s provided by legal websites such as LegalZoom.

Last month, the Am Law 100 was released, and that ranking showed that the top 100 firms on the list increased revenue by 2.7 percent from 2016. However, Am Law warned that there may actually be trouble in the legal world because the top 50 firms on its list saw an increase of profits per equity partner but the bottom 5o showed a decrease.

“As clients continue to give more legal work to in-house legal teams and other legal service providers, and the gap in revenue at different ends of the Am Law 100 deepens, those in the second half of the ranking find themselves at a crossroads,” Gina Passarella, Executive Editor of The American Lawyer, said last month. “If they want to grow revenue and remain profitable in today’s highly volatile and uncertain industry, they may have to change course. That could mean focusing on the core practice areas that differentiate them, and altering their staffing and compensation models so their firms can efficiently operate at optimal capacity.”

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The Am Law 200 is an expansion of the Am Law 100. It features the same top 100 revenue earning firms and includes the law firms in 101-200 place. According to The American Lawyer, the firms in these positions mostly occupy middle-ground pricing, and their futures are uncertain.

“The Second Hundred firms—the shops that ranked 101-200 on our list of the nation’s highest-grossing firms—fall precariously in the middle of a market that on one hand serves clients who, like those who sip Moët & Chandon, are willing to pay dearly for what they consider high-end distinguished lawyering, and those on the other hand who serve clients like the Budweiser fans, who seek rock-bottom prices for the everyday stuff,” American Lawyer wrote. “How does that bode for the most-recently reported 2016 finances of Second Hundred firms, most of which occupy the middle-ground pricing ranges? Not well. They showed little signs of revenue or profit growth in 2016.”



Kent Zimmermann, a consultant at The Zeughauser Group, said that rate pressure and an overabundance of lawyers are contributing to the slow-growth of the firms in the hollow middle. He also said that middle-ground firms also hurt themselves by not being pickier with the work that they take.

To Zimmermann, the secret to growing profits is to specialize and shrink its staff.

“If you look historically at firms that have gotten more profitable, often it involved shrinking head count. It might be counterintuitive, but many firms have an opportunity to shrink to grow stronger financially,” Zimmermann said to The American Lawyer.

Some Am Law 200 firms that bypassed the hollow middle and proved profitable include Lewis Roca Rothberger Christie and Greenspoon Marder. Lewis Roca had a reported revenue of $159 million in 2016, a 27.7% increase from 2015; and Greenspoon Marder saw a 17.2% increase from 2015 with $122.5 million in revenue in 2016.

Source and photo: The American Lawyer 

What do you think of the “hollow middle?” Let us know in the comments below.



 

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