A new report from Wells Fargo’s Legal Specialty Group highlights the biggest challenge facing US law firms in the near term: how to keep their expanding attorney ranks busy. The report found that the firms surveyed, including 68 of the top 100 highest-grossing US firms, reported a 1.9% drop in demand, with the top 50 highest-grossing firms seeing a 2.9% decline. The decline in demand is attributed to a slowdown in the M&A market, which decreased by 37% compared to the previous year’s record-breaking $5.9 trillion global announced deal work.
Despite the drop in demand, law firms have continued to hire lawyers, with the lawyer count rising by 4.5% in 2022. This increase in lawyer count has contributed to the decline in productivity, with lawyers logging fewer billable hours in 2022 than in the previous year. Owen Burman, a senior consultant at Wells Fargo, noted that he has never seen productivity at a top 100 law firm drop below 1,600 hours. Despite the decline in productivity, Burman is surprised that there have not been more layoffs across the industry, with only a few firms, such as Cooley, Goodwin Procter, and Stroock & Stroock & Lavan, announcing layoffs due to the slowdown in work.
The report found that net income, distributed to the equity partners who own a law firm share, dropped by 3.1% in 2022 after two years of double-digit growth. However, Burman believes that a drop of only 3.1% should be considered a victory given the decline in demand. Profits per equity partner also decreased by 3.9%, while overall revenue grew by 3%.
Despite the decline in productivity, demand, and profits, Burman remains optimistic, stating that “the sky is not falling.” He believes that law firms have the potential to recover and that the current market conditions are simply a temporary setback. In conclusion, the report highlights the challenges facing law firms in the wake of the decline in demand for their services and the need for them to find ways to keep their lawyers busy and maintain their productivity levels.
Lawyer productivity, demand dropped in 2022 – Wells Fargo report