Kirkland Leaves Rivals in Dust in Big Law’s Great Growth Race

Welcome back to the Big Law Business column. I’m Roy Strom, and today we apply law firms’ current growth rates far into the future. Sign up to receive this column in your Inbox on Thursday mornings.

If you’ll indulge me, I want to do some time traveling today.

First, let me quickly take you back in time about a decade.

The year is 2012, and the competition for the largest law firm by revenue is a close one. DLA Piper, and its $2.4 billion in revenue, has a trio of firms hot on its heels, just a couple hundred million dollars out of first place. Kirkland & Ellis is in fifth place, half a billion dollars behind the leader.

OK, now let’s snap back to the (almost) present.

The latest revenue rankings for now, from 2022, show there is no true competition for the top spot. Kirkland stands alone, with more than $6.5 billion in gross revenue. The next closest firm—Latham & Watkins—generates just about 80% of that figure. Only two others—DLA Piper and Baker McKenzie—get to half the size of Kirkland when it comes to revenue. (Kirkland’s 2023 figure is $7.2 billion, but the analysis below is based on 2022, the last year for which there is data on all firms.)

Big Law is just now entering “The Great Growth Race,” according to law firm consultancy Fairfax Advisors. One firm has a huge head start.

The consequences of Kirkland’s drastic growth for its competitors have been chronicled in real time. The hires from elite rivals. The destabilization of the time-tested tradition of paying partners based on seniority. The professional athlete-sized compensation for the upper echelon of the profession.

But the true challenge is magnified if you oblige me once again and take a look into the future.

Now it’s 2032.

In an amazing feat of consistency, each of the world’s top 50 law firms has just concluded a decade in which they grew at the same individual compound annual growth rates as during the previous decade (2012-2022).

Kirkland is once again at the top of the revenue rankings in this scenario, pulling in an astonishing $22 billion. The next closest firm generated a mere 58% of that—a not-too-shabby $12.7 billion. Only three firms in total generated even 30% of Kirkland’s revenue haul.

It’s hard to believe that all firms can sustain this growth. Plus, of course, it won’t happen with the level of consistency we’re assuming.

Still, the trip to the future offers a lesson in the power of compounding returns. Every year that Kirkland outperforms the market, its advantage adds up.

It also underscores the conundrum facing major law firms: Anyone hoping to compete with Kirkland cannot abide another decade of the status quo.

Just look ahead to 2027, a mere three years from now. Kirkland, by maintaining its current pace, will grow to a firm of $12 billion in annual revenue by that time. Assuming all the other firms maintain their own compound annual growth rates, only one firm will rake in more than 50% of Kirkland’s 2027 revenue. Only 10 firms will bring in 30% of that figure.

Revenue is one thing, but profits are in some ways even more important. They dictate who can lure high-performing partners from competitor firms onto their platform.

What will this hypothetical decade of consistency mean for partner profits? Squeamish managing partners might want to look away.

By 2032, the average Kirkland partner will have accumulated $122 million over the previous decade—assuming its profits per partner figure replicates the 8.7% compound annual growth rate it measured from 2012 to 2022. The next wealthiest firm’s average partner will have pulled in $32 million less.

Kent Zimmermann, a principal at law firm consultancy Zeughauser Group, said he often encourages law firms to conduct similar CAGR projections, comparing their current growth rates to their closest competitors. Here’s what the analysis tends to show firms: Even if you’re happy with your individual growth rate, you will fall behind faster-growing peers.

“The cost of doing nothing differently going forward is not nothing,” Zimmermann said. “The cost is the risk of falling behind in competitiveness for talent, clients, and ability to maintain or grow market share, and develop market leadership, in areas of focus.”

Law firm leaders often dismiss the impact of larger, more profitable firms, Zimmermann said. They convince themselves those larger competitors “have a different model” or “are in a different business,” he said. But those large, profitable firms can still use their considerable resources to poach stars in key practices.

“It is not a good idea for any firm to ignore larger or more profitable firms with which they regularly compete to attract and retain talent in the areas they most want to grow,” Zimmermann said.

For those competing with Kirkland, it’s worth considering what might cause the firm to slip.

Changes in the broader economy mean there will be new winners and losers over the next decade. The horse Kirkland rode to prominence—a dominant position advising private equity firms—could at some point come up lame. But that would likely cause the other private equity winners, who comprise a large portion of the top firms today, to falter alongside.

Perhaps a firm that big gets too unruly to manage, or to maintain consistent quality across its practices. The law of large numbers would suggest the firm’s growth should inevitably slow down. But, again, did anybody expect in 2012 that the market would be where it is today? That was just a few years after the worst financial crisis since the Great Depression.

New, more efficient ways of working brought about by generative AI also could mean that no law firm grows to such a size. Perhaps in that way tech acts as a great equalizer.

Still, its hard to imagine Kirkland would be disadvantaged in a future dominated by AI. The firm with the most resources, and presumably as much or more data than anybody, seems well-positioned.

A quick word of caution for anyone already dismissing this analysis. I ran the numbers in a similar way three years ago, and nothing has changed since then.

Kirkland was then on pace to hit $16 billion in revenue by 2031. Three years of actual data have come in since then, and Kirkland’s real-life revenue has outpaced that model’s projections every year—hence the higher projections now.

The $7.2 billion in revenue that Kirkland reported for 2023 is nearly $500 million more than my previous model estimated.

I have written that Big Law managing partners are finally admitting that they’re pursuing growth for growth’s sake. Scale is important. I just might have undersold how important. That is, if anybody actually expects they can dethrone the firm at the top.

Worth Your Time

On Big Law Fees: Wilmer Cutler Pickering Hale and Dorr billed Meta Platforms Inc. almost $75 million last year, a 12% increase, as the law firm handled litigation over Covid-19 vaccine disinformation and data harvesting, Brian Baxter reports. The disclosure is made because Wilmer lawyer Robert Kimmitt serves on Meta’s board.

On Big Law Diversity: Major Lindsey & Africa, one of the country’s most prolific legal recruiting firms, is facing claims that a Black, female associate was “blackballed” by the firm, Tatyana Monnay reports.

On The Big Four: KPMG is closing its law firm in Hong Kong, joining the list of those scaling back operations in the city and across China amid the region’s authoritarian shift, Chris Opfer and Rose Walker report.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.