Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at the impact hard-working partners had on law firms’ growth rates last year, and ask whether it will be a repeat performance in 2021. Sign up to receive this column in your inbox on Thursday mornings.
If you are a partner at a Big Law firm, you probably billed more hours than usual last year. We’ll get to the data behind that in a bit. First, here are my questions: Why? And, are you going to do it again?
One common explanation for Big Law’s dramatic revenue and profit growth last year is that there was a pandemic, clients were in a panic, and they needed urgent advice. Partners picked up the phone when clients called, and that’s why the firm’s highest-priced lawyers worked more than normal.
Urgent phone calls don’t seem like an inherent growth opportunity going forward. Maybe we will live in a perpetual state of panic. Anything feels possible. But the business environment is changing less rapidly than it did last year, and companies are hoping to participate in a robust economic rebound.
Another potential explanation for why partners worked harder than before, which isn’t talked about as much, is they had fewer other demands on their time. They weren’t going out to long lunches. They weren’t taking as many vacations with family. They weren’t commuting to the office or to visit clients. They lived where they worked.
Many people in positions of power at law firms do not want the work from home trend to continue, and it seems increasingly likely people will be back in their offices this year. Ropes & Gray is reportedly targeting a September return.
Between less frantic conditions for clients and a return to the office, partners may experience productivity declines as their work lives look more like they did before last March. And, let me be clear, partners billing less time this year is not the problem; it should be expected.
Overwork is a serious risk in a profession with elevated incidence of depression and substance abuse. Working harder is not a long-term growth strategy. And that represents a third, simpler answer to the question of whether partners will again work as hard as they did in 2020: Some may not want to.
That complicates things for firm leadership asked to deliver growth for their partners this year on top of a record 2020. They will need to develop strategies that account for less time worked by partners. Or they need to start communicating that the firm’s performance from 2020 is unlikely to be repeated.
One way to start would be to point out that the profit spike last year, up 14%, according to Citi Private Bank’s Law Firm Group, was an aberration across the industry. Perhaps sensible partners will not expect that kind of growth in 2021. But people can quickly lean into new income levels, and standing still is risky in a competitive market like Big Law.
We talked last week about another growth strategy: Hiring lawyers in big cities and higher-priced practices will drive up a firm’s average billing rate. It’s a sensible strategy considering much of last year’s performance increase owed to billing rates growing by roughly 5%. Like I said last week, clients may push back against that kind of growth in a post-recession environment.
Another reason billing rates rose was that partners worked more. Their higher-priced hours made up a greater share of law firms’ time last year. I promised there was data to show how much partners worked last year, and here it is, courtesy of Thomson Reuters Peer Monitor and senior analyst Joe Blackwood.
The data show that for the first time in at least the previous three fourth quarters, partners billed a higher proportion of total hours than associates. Maybe that’s a sign partners weren’t taking end-of-year vacations?
Blackwood writes: “Firms began 2020 with initial rate increases of 4.1% and shifts in who was doing the work was a main driver of the additional percentage point of worked rate growth that occurred from the Q2 through the end of the year.”
2020 was a lot of things. More and more, it looks to me like it will be an outlier for Big Law’s financial performance.
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That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.