Big Law has taken an economic hit during the coronavirus pandemic, but a new Wells Fargo Private Bank survey suggests that firms so far have avoided the level of pain that’s been inflicted on other industries.
Law firms reported a 10.4% decrease in demand in May when compared to the same month in 2019, but a strong first quarter meant that overall demand only dropped 1.4% over the first five months of 2020, according to the new survey by Wells Fargo’s Private Bank Legal Specialty Group.
Wells Fargo analysts predict that the toughest months of the crisis for firms may soon be over.
“Theoretically we should be dealing with the worst of it now,” said Peter Haugh, head of the Wells Fargo Private Bank legal specialty group. “The hope is that June will be the same, and that May-June-July will be the bottom of the experience for the firms.”
The survey was compiled through calls with 72 law firms, including 52 in the AmLaw100, between April and May.
Cash collections across law firms were up more than 3% through May 2020 while expenses remained essentially flat, according to the survey.
“What the firms were most worried about going into this was how smoothly billing would go when you introduce massive remote operations,” said Haugh. “And the answer has been that it’s gone very well.”
Bloomberg Law has reported that many law firms’ worst-case-scenario predictions for delayed payments during the pandemic have not yet come true.
However, there’s concern that collection could continue to slow and law departments will ask for more discounts and delays in payment as the Covid-19 crisis continues to affect corporate clients, some very profoundly.
Toby Brown, chief practice management officer at Perkins Coie, told Bloomberg Law recently he’s seen a “wave” of fee relief requests from clients related to Covid-19.
To improve cash flow, some Big Law firms have laid off staff members, and temporarily cut salaries, but Haugh said he doesn’t expect to see many more personnel cuts in the industry.
Many Big Law firms have chosen to reduce equity partner draws as another cash-saving measure, although many of the richest law firms at the top of the AmLaw 100 rankings so far appear to have been spared.
Firms have also reduced damage to their balance sheets, the survey said, due to a lack of discretionary spending on items like recruiting, marketing, and travel and entertainment.
It’s unclear how law firm functions outside the practice of law, such as talent recruitment and client outreach, will be affected by this change in discretionary spending.
Many firm offices also remain shuttered, particularly in major cities, which may continue to impact the members of the firm workforce who cannot work from home. The Wells Fargo survey said that non-legal staff layoffs have been concentrated among those at firms whose jobs don’t lend themselves to remote work.
Haugh said most law firms are well-positioned to continue to weather the Covid-19 economic storm. Some 90% of the firms in the Wells Fargo survey showed good liquidity, with three months or more coverage of monthly expenses excluding partner draws.
“It could have been a lot worse,” said Haugh. “We’re coming off of two very strong years for the industry, and the industry was well positioned when this came along.”