The Citi Private Bank Law Firm Group just put out a summary of their 2019 year-end report and it’s no surprise to those of us following the quarterly reports throughout the year.
Revenue was up!
That’s probably where the firms would like you to stop reading the report. But you don’t even have to look deeply into the report to hear the ominous chords they play whenever someone on Chopped says, “I think I’ll just make this into a bread pudding.”
Billing rate growth was the main driver of revenue growth, given modest demand growth, a longer collection cycle and a modest decline in accrual realization
Revenue is up because clients are still willing to pay more. I guess it’s more fair to say “pay more eventually” given the collection issues. Folks, I’ve been writing this article for years now and it feels like the elasticity of client demand is reaching that point where Stretch Armstrong actually breaks. Clients are already dragging out collections and imposing increasingly stupid rules to duck their bills, and you’ve got to wonder just how long this goes until the steep discounts they’re already demanding undermine the system.
The report also notes that equity partnership levels are holding steady while headcount is rising. These new lawyers have resulted in everyone working a little bit less which in a Dickensian sense is a sign that the firms have grown unnecessarily but in a human sense means people are vaguely remembering the names of their children. Leverage is leverage, but associates aren’t cheap — that’s the biggest bump in expense.
With reports already streaming in of firms docking attorneys back whole class years on pay, firms may already be gaming the system to get more for less. But this too becomes unsustainable at a certain point. If there’s a hiccup in the economy — and law firm leaders are pretty sure there’s about to be — things could get wild. Mergers, new tiers of associate pay, dissolutions… it’s all on the table.
Don’t worry, profits per equity partner were up on the year.
Earlier: In-House Counsel Make Increasingly Arcane Billing Demands And It’s Costing Firms Money
Stealth Layoffs And Shortchanging Associates
Law Firm Leaders Think It’s About Time To Completely Freak Out
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.