Firms are increasingly using bonuses structured as forgivable loans to compensate laterals and current partners. These loans not only help with retention, but also give firms flexibility to compensate outside of their typical formula or structure without raising eyebrows from the partnership at large, since firms do not have to report these loans on a partner's compensation schedule.

Profits per equity partner (PEP) among surveyed law firms grew by 6.6% in 2023, according to Citi’s Global Wealth at Work Law Firm Group (Law Firms Witnessed a 'Return to Profit Growth' in 2023 ("Return to Profit"), Justin Henry, 2/9/24, American Lawyer). There was dispersion however, as 39% of firms surveyed reported decline in PEP (Return to Profit).

2023 was a better year than 2022 on several key performance measures, according to Thomson Reuters and the Center on Ethics & the Legal Profession at Georgetown University Law Center (2024 Report on the State of the U.S. Legal Market “Report”, Jim Jones - Lead Author, 1/8/24) (analyzing data through Nov. 2023 from 179 US-based law firms, including 48 Am Law 100 firms, 49 Am Law Second Hundred firms, and 782 Midsize firms).

Most law firms believe they will meet or beat expectations in 2023," largely due to conservative budgeting. However, Thomson Reuter's Law Firm Financial Index Q3 Report ("Q3 Report") predicts disparate year-end results by law firm segment.

Remote work flexibility is an attractive recruiting chip across industries; a mid-year survey of more than 4,500 companies found that those that embraced hybrid policies added head count at almost twice the rate of those that required full in-person attendance. But what if law firms are not trying to increase headcount? Utilization is at an all-time low

“2023 could turn out all right, if law firms can collect on what they’re owed” concludes Citi’s Global Wealth at Work Law Firm Group after reviewing the results of Citi’s mid-year survey, polling 209 firms.

An article by the Wall St. Journal examining banker and lawyer pay revealed partner profits at major law firms have tripled over the past two decades, while pay for similarly situated banking directors has remained stagnant (On Wall Street, Lawyers Make More Than Bankers Now, Cara Lombardo, 6/22/23, Wall Street Journal). The Journal cites several reasons for the inversion:

NALSC podcast featuring Tina Solis, a partner at Nixon Peabody and NALSC collaborator, who advises law firm partners on the legal and ethical aspects of making a lateral move; Tina covers a range of considerations that can help partners avoid pitfalls.

The American Lawyer released its annual AmLaw 200 survey last month, analyzing financial performance in 2022. The results were consistent with that seen in the AmLaw 100 a month before, namely the lower the AmLaw ranking, the better the performance in 2022. In fact, the Second Hundred outperformed the AmLaw 100 in revenue growth, revenue per lawyer, and profits per equity partner last year.

The American Lawyer published its annual AmLaw 100 report last week. Despite significant challenges in the broader economy, the AmLaw 100 as a whole saw revenue gains of 2.7% in 2022, over an already high bar set in 2021. However, the gains were concentrated in a smaller number of firms (41 of the 100 posted gains; 59 did not). This stands in stark contrast to 2021, where all 100 firms saw revenue growth.

Patrick Krill and the U. of Minnesota Dept. of Psychiatry recently published a paper identifying predictors of suicidal ideation among lawyers “Krill Paper” (Stressed, Lonely, and Overcommitted: Predictors of Lawyer Suicide Risk, Patrick Krill et al., Healthcare 2023, 11(4), 536). Stress is by far the biggest predictor; lawyers with high levels of perceived stress are 22 times more likely to experience suicidal thoughts than those with low levels of perceived stress (Krill Paper).

According to Thomson Reuters’ Law Firm Financial Index Report released Monday, overall demand in Q4 2022 fell 3.9% compared to Q4 2021 (LFFI Q4 2022 Executive Report, Thomson Reuters, 2/14/23, aggregating data from over 160 law firms). All of the monitored practices showed decline, with M&A continuing to lead at -16.6%.

Profits per equity partner will decline for the first time since 2009, according to a new report by Thomson Reuters and the Center on Ethics & the Legal Profession at Georgetown University Law Center. The decline will be modest, however, and PEP “should still be comfortably high when compared to pre-pandemic levels”.

Midsize firms experienced demand growth (measured in hours worked) in Q3 of this year, relative to Q3 2021, according to Thomson Reuter’s Law Firm Financial Index (LFFI), aggregating data from over 160 law firms. The AmLaw 100 registered a decline of over 2.0%, while the Second Hundred experienced a smaller decline. Monthly hours billed by equity partner, non-equity partner, and associate groups respectively registered the lowest Q3 marks in recent years

Hybrid appears to be the prevailing return to office policy. And that observation is supported by a recent national survey

Although rumors of layoffs are circulating nationally, an analysis of reporting reveals that these repeated references are more smoke than fire.

All practices, except real estate, logged fewer hours in Q2 2022, compared to Q2 2021, according to Thomson Reuters’ Law Firm Financial Index “LFFI”, analyzing data from over 160 law firms. But it is helpful to put the “slowdown” in context.

Law firms are much better positioned for any downturn than they were in 2008. Capital contributions are up. According to Citi Private Bank Law Firm Group, the average paid-in capital per equity partner by the end of 2021 was $618,000 (compared to $285,000 in 2007), and partner capital levels for the average firm are more than double what they were at the beginning of the Great Recession (less than $70 million in 2007 to $145 million by the end of 2021) .

The publication of the AmLaw 200 survey last month confirmed that 2021 was a very good year for the AmLaw 200. 101 firms saw double digit revenue growth. Relatedly, only 7 firms lost revenue. Firms with more active corporate / M&A practices saw greater revenue increases, while litigation boutiques like Robins Kaplan, Boies Schiller, Kobre & Kim saw revenue decline.

Thomson Reuters’ Law Firm Financial Index composite score for Q1 2022 represents the lowest quarterly score since 2009. However, the underlying fundamentals are not nearly as negative as the score and associated reporting suggest.