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) (Facing a Potential Recession, BigLaw is More Adept at Weathering a Crisis, Andrew Maloney, 7/6/22, American Lawyer).
Reliance on debt is also down. The average debt level for firms with 600-plus attorneys is less than $7M, down from about $12M in 2007 (Facing a Potential Recession, citing Citi Private Bank Law Firm Group). And many firms have secured committed credit equivalent to about 3 months of operating expenses, should they need it, according to Citi Sr. Client Adviser Michael McKenney (Facing a Potential Recession).
Legal Spend Up
Corporate legal spend was up 22.5% in 2021, according to Lexis Nexis CounselLink’s 2022 Enterprise Legal Management Trends Report (Legal Departments’ Spending Soared Last Year, Fueled by Merger Frenzy, Outside Counsel Rate Hikes, Trudy Knockless, Corporate Counsel, 6/30/22). The Report analyzed data based on $49 billion in legal spend across 350,000 timekeepers, 8 million invoices, and more than 1.2 million matters.
Partner rates grew 3.4%, with the largest increase originating among partners at firms with 750 or more lawyers (4.6%). The median hourly billing rate for partners at those firms was $895, 54% higher than the median hourly billed rate for partners at firms with 500 to 750 lawyers ($580). This was the largest differential between those two bands in the 9 years tracked by CounselLink.
Part of that differential could likely be attributed to relatively high rate growth in M&A and finance and a majority of that work flowing to firms with 750+ lawyers (66% of M&A work; 62% of Finance). Partner rates for M&A and Finance increased 6.1%. and 3.6%, respectively 1st and 3rd in rate growth by practice area.
Generally, billings were consistent with a trend over the last decade to winnow outside counsel lists and provide more work to a smaller number of firms; CounselLink found that 59% of legal departments in its database consolidated 80% or more of their legal spend with 10 or fewer law firms. Firms with 750 or more lawyers accounted for 46% of total legal spend.
Remote Work’s Effect on Mental Health
Conducted in March and April, ALM Intelligence’s Mental Health Survey included for the first time a section on remote work (Pandemic Anxiety Wanes, but Legal Industry’s Mental Health Struggles Persist, Patrick Smith, 5/10/22, American Lawyer). 81% of the Survey’s 3,400 respondents work at firms with 200 or more lawyers. 95% of respondents felt like hybrid work arrangements will become the norm. Respondents reported several positive effects of remote work:
59% of respondents said remote work increased their quality of life (no impact: 19%; decreased: 22%).
46% said remote work increased their work productivity (no impact: 33%, decreased: 21%).
54% said remote work increased hours worked, presumably through savings on commuting time (no impact: 31%; decreased: 15%).
46% said remote work had increased their physical health, perhaps replacing commuting and grooming time with exercise (no impact: 26%; decreased: 28%),
A majority 55% felt that remote work had no impact on the quality of work product (increased: 28%; decreased: 17%), and 46% felt that remote work had no impact on firm performance (increased: 41%; decreased: 13%).
On the negative side, 76% saw a decline in interpersonal relationships with colleagues. Remote work’s effect on stress was fairly mixed; 33% said remote work decreased their stress levels; 31% reported no impact and 36% said remote work increased their stress levels, perhaps due to the inherent challenges of working under the same roof as dependents.
