Insights
The Insights series draws upon our collective consulting experience to address topics that we consider of current interest to the senior management of law firms.
The Investment Years
The last several years mark some of the highest levels of recurring profitability growth ever experienced for many law firms, outpacing historical profitability growth by a significant margin. Between 2019 and 2020, Profits per Equity Partner (PPEP) among AmLaw 200 firms grew 12% on average, and the Compensation Average for All Partners grew at 10%. While year-end data for 2021 is not yet publicly available, our work with law firms confirms that these growth rates will be met, if not exceeded when ultimately reported for 2021. Given that we are still early in the year, it is hard to predict whether law firms will experience another banner year in 2022. Headwinds around geo-political uncertainty and rising costs, including ever-increasing associate compensation, are likely to pressure profit growth to some degree. However, demand at this early stage appears strong, and results thus far indicate solid financial growth.
Looking Ahead to 2022
Each year we look ahead and make predictions for the coming year. The last two years have been unpredictable in almost every way, but clearly demonstrated the resilience of the legal industry.
Adapting Partner Compensation in High Profit Years
2021 appears to be shaping up much like 2020 – a banner year in terms of law firm financial performance and profitability. We anticipate that many firms will report growth in Profits per Equity Partner in excess of 10% for the year. If this occurs, 2020 and 2021 will mark some of the highest levels of recurring profitability growth experienced for a large portion of AmLaw 200 law firms. In a number of firms, partners with steady-state or even declining performance have experienced material compensation increases by virtue of the firm’s growth in profitability – without an increase in their level of contribution to the firm. Historically, many firms have referred to this as a ‘rising tide effect,’ which has generally been seen as a positive aspect of partnership compensation but can also contribute to increased tension and management challenges.
Can an Acqui-Hire Approach to Merger be a Talent Solution?
The legal industry is in the midst of a war for talent. Partner mobility continues at a high rate, at all levels of the market. Associate recruiting has never been so competitive, with generous signing bonuses becoming the norm for experienced corporate associates. On the flip side, between partner retirements, lawyers moving to other firms or in-house, or lawyers leaving the profession altogether, retention of talent is a continuing challenge for many firms. A recent Peer Monitor report showed that turnover over the last 12 months, through the 3rd quarter of 2021, was 13.8%. Despite dramatically increasing associate compensation, healthy growth in partner profits, and a strong focus on recruiting and retention, many firms are at best treading water in terms of size, and at worst shrinking.
Insights from Womble Bond Dickinson’s Chair and CEO on Transatlantic Growth
This month we interview Betty Temple, the Chair and CEO of Womble Bond Dickinson US, a roughly 1,000 lawyer firm formed through a 2017 combination of US-based Womble Carlyle and UK-based Bond Dickinson. In this interview, Betty discusses the strategic drivers behind transatlantic growth, lessons learned, and key takeaways for firms considering international growth opportunities.
Insights on Leadership from Nixon Peabody’s Stephen Zubiago
This month we interview Stephen Zubiago, the new CEO and Managing Partner of Nixon Peabody. He took over as CEO and Managing Partner on February 1 and shares his observations on his first six months in the role. Steve has been with Nixon Peabody since 1999 and has practiced law since 1992.
Enemies of Agility
Over the past several years, we have seen a growing gap between the highest performing firms and the rest of the market. In working with and observing law firms across market segments and jurisdictions, we see clear differences in how firms respond to market changes. The most agile firms benefit from a strategic advantage based on their ability to respond to change and capitalize on opportunities more effectively. This agility frequently drives superior performance relative to the rest of the market. By contrast, firms lacking agility seem to fall behind, whether through inertia or because their focus is elsewhere.
Leadership Succession: Defining and Developing Capabilities
We often work with law firms as they transition senior leadership positions in the firm. Increasingly, firms facing a leadership transition are taking the opportunity to refine their leadership selection process, review the leadership roles and governance structure, and, importantly, clarify the characteristics and capabilities required for leadership roles.
