In a September 30 American Lawyer article, Richard Lloyd looks at the effects and trends that the recession has had on the world’s top law firms over the past 5 years.
Lloyd began by looking back at this past year, with the year-to-year change from 2011 to 2012. A number of different trends are apparent. For the sector as a whole, total revenues grew to $85 billion in 2012, an increase of 3.79% or $3.1 billion. However, this represented a slowdown in growth relative to the 6.8% increase in revenues for 2011. Total lawyers also grew to 108,378, an increase of 3.8% or approximately 4,000 lawyers. Productivity stalled, as average revenue per lawyer (a measure of the legal industry’s overall health) stayed flat at $784,297 for 2012 versus $784,419 for 2011. DLA Piper replaced Baker & McKenzie as the world’s highest-grossing firm with an increase of 8.6% to $2.44 billion in revenues.
Looking at this year relative to the recession as a whole, 4 British firms made the top 10 list this year as highest-grossing, including Clifford Chance, Freshfields, Linklaters, and Allen & Overy. However, each firm lost significant ground to its US and Australian counterparts, a theme for many British firms which by the numbers were hardest hit by the recession. On the other hand, American and Aussie firms seem to be faring better. Lloyd attributes the success (since 2008) of a “core group” of US firms like Quinn Emanuel, Kirkland Ellis, and Gibson Dunn to the depth of the American litigation market as well as the improving US economy. Similarly, Australia has benefited during the recession from its proximity and relation to the growing Asian market. In the same vein, Lloyd also pointed towards what he anticipates to be significant growth of Chinese firms over the next 5 years.
The longer the recession has lasted, many firms have sought one or multiple international expansions. This has particularly been the case with British firms such as Norton Rose, Hogan Lovells, Clyde & Co., Allen & Overy, and others. While this may be somewhat counterintuitive given how hard the recession hit the UK, it also makes sense in that firm leadership has sought to balance ill effects of the recession with opportunities for strategic growth. Lloyd interviewed Norton Rose’s CEO Peter Martyr, who phrased the reasoning behind such thinking well: “The more recessions you go through, the more you realize that you need to focus on two things—survival and taking advantage of opportunities as they emerge.”
The question is—how effective have international growth strategies been? On the surface, UK firms have benefited in terms of gross revenues (i.e. Norton Rose has seen an increase from $582.5 million in 2008 to $1.33 billion in 2012). However, in most cases, and as many US firms are quick to point out, this growth has not translated into increased profitability due to a significantly weaker British pound, among other factors.
Other ways UK firms and others have dealt with the recession has been with a concerted effort to clearly define and focus on their strengths. Clyde & Co. is a great example, as it has become a world leader in insurance, and similarly Bird & Bird has done the same in technology, media, and telecom.
No matter the case, Lloyd says it is clear that “no managing partner can sit idly by and let his or her firm’s PPP lag far behind its rivals. Change may be happening at an unprecedented level among the world’s largest firms, as strategic opportunities emerge and clients demand more return on their legal budgets, but partners still expect some payoff from their investments—wherever they are in the world.”