The American Lawyer released the top 100 of its annual law firm rankings today, April 28. The rankings are based each year on gross revenues, however there are other metrics to consider as well, including: profits per partner, revenue per lawyer, ranking from the prior year, and how these metrics are changing on a year-to-year basis. Below is a snapshot of this year’s top 20 firms, along with various other notable firms with offices in Charlotte or elsewhere in the Carolinas:
Taken together, we see that the majority of firms gained in gross revenues, profits per partner, and revenue per lawyer—suggesting a positive overall year for firms at the top. As an example, 14 of the top 20 firms (and 18 of the 33 shown in the chart above) gained in all 3 areas. We also see that some firms had a mixed bag, while a number of others struggled—with 4 of the top 20 firms (and 8 of the 33 shown) experiencing a decline in 2 or more of key metric areas.

Below is a breakdown of further trends observed from the rankings:

Biggest Gains in Gross Revenue: Polsinelli (+17.8%), Williams & Connolly (+15.0%), Simpson Thacher (+14.9%), Quinn Emanuel (+14.1%), Barnes & Thornburg (+11.9%), Fragomen (+11.7%), Cahill (+10.9%), Ogletree (+10.2%), K&L Gates (+9.3%), Cooley (+9.2%), Shearman & Sterling (+9.1%), Venable (+8.9%)

Biggest Losses in Gross Revenue: Bingham McCutchen (-12.6%), O’Melveny (-10.4%), Fish (-9.6%), Edwards Wildman (-9.4%), Finnegan (-9.1%), Jenner & Block (-7.7%), Weil (-7.4%), Arnold & Porter (-6.2%), Nixon Peabody (-5.6%), Kaye Scholer (-5.0%), Kilpatrick Townsend (-4.4%), Locke Lord (-3.2%)

Biggest Gains in Profits Per Partner: Fried Frank (+24.3%), Davis Polk (+22.5%), Akin Gump (+19.2%), Simpson Thacher (+18.8%), Shearman & Sterling (+18.4%), Vinson & Elkins (+16.3%), Williams & Connolly (+15.1%), Hughes Hubbard (+12.7%), Polsinelli (+12.3%), Mayer Brown (+11.7%), Debevoise (+11.3%)

Biggest Losses in Profits Per Partner: Kilpatrick Townsend (-18.6%), Jenner & Block (-17.1%), O’Melveny (-16.0%), Finnegan (-14.7%), Bingham McCutchen (-12.7%), Locke Lord (-12.2%), Fish (-12.1%), Bracewell (-11.0%), Covington (-8.7%), Nixon Peabody (-8.4%), K&L Gates (-7.8%), Steptoe (-7.7%)

Overall Trends for the Industry:

• Many firms saw little to no revenue growth, yet the top 20 separated themselves
• Firms relied on nonequity partners to boost numbers, but it may not be sustainable
• With the bankruptcy boom over, Bingham and Weil need to redefine themselves
• 5 firms are over $2B in revenue, 23 over $1B, including “new” Norton Rose, Dentons
• Profits per partner increased by 0.2% in 2013, leveling off after a 4.2% jump in 2012
• Average revenue per lawyer fell in 2013, marking the first decline since 2009
• Partner compensation fell 0.3%, mirroring flat growth in other metrics (PPP, RPL)
• Wachtell leads all in profits per partner and for a 10^th straight year in value per lawyer

Overall Trends for Individual Firms:

• King & Spalding eclipsed $2M in profits per partner for the first time
• Shook Hardy fell out of the rankings after 17 years as a mainstay of the top 100
• Mayer Brown reported its highest profits, even after New Republic’s negative press
• Akin Gump saw its key metrics rise following a firmwide focus on lateral integration
• After a record year, O’Melveny saw a decline in metrics due to fewer success fees
• Jenner & Block was hit hard by government spending cutbacks, driving down PPP
• Davis Polk has a big year following major litigation and transactional successes
• Fried Frank made their biggest jump in profits per partner following a tough year prior

Since this time last year, the legal sector has added a total of 4,000 jobs. Currently, the sector employs 1,137,000, which is up 2,300 in Q1 this year. At face value, this seems to suggest an overall positive trend. However, a closer look at the numbers over the last thirteen months (March to March) past year paints a picture not quite as optimistic.

A look at the graph below shows just how up and down employment has been in the sector over the past year. The one thing that has been consistent is that there has been no real consistency! Call it topsy-turvy, a roller-coaster ride, a mountainous landscape—all of those terms describe well the extent of uncertainty which now seems to be the reality for all industries, not just legal.

Other observations also come to light. For one, we see the makings of what appear to be seasonal trends. This, we would expect—hiring around the start of the year and toward the end of the summer, with layoffs sandwiched in between and at the end of the year. We also notice a discouraging overall trend. Despite strong actual gains in March (3,100), July (2,800), and August (2,700) 2013, as well as January (1,600) 2014, the numbers clearly show the overall trend as negative (shown by the chart’s black dash trendline).

What can we take away from this? We do need to remember this is a short-term view. However, it is not far off from what the sector has experienced dating back to the great recession in 2008. So while there are 4,000 more jobs than there were this time last year, we are growing at a slowed rate. Part of that is due to the reality that we have yet hit the summertime months, which may prove tough if they are at all like they were last year (6,500 lost in a two-month span).

In fact, should the sector follow a similar seasonality this year, employment will continue to decline—with a very real possibility the trendline dips down below 0, seeing as the start of Q1 in 2014 was not as strong as that of Q1 of 2013. At that point, the sector would not be forecasted to grow but to contract. Thus, what happens over the next few months will be critical in discerning how long the slump may continue.

In a previous article written at the end of last year, we reported that the AmLaw second hundred (meaning the firms ranked 101-200) had picked up 1% in corporate client market share from firms in the top 100. While, for the top hundred, hours billed declined by 6.4% and fees paid fell by 3.5%, firms in the AmLaw second hundred saw their hours billed increase by 6.2% and fees paid tick up by 3.3%. While 1% may not seem like a lot, it is certainly enough to grab the attention of top hundred firms. It also indicates that firms in the second hundred may be on to something that is resonating with their clients.

A recent article by Jay Fitzgerald of the Boston Globe highlights one trend in the Boston legal market that could help account for the change in other cities as well. Fitzgerald talks at length about how now some six years into the recession, the balance of power appears to be shifting from law firms to their clients. As companies are becoming more and more cost-conscious, they are demanding that their law firms do the same—by offering alternative fee agreements, more affordable rate structures, and greater flexibility in billing. There also seems to be a general sense that companies are no longer as concerned about a law firm’s size or brand name than they are about total cost and flexibility. Companies of course still want quality legal work, but what is changing is they are now more vocal about wanting it at lower prices.

In Fitzgerald’s own words: “As a result, many law firms are adopting new business models and doing what once seemed almost unthinkable in the industry: cutting hourly rates, bidding for corporate work against rival firms, capping prices, and keeping a sharp focus on the corporate client’s bottom line. In turn, the firms are cutting their own costs in a drive to become more efficient, using fewer attorneys on cases, and moving back-office operations to lower cost states — and even nations.” Many firms are finding this more than just competitive advantage, but as a must-have in order to survive amidst the new and capable competition that exists.

What is particularly interesting is that many of the changes have been proposed and driven by clients themselves. Fitzgerald quotes Elizabeth Murphy, Legal Operations Manager of Boston Scientific as saying: “I’m not sure how much longer we’ll continue to work with firms that won’t change”. And with Murphy responsible for doling out $10M in legal work each year in a tight economy, firms are listening.

Fitzgerald goes on to say that firms are also agreeing to alternative fee arrangements, which include “fixed fees for certain duties, such as filing patents, or flat rates for individual cases, rather than charging by hour”, with the result being that “smaller firms are starting to nab more corporate business—growing in both revenue and number of attorneys at their firms.” The change does not come as a total surprise, however. For many years before the recession, it was not uncommon for billing rates to rise much higher than the cost of inflation. Accordingly, many law firms are starting to move away from their traditional hourly fee structures and move towards a more client-centric approach. Other professional services firms (such as accounting and consulting firms) have been quicker to adapt. However, if the second hundred AmLaw firms continue winning a larger slice of the market share pie, the legal industry could begin to change much more quickly.