Firm Leaders Survey: Slow Growth on Tap for 2014
Amid a languid recovery and threats to their business model, firm leaders now measure progress in small steps.
Just over five years after the start of the global financial crisis, the job of an Am Law 200 law firm leader arguably remains as tough as it has ever been. The painful decisions to cut staff and attorneys may now be a distant memory, at least for most firms, but there remain two distinct drags on Big Law businesses.
On the one hand, you have the still-sputtering domestic and global economies, prone to macroeconomic shocks like the U.S. government shutdown in October. And on the other, you have the ongoing shift in the way that clients purchase legal services, with more work pushed to cheaper suppliers, hoarded in-house, or fought over by a pack of U.S., international and global firms. In this market, merely treading water can be hard enough.
Against this backdrop, The American Lawyer's 11th annual law firm leaders survey asked The Am Law 200's ruling elite for their insight into current market conditions. We canvassed the heads of the U.S.'s highest-grossing firms for their views on the economic recovery, overall business sentiment at their firms, which practice areas were thriving and which were suffering, their plans for lateral hiring in 2014 and how their billing practices had changed. (The survey is conducted on a confidential basis; heads of 105 firms responded to it.) We also looked back to our 2009 survey to compare the results, and discovered some striking similarities between the two sets of data.
The overall impression is of a market where work flows remain depressed—although moving in the right direction—with some bright spots in litigation and regulation and signs of recovery in corporate work. Firms are being run on a far leaner basis than they were before the crisis, but most have hit their limits on cost control. "We've played this game as an industry for a number of years where we've gotten leaner and meaner, but there's a limit on stripping out costs and lowering rates," says Cooley CEO Joe Conroy.
Given the severity of the economic crisis, it is not surprising that growth in the U.S. economy remains sluggish. When asked how they felt the economic recovery would play out in 2014, 70 percent of this year's respondents said that they thought it would remain the same, with 23 percent saying they expected it to speed up.
The survey period began at the end of August and continued through mid-October, so some pessimism could be attributable to the worsening political climate and eventual October government shutdown in Washington, D.C. Business conditions are "trending in a positive direction, but it continues to be a challenging environment," says Akin Gump Strauss Hauer & Feld chair Kim Koopersmith. "The government shutdown doesn't help, and there's a sense that the U.S. doesn't have its act together, which is a drag overall on the country and on the legal market's ability to move forward."
Still, two-thirds of our survey respondents said that they were "somewhat optimistic" with regard to their own firm's growth in 2014, while just under a quarter said they were uncertain about their firm's prospects. Those numbers match, almost exactly, the responses to the same question in 2009, at the nadir of the downturn, but are up just slightly from 2012, when 64 percent of respondents said they were "somewhat optimistic" and 21 percent said they were uncertain.
There's also a sharp similarity when respondents were asked to characterize morale among their partners—56 percent described it as "somewhat optimistic," compared with 54 percent in 2009. (However, in 2012, 63 percent of respondents said their partners were "somewhat optimistic.")
Amid the gloom, however, litigation remains a bright spot. Just over 80 percent of respondents said they expected to make lateral partner hires in litigation in 2014. Given the ongoing crisis-related work in the banking sector and the tough regulatory environment in Washington, D.C., most respondents expect litigation's strength to continue.
The next most popular practice for laterals in 2014 was corporate. Although M&A remains a tough market, there have been some bright spots in corporate dealmaking. For instance, Verizon Communications Inc.'s acquisition this year of a 45 percent stake in Verizon Wireless for $124.1 billion was the sort of megadeal that the market has not see since before the collapse of Lehman Brothers Holdings Inc. in 2008. According to mergermarket, that deal helped increase U.S. M&A deal value 22.3 percent for the first three quarters of 2013, compared with the first nine months of 2012. Strip out the Verizon deal, however, and M&A was actually down slightly year-over-year.