Firm Leaders Predicting Profit Growth in 2014, Survey Shows
Increasing demand and a more concentrated focus on the efficient delivery of legal services should lead to higher profits in 2014, according to a survey of the managing partners' confidence in the market.
Citi Private Bank's Managing Partner Confidence Index for the fourth quarter of 2013 showed an improvement of six index points when it comes to overall confidence in the market. Citi gave an index value of 109 for overall confidence, with 100 being considered neutral, anything above that considered confident and anything below 100 showing a lack of confidence.
While firms are still waiting on last-minute collections to see how 2013 will end up, Citi senior client adviser Gretta Rusanow said the survey provides a picture of how managing partners view 2014 given it asks firm leaders how they anticipate certain metrics will fare over the next six months.
Demand saw the largest increase in index points, growing 17 points to a score of 136 on the confidence index. While confidence improved from the third quarter, expected demand increases are still tepid. The bulk of respondents—44 percent—felt that rise in demand would be less than or equal to 3 percent. Of the 71 respondents to the survey, 23 percent said demand would grow more than 3 percent, 21 percent said it would remain unchanged, 8 percent predicted a decrease of 3 percent or less and 4 percent projected demand to fall at a rate of more than 3 percent.
With slow demand growth at best, Rusanow cautioned firms to be careful with expense management. Only about 10 percent of respondents said expenses would decrease in any capacity in the next six months and another 26.8 percent said they would remain unchanged. The majority, or nearly 48 percent, said expenses would grow less than 5 percent.
The managing partners painted a slightly different picture when it comes to profits and revenues, though both increased by 10 index points to 96 and 107, respectively. For both categories, 10 percent of the respondents predicted decreases. For profits, 15 percent said they would remain unchanged and 6 percent said revenues would be unchanged. Approximately 50 percent of respondents predicted growth in both revenues and profits would be below 5 percent.
Rusanow pointed out it is the improved efficiencies, both from expense and project management, that will make up for the demand pressures and result in increased profits for 2014.
"It's a challenging legal environment but I think law firms are doing a better job of anticipating those challenges," Cozen O'Connor CEO Michael Heller said. "You have to now understand that you have to operate within a slow-growth economy and a challenging demand for legal services. It's better than a bad economy and a challenging demand for legal services."
Heller said his firm collects about 17 percent of its annual revenue in December. While he can't know for sure until next month how 2013 will go, he said he is cautiously optimistic. Heller said he expects 2014 to be much of the same.
When it comes to profits, Heller said he would expect most firms' profits to be stable or up a few percentage points in 2014 "because I think law firms have been anticipating over the past year-and-a-half to two years this reduction [in demand growth] and have made meaningful changes to operations."