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The American Lawyer reports that after years of globalization, some firms are pulling back to focus on building a stronger platform in the world’s most lucrative legal market. According to the article, the United States remains the world’s largest, strongest and most lucrative legal market. A recent study by U.K.-based market research company Acritas found that U.S. companies spend 166 percent more on legal services per dollar of revenue than companies around the globe.

Buildings in the city

The United States’ strength in the global legal market has also drawn attention from across the pond, particularly from London’s top firms. According to the article, Allen & Overy is reportedly in merger talks with O’Melveny & Myers, a potential move that has sent ripples throughout London and signals an increased desire and interest to finally break through in the U.S. legal market. “The U.S. is the largest and most lucrative legal market in the world, so it makes sense that firms with global ambitions would want to be here,” notes Dave Koschik, a member of White & Case’s executive committee and head of its U.S. growth team, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer released their annual Global 100 report, a ranking of the world’s 100 largest law firms by gross revenue, profits per partner, and total attorney headcount. Overall, gross revenue for the Global 100 grew by 6.4 percent to $105.7 billion, and profits per equity partner among Global 100 firms increased, on average, by 3.4 percent. Attorney headcount also saw an increase this year, with an annual growth of 10.7 percent.

Skyline from Lincoln Park.

For the third time in the history of Am Law’s global ranking, U.S.-based firms occupied the top five spots. Kirkland & Ellis advanced two spots this year to claim the No. 1 spot, knocking Latham & Watkins and Baker & McKenzie down to spots 2 and 3, respectively. Kirkland and Latham both cracked $3 billion in total revenue for the first time in 2017. But while Latham posted a commendable 8 percent increase in revenue, Kirkland’s grew at a whopping 18 percent, more than any other American firm. DLA Piper and Skadden Arps remained in their respective spots from last year, coming in at number 4 and number 5.

Another takeaway for all these firms—and those on the outside looking in—is the gap between total revenue growth and PEP. Even with plenty of money coming in, costs are growing across the world. That, according to former Clifford Chance managing partner Tony Williams, is causing firms to “look much more carefully at who becomes an equity partner and who stays one.” Those elite American firms, consolidating their hold on the top of the list, are already doing this. Now it’s up to those who wish to be in their position to follow suit, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

How do successful leaders and firms manage their compensation expectations in a record financial year? A recent article by The American Lawyer investigates, positing that some of the most effective means for managing the compensation expectations of partners include structural elements in their compensation system, leadership techniques, and talented, communicative leaders. Blane Prescott, a consultant for legal consulting firm, MesaFive LLC, notes “some firms suffer morale and trust issues because their compensation process fails to manage expectations. Compensation isn’t just about setting a number and then defending one’s decisions. There are many firms for whom setting partner compensation is a surprisingly easy and smooth process, regardless of whether profits are up or down, because they focus on managing expectations and helping partners to succeed.”

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Most firms understand the benefits of talking with partners about performance and compensation, but one important question is, is it better to do that before or after setting compensation? It may sound illogical but talking to partners before setting their compensation produces dramatically better engagement, improved performance in the following year, and more effectively manages expectations. But they only work if firms do those interviews well, and unfortunately, perhaps only a quarter of all law firms meet that standard. Good interviews are two-way conversations, focused on helping the partner to be more successful. They explore each partner’s strengths and weaknesses and include a focused discussion of priorities for the coming year, (as quoted in The American Lawyer).

It is often said it is rare to find great leaders who lack great communication skills. Not all communication skills are the same—some leaders are gifted at talking to groups, while others are fabulous at counseling individuals. The key question for managing expectations is, do firms have leaders (at the firm, practice and office level) routinely communicate substantive information and meaningful analyses (not just highly filtered, quantitative data) to partners all throughout the year?  Are they honest about telling partners when the firm is doing well, and when the firm isn’t? Are they skilled at accurately describing what the challenges are and how to address them? Are they open about the financial data they share, or does it constantly feel like they are just spinning selected facts?, (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

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Law firms had their best revenue growth in the first half of the year since the recession, with 5.5 percent growth in the first six months of 2018. That’s up from 4.9 percent in the first half of 2017, and the outlook continues to look good for rest of the year, according to a new report released by Citi Private Bank’s law firm group. In addition to revenue growth, law firm demand increased by 2 percent and lawyer billing rates increased by 4.5 percent. According to the report, improved demand (total timekeeper hours) and lawyer billing rate increases were the main drivers of growth.

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The Citi Private Bank’s report found that among the Am Law segments, size mattered, with Am Law 50 firms outperforming the other market segments in the first half of the year. Smaller, niche firms had slightly stronger revenue growth, at 6.9 percent, than at those in the top group. Their demand was up 1.6 percent, and billing rates up 3.6 percent. Firms that have a dispersed geographic reach saw the strongest revenue performance, reaching 8.1 percent. Firms that had fewer lawyers outside the United States did less well, underscoring the strategy of the largest multinational firms which have numerous offices and a phalanx of lawyers spread around the globe, (as quoted in The American Lawyer).

The analysis also adds, however, that upward pressure on expenses–particularly from recent salary increases–could drag down profits. “Looking ahead, the revenue outlook for the rest of 2018 is very positive, with a solid buildup in inventory heading into the third quarter. The industry will need this, given the upward pressure on expenses we expect to see in the second half of the year as firms absorb the recently announced salary increases, ” notes research co-author Gretta Rusanow, the group’s head of advisory services.

See highlights from the full article on The American Lawyer.

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Certain Midwest and second-tier markets, in terms of population, have garnered particular interest from large law firms, especially those that serve middle-market clients, reports Lizzy McLellan of The American Lawyer. According to statistics from AmLaw’s latest NLJ 500 survey, the number of lawyers at NLJ 500 firms grew by 100 or more in each of the Washington State, Illinois, Minnesota and Michigan markets.

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“There are a lot of firms that started out in the secondary, tertiary markets that now have offices in lots of other secondary, tertiary markets,” notes Mary K. Young of the Zeughauser Group. When those firms make entry to a new market, she adds, they often acquire or take from smaller local firms that would not have made it onto the NLJ 500 on their own, (as quoted in The American Lawyer).

David Barnard of Blaqwell Inc. also notes that small firms based in smaller markets are increasingly looking for merger opportunities. “Specialization is continuing. It’s no longer possible to do everything. It’s just too tough,” he said. So small practices have to choose their strengths and double down there. After doing that, he says, “the lawyers in those towns are combining so they can offer full service to local clients and maintain their livelihood,” (as quoted in The American Lawyer).

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer released its annual A-List rankings of the top 20 “most well-rounded” law firms in the United States. Firms are ranked based on a combination of factors including revenue per lawyer, pro bono commitment, racial diversity, associate satisfaction and percentage of female equity partners.

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Ropes & Gray ranked No.1 on this year’s A-List. Climbing from last year’s number two, the firm moved up thanks to high scores in revenue per lawyer, pro bono work, and number of female equity partners. Wilmer Hale climbed two spots to claim this year’s No.2 spot with high scores in almost all categories. Slipping from 1st place last year, Munger Tolles landed spot No.3, declining in all categories, particularly in the female equity partners category. Orrick Herrington moved six spots to claim 4thplace, thanks to high scores in pro bono, associate satisfaction and female equity partners.

New firms added to this year’s A-List rankings included Morrison & Foerster (No.11), Patterson Belknap (No.17), Morgan Lewis (No.18), and Jenner & Block (No.19). A few firms on the list made last year’s Top 20 but faced shortcomings in vital areas, forcing them off in 2018. Those firms included Gibson Dunn (No.22), Hughes Hubbard & Reed (No.29), and Manatt Phelps & Phillips (No.30).

Additionally, The American Lawyer released a list of  the next 20 A-List firms (No. 21-40), The A-List Runners-Up. Washington, D.C.-based Buckley Sandler jumped 25 spots to land 26th place, due to large improvements in RPL, female equity partners, and associate satisfaction. Appearing for the first time on this list, Arnold & Porter Kaye Scholer claimed 31st place, thanks to an impressive score in the pro bono category. Dechert climbed 10 places to land the 34th spot on this year’s list, due to increases in its associate satisfaction and diversity scores.

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports that recent data released by ALM Intelligence shows female attorneys have ascended into Big Law’s partnership ranks at a faster pace than ever before in the wake of the #MeToo movement. According to the analysis, the pace of promotions for female lawyers since the #MeToo movement began has soared from 125 per month to 265 a month —or more than double the rate from the previous period.

The mid adult female lawyer gestures as she advises the client

Mary Leslie Smith, who became managing partner of Foley & Lardner’s Miami office earlier this year, notes that the movement has raised awareness. “What the Harvey Weinstein and #MeToo movement has done is raise awareness,” Smith said. “Firms began to look internally and ask, ‘Are we doing right by our women?’”

In addition, the article reports on several high-profile elevations of women in Big Law including Donna Wilson, named to become CEO and managing partner of Manatt, Phelps & Phillips in July 2019; Julie Jones, who will become the first female chair of Ropes & Gray at the end of 2019; and Patricia Brown Holmes, who became managing partner of Riley Safer Holmes & Cancila in April.

Debra Baker, a lawyer and managing director at GrowthPlay, concludes that “the most significant force now encouraging firms to promote women is an increased demand by clients for diversity. Clients are looking for diverse lawyers, not just to appear politically correct, but because they want advisers that know something about their businesses, will share fresh perspectives and work collaboratively, added Baker, noting that women often do better on those fronts since they “tend to score higher on social sensitivity.”

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

The American Lawyer reports on a mistaken and dangerous belief pervading the current U.S. legal market: that it is consolidating as larger firms grow more quickly than the market by taking share from their smaller rivals. However, an in-depth analysis of Am Law data over the last 20 years reveals that in fact consolidation is not happening. Rather, worldwide revenue growth from larger firms expanding overseas has been mistaken for consolidation of market share.

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In Am Law’s latest article, Debunking the Consolidation Myth, the authors argue that the mistaken perception of consolidation has driven firms to bulk up—by merging, acquiring and hiring laterally—to avoid being at a competitive disadvantage. Such moves are high-risk, disruptive distractions for leaders whose attention is better focused elsewhere. Despite the intense effort involved, they create no strategic advantage. Wise partner groups and firm leaders will see past the prevailing dogma and focus instead on optimizing the performance of organically growing businesses, (as quoted in The American Lawyer).

In a tightly argued analysis, the authors conclude that “Consolidation is not happening. The imperative for law firms to grow is groundless. Smaller firms that don’t expand internationally are not losing share; in fact, they’ve gained share through the Great Recession. The data could not be clearer. And yet we know that this simple truth will be ignored. Facts are an ineffective counterweight to long-held belief. It’s too bad. Running a U.S.-centered, organically growing law firm well is a strategy with enormous validity and tremendous potential for strong profit growth.”

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.

Law firms have a lot of room to increase leverage, despite clients pushing back against the use of more junior lawyers, reports ALM Intelligence Analyst, Nicholas Bruch from The American Lawyer. Bruch notes that real-world pyramid structures will never be perfect, nor will work cascade down them smoothly. However, he adds it’s hard to escape the inference that there is a lot more room for increased delegation and leverage. In addition, there are many forces that align against increasing leverage, however, they can be overcome.

Serious business persons looking at documents

Nicholas Bruch notes that a starting point is that partners be clear on what increasing leverage requires. “It is not achieved, as some partners initially think, by adding associate hours on their matters, something they know to be difficult given the pushback they get from clients on ‘overstaffing.’ Rather it is about replacing partner hours with associate hours, keeping total hours close to constant, and bringing down total billings,” Bruch adds.

According to Bruch, it helps to also track and report out on leverage as closely as firms track partner hours; to get profitability measurement right (i.e. not just realization, but the combined effect of realization and leverage); and to have structured discussions about increasing leverage among partners (so all can see leverage can be increased without departing from the group identity as great lawyers). Curiously, raising partner billing rates also plays a role: some partners like to keep their rates low as they know not all they do is true partner work; raising partner rates leans against this, (as quoted in The American Lawyer).

Nicholas Bruch concludes that that the overarching message is that firms need to grow PPP to be competitive in the market for partner talent; increased leverage is a proven driver of PPP growth; today’s leverage levels are about half of what they could be; and firms have proven they can raise leverage despite the forces that align against doing so. The implication: leverage increases have a lot further to go.

See highlights from the full article on The American Lawyer.

Contact Bill Sugarman for more information.