Survey of Law Firm Economics, General Counsel Edition: All's Not Well in Law Firm Land
Corporate Counsel
Shannon Green All Articles
Corporate Counsel
February 14, 2011
ALM Legal Intelligence's "2010 General Counsel Edition of The Survey of Law Firm Economics" reports that law firm revenue per lawyer continued a downward trend in 2009. (For more information on the survey, click here.)
"There is a reduction in the work available," said Nicky Mukerji, director of business intelligence at Legalbill, a Nashville-based legal consulting and analysis firm that helps reduce legal spend. Revenue per lawyer decreased 0.2 percent, from $413,086 in 2008 to $412,220 in 2009.
In the slow economy, law departments and firms have both taken a tighter hold on their purse strings. General counsel are facing more pressure from their financial departments to justify expenses. It can be hard to predict what they'll spend on legal, said Mukerji. "You don't know who's going to sue," he said.
Mukerji said smart general counsel are focusing on what they can control. He said that to cut costs, law departments are looking to local outside counsel, and they're in-sourcing a lot of the work they might have farmed out in the past.
Less work coming in for firms means belt-tightening on their end.
"If, as a law firm, you're not doing well, the first thing you do is see where you can cut costs," he said. Law firms cut their per lawyer expenses 4.6 percent in the same period. Mukerji said that since the firms are seeing their profits drop, "bonuses are going down."
According to the survey, the average billing rate for 25-29th year partners increased 3.2 percent in 2009, while the rate for fifth-year associates went up just 0.5 percent. At the same time, the average billable hours for the most senior partners decreased 1.7 percent, while the average billable hours for fifth-year associates went up 0.6 percent.
Mukerji said that partners will try to increase their rates regardless of the economy. He said a glass ceiling is forming at law firms, preventing associates from making partner.
Those stifled associates are forced to move to other firms if they want to ascend the ladder, said Mukerji. And when they go, paralegals are picking up a lot of their work, he said. According to the survey, revenue per fee earner went up 1 percent last year. Mukerji said the increase in average billable hours for fifth-year associates could mean that those employees are putting in more time in an effort to make partner.
Using associates instead of partners can also reduce costs to law departments, but Mukerji said that's not always the case. When you evaluate the total cost of a case, using partners can save money.
"Billing rates will only give you half the picture," said Mukerji. Departments need to also consider which attorneys will be able to handle a matter most efficiently.
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