Brace yourself: The legal business forecast looks bleak

(Reuters) – The latest legal business numbers are shocking: Law firm costs are up, profits are down and demand is dwindling.

This dark streak comes from the Thomson Reuters Law Firm Financial Index, which analyzes quarterly changes in rates, demand, productivity, costs and other factors that affect profitability at large and mid-sized law firms. As my colleague Karen Sloan reports, the index fell to its lowest level since its inception in 2006.

The decline is so slow in part because the 2021 highs were so high. In light of that, the economic indicators aren’t as dire as they seem — and that may partly explain why we haven’t seen an outright law firm layoff at a time when companies including Tesla Inc., Netflix Inc. and Walmart Inc. are shedding employees. .

Still, attorneys for recruiters and job coaches tell me it’s best to take steps to “fail-proof” themselves before the grass falls.

According to a report by the Thomson Reuters Institute, part of the same parent company as Reuters, demand for M&A activity fell 4.9 percent in the second quarter of 2022 compared to a year earlier.

Litigation also fell by 2.2% – defying conventional wisdom that the practice is counter-cyclical and rises when the economy slows.

Also on rejection: bankruptcy, labor and work, tax, intellectual property and general corporate work. Only real estate showed modest improvement, an indicator that this downturn is different from the financial services market turmoil of 2008-2009, which weakened real estate activity.

One bright note: Billing rates are up 4.7% – but then again, inflation is currently about 8.5%, so that might not really be that impressive.

So far, the pain felt by law firms seems unfairly spread. At Morgan, Lewis & Bockius, for example, Chairman Jamie McConnell told me in an email that the business mix has changed somewhat, but that the company’s timeline looks better than 2021, when it had $2.58 billion in revenue. As the American lawyer.

Mitch Zuccliffe, chairman of Orrick Herrington & Sutcliffe, said trading interest had “gone from last year’s intense pace” but that the company’s “testimony is on fire”. The market, he said, “definitely moved into a more uncertain environment.”

The report’s authors say there’s no need to panic — or at least not yet.

“Like the lane-departure system on a modern car,[the index]is not there to signal when the car is failing. Rather, it serves as an early warning when companies are moving away from profitability growth,” the report said.

As an image, that’s not exactly reassuring. Now I’m seeing a car go off the road and smash into a tree.

Be warned yourselves. The question is, how can individual lawyers protect themselves from harm?

Legal consultant and coach Jay Harrington, president of Harrington Communications LLC, tells me that his clients are expressing “anxiety and dread” as they look ahead.

Last year, he said, “The value of skills organizations are looking for is legal skills in many work hours. That’s why hiring is up, bonuses and wages are going through the roof.

Now, as work slows down, the ability to keep one’s nose to the grindstone may not be enough.

“Companies need lawyers to keep themselves and others busy,” said Harrington, who suggests lawyers devote 30 to 60 minutes a day to marketing and business development. “The time to act is now, not when it is urgently needed.”

As a starting point, attorneys should ask themselves, “How can I be visible and consistent enough to be top of mind when my clients need service?” In-house consultants suggest they may have five or six companies in their ecosystem to tap for work. “The lawyer who shows up gets the chance.”

Isabelle Dupree, director of VoLegal in Atlanta, says she doesn’t see “massive layoffs” in the future, but that “partners who don’t try to stand out and don’t try to do well are likely to suffer.”

In the year Dupree, who began her legal career as a corporate associate in the fall of 2008, says companies have learned hard lessons since then, and she thinks the pandemic was in short-term decline at the start.

People who are cut too deep have suffered reputational damage as the business backfires and takes off.

Indeed, Latham and Watkins After laying off 190 attorneys and 250 other employees in early 2009, the word “latamed” became an entry in the urban lexicon: “Firing most first-year associates in an office after several months of employment.” They don’t even have any real written reviews.

A spokeswoman for Latham declined comment.

To Latham’s credit, he was at least transparent about the layoffs rather than trying to chalk them up to performance-related issues.

More than 4,000 lawyers and 7,000 employees lost their jobs in 2009, according to a report in the ABA Journal.

At this point, perhaps many firms will realize that if they cut back on distributed layoffs, any temporary loss to one partner will be rewarded in the long run when business recovers.

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