The largest tier of law firms did not perform financially as well as their smaller counterparts, according to a McCormick Group study of publicly reported financial results for 2015.
Firms with at least $1 billion in revenues reported an average increase of 3.5 percent in profits per equity partner (PPEP) from 2014 to 2015. Those firms’ performance with regards to revenues per lawyer (RPL), often regarded as the most reliable financial indicator, was even worse, as the 20 firms in this category only eked out a collective 1.1 percent increase from 2014 to 2015.
Firms in two smaller size groups performed better. Firms with total revenues between $500 million and $1 billion reported a 5.3 percent increase in PPEP, and 3.5 percent increase in RPL. And firms with less than $500 million in revenues reported a 5.0 percent increase in profits per partner and 2.9 percent increase in RPL.
The performance by larger firms in 2015 marks a significant change from past years, where performance at larger firms tended to outperform the midsize and small firms, at least when it came to profitability. The largest tier of firms reported a 27.9 percent increase in PPEP in the five year period from 2010 to 2015, greater than the firms in the two smaller groups.
The large firms’ small increase in RPL seems to confirm that leverage is becoming increasingly discredited as a model for increased profitability, particularly given corporate law department efforts to monitor the way engagements are handled. But other factors might also be at play, such as the slowing down of big M&A deals and big-ticket litigation, the cost and impact of large law firm mergers, and the cost of maintaining offices in foreign markets.
This study was based on reports from American Lawyer Media and other public sources. For a chart listing each firm’s reported results for 2010, 2014, and 2015, please contact Steve Nelson at snelson@tmg-dc.com.
TMG’s Take is a regular e-mail advisory produced by The McCormick Group. The company’s Legal, Government Affairs, and Law Firm Management groups combine the expertise of more than 15 Consultants to help law firms fulfill all of their lawyer and administrative recruiting needs. TMG’s Take covers topics across the spectrum of law firm management, including associate and partner compensation, growth strategies, marketing and business development, operations and facilities management, finance and accounting, professional development, and technology. Please direct all inquiries to Steve Nelson, Managing Principal at (703) 841-1700 or snelson@tmg-dc.com.
