Too Many Lawyers? Report Faults Firms For Resisting Layoffs

“The most obvious solution to the overcapacity problem is to cut underperformers,” the report said, adding that firms know this, but “in too many firms, personal, political and cultural obstacles are hindering pragmatic economic decisions.”

The outlook is not all grim, however. The “widespread” overcapacity cited by Altman Weil did not stop most large firms from achieving higher revenues and revenue per lawyer in 2015. As a whole, The Am Law 100 saw revenue grow for the sixth straight year in a row, according to American Lawyer reporting, though the growth was not as dramatic as in recent years. See, “2016 Am Law 100: Growth Slows for Big Law.”'

Citi Private Bank's Law Firm Group reported last month that in the first quarter of 2016, revenue grew 5.8%, the highest level the industry has seen since before the 2008 recession.

The Altman Weil report does not contradict those claims. Of the firms surveyed, 67.4% said that gross revenue was up last year, while 65.3% saw partner profits rise.

The profitability increases are being driven not by demand increases, but by staffing changes, as well as improved efficiency, cost control and realization, according to Eric Seeger, an Altman Weil principal and the author of the report.

“The world is not falling apart,” Seeger says. “As law firms in general continue to move as a pack at a relatively slow pace, there remain great opportunities for individual law firms to outperform their peers.”

Laying Off Lawyers, Quietly

Seeger says that while the kinds of mass layoffs that accompanied the recession are now rarely in the headlines, that doesn't mean firms aren't trimming their ranks.

Nearly 73% of the firm leaders surveyed said that they are removing chronically underperforming lawyers from their firms, and 93% said that they were reducing compensation as a way of dealing with less productive lawyers. Those practices were even more common at law firms with 250 lawyers or more, the survey found.

In rare instances, firm restructuring plans do come to light, as with Reed Smith earlier this year. The firm laid off 45 lawyers in an effort to improve efficiency. The firm saw gross revenue slip 2.5%, while partner profits fell 8.3%, to $1.1 million.

Jeffrey Lowe, leader of the law firm practice at the recruiting firm Major, Lindsey & Africa, agrees with Seeger that many law firms are actively shedding lawyers, but in a piecemeal fashion that doesn't always attract headlines.

“They're so reluctant to get rid of unproductive partners, and that's been keeping them from being as ruthlessly efficient as other industries might be,” Lowe says.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo managing partner Robert Bodian says that he constantly evaluates who is habitually less productive in order to keep the firm profitable.

“Between trimming as needed and bringing on laterals who are collaborative, that's really gotten us a lot busier,” Bodian says. Mintz Levin saw its gross revenue rise 17.7% in 2015, to $363.4 million, while partner profits were up more than 11%, reaching $1.09 million.

Nonequity Partners An 'Obvious Target'

The overcapacity issue appears to be most acute among nonequity partners, the Atlman Weil report found. “Nonequity partners present the most obvious target for law firm rightsizing, as that class has been allowed to grow larger than current economics and likely future demand can justify,” the authors wrote.

Only 19.8% of survey respondents from large firms said that their nonequity partners were “sufficiently busy.” By comparison, 78.9% of large firm leaders surveyed said that their associates were sufficiently busy.

“The role and value of nonequity partners is in flux,” one anonymous firm leader said in the survey. “They fill needs now, but their value in the future is uncertain.”

Altman Weil conducted its survey in March and April of this year. About half the firms in The Am Law 200 responded, along with some smaller firms. Other highlights from the report include:

• More than have half of the large firms surveyed said that they are making changes to how they approach pricing. At large firms, typically around one-third of all fees were discounted.
• 75% of large firms surveyed are using part-time lawyers and contract lawyers.
• About half of the firms surveyed said they had increased their equity partner, nonequity partner and partner-track associate ranks in 2015.
• Nearly all large firms said that they would grow by acquiring laterals this year. Just over 88% said that they would acquire groups; 30% said that they would open new offices; and 42.7% said that they would acquire other law firms.

Nell Gluckman is a reporter for The American Lawyer, an ALM sibling of this newsletter. She can be reached at [email protected].