Richest Firms Pulled Ahead in 2016 as Some Regions Struggled

The top performing law firms continued to pull away from the rest of the Am Law 200 last year, according to a report released on January 23 by Wells Fargo Private Bank's Legal Specialty Group. Meanwhile certain regions, including the mid-Atlantic states, struggled to achieve even modest revenue growth.

Law firms in the top half of the Am Law 100 saw revenues rise an average of 5%, the report said. The whole of the Am Law 100, a list of the top 100 grossing law firms, saw revenues rise almost 4%, while firms in the Second Hundred, which includes the 101st through 200th grossing firms, grew 1% in 2016.

Firms that have shed their underperforming partners and are able to hire stronger lawyers are outperforming the rest, according to Jeff Grossman, senior director of banking for Wells Fargo Private Bank.

“There are more partners than there's work to go around,” he said.

Demand for legal services, which tracks the number of attorney hours logged, grew only 0.15% last year, according to Wells Fargo. In most cases, the revenue growth was due to rate increases at firms.

But law firm leaders predict that demand will see a greater uptick in 2017, according to the report. Some said in a survey conducted by the bank that they expect demand to increase by as much as 4% — the most optimism they've expressed since the financial crisis.

Grossman said the hopeful outlook is based on predictions by firm leaders that a strong economy will yield more transactional work in 2017.

Growing Divide

The Wells Fargo report showed that 21% of Am Law 100 firms saw revenue decline or stay flat, compared with 38% of the firms in the Second Hundred. Grossman said the split is fairly similar to previous years, but it's getting more common for firms in the Second Hundred to shrink or stay the same size.

Revenue results varied by region. The southeastern U.S. registered the strongest results thanks to two or three outliers that grew their revenue dramatically compared to the average, Grossman said. He declined to name those firms.

The economy in some southern cities has bounced back recently, particularly in Charlotte, NC, where a number of large banks are based. Grossman said even the lowest performing firm in that region only lost 1% in revenue.

Law firms in the mid-Atlantic, which are mainly concentrated in Washington, DC, showed the least growth, according to the report. Grossman attributed the declines there partly to political and economic uncertainty tied to the election, and he said he expects firms in the capital to rebound this year.

In Florida, Grossman said a real estate boom has slowed, contributing to slower revenue and profit growth in the state. Northern California registered negative net income and profit growth, which Grossman said is partly a result of a spate of recent hires in the region that have yet to generate significant billable hours.

“2017 will be a key year to watch that,” he said.

Grossman added that even though firm leaders expect demand to grow, they don't predict matching increases in revenue. He said that signals that while lawyers may work more hours, rate hikes could slow this year.

***** Nell Gluckman writes for The Am Law Daily, an ALM sibling of this newsletter. She can be reached at [email protected] or on Twitter @NellGluckman.