The NLJ 500: Large Firm Growth Slows Amid Consolidation and Contraction

Total lawyer headcount growth slowed last year nationwide, hampered by the contraction of smaller firms and consolidation at firms of all sizes.

The number of lawyers who worked in the nation's 500 largest firms increased 1% over the previous year to nearly 165,300, and the average firm size rose by four lawyers to 331. But this growth was somewhat slower than in 2016, when the NLJ 500 grew by approximately 2%.

This year's edition of the NLJ 500 also shows a 1.2% drop in the number of equity partners, while the number of total partners remained effectively flat at 0.3%. The gap between the NLJ 350 and the NLJ 500 was especially pronounced in 2017, with growth among the top 350 firms far outpacing the final 150 included in this year's list. All of the final 25 firms included in the NLJ 500 either shrunk or were not previously ranked.

But the competitive pressures acutely facing smaller firms did not bypass the nation's largest firms. Just three of the top five firms on the NLJ 500 showed total lawyer headcount growth: Hogan Lovells, Baker McKenzie and Norton Rose Fulbright. After the Norton Rose merger with Chadbourne & Parke was finalized in June 2017, the firm changed the way it reported its headcount numbers from previous years. Per Norton Rose Fulbright spokesman Dan McKenna, for 2016, firm numbers included paralegals and trainees. The firm later adjusted its 2016 tabulation to include 3,221 lawyers for that year. That firm's head count grew by 118 lawyers in 2017.

Hogan Lovells CEO Steve Immelt said he is optimistic about the coming year, but “there's just no question” that the market is flat and new technology, in-house counsel, and disaggregation have depressed on demand.

“Boy it's a tough market,” Immelt said. “I think anybody that doesn't understand that is going to have a really challenging time and law firms that have hunkered down and said, 'Let's cut costs and wait until it's 2007 again' are going to be challenged.”

Hope remains for smaller firms, however, said Steve Nelson, a legal recruiter and consultant with the McCormick Group, an executive search firm. Nelson said the advantage smaller firms have is that they ought to be able to compete better on rates. Nelson said the contraction of the smaller firms in the 2018 NLJ 500 looks to be a response to firms struggling to respond to flat revenues.

“I think these firms are facing challenges in terms of the competitiveness of the marketplace,” Nelson said. “They're in that space where the corporate efforts to cut costs are really taking hold.”

Rather than being entirely swallowed up by bigger firms or moving in-house in droves, some of the movement at the back-end of the NLJ 500 reveals lawyers moving to smaller firms or starting their own firms, Nelson said.

Additionally, combinations at some of the nation's largest firms have had a profound impact on the market. Arnold & Porter ranked 63 on last year's list, for example, but improved its ranking to 31 following its merger with Kaye Scholer.

The aftershocks of major mergers affecting this year's list continue to be felt throughout Big Law. Norton Rose Fulbright's combination with Chadbourne & Parke not only changed its total headcount, but that of other firms. The movement of legacy Chadbourne partners proved beneficial to Winston & Strawn in 2017 and this year. Kirkland & Ellis, the firm that added the greatest number of lawyers in 2017 (238), has similarly recruited legacy Chadbourne lawyers to its offices in 2018. Kirkland & Ellis, per a spokesperson, declined to provide comment for this story.

Other combinations have proven to be a smashing success. Saul Ewing Arnstein & Lehr's Managing Partner Barry Levin said his firm has never been one to gobble up others and found success due to pre-merger coordination. Saul Ewing's merger with Arnstein & Lehr represented a once-in-a-20-year event for the firm, Levin said. But market pressures could mean that is all about to change.

“Everything happens faster today,” Levin said. “What were 20 year events might be five year events [now].”

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Ryan Lovelace is based in Washington, DC, and covers the intersection of law firm business, lobbying and the federal government for ALM. He can be reached at [email protected] and on Twitter @lovelaceryand.