Demand growth for legal work in counter-cyclical practice areas and higher rates buoyed large and midsized law firms’ financial performance in the second quarter of 2023, a new report found.
Demand increased 1.5% year-over-year, with bankruptcy, labor and employment, litigation and antitrust among practices that helped drive growth, according to the latest edition of the Thomson Reuters Institute’s Law Firm Financial Index, which was released on Monday.
The index, which tracks key financial metrics across 170 large and midsized law firms, jumped 6 points in the second quarter of 2023 to the highest score since the first quarter of 2022.
Averaged worked rates – the rate a client has agreed to pay to engage a firm on a legal matter – grew by 5.9% in the second quarter of 2023 compared to the same period the prior year, the report said.
The new figures contrast with Q2 2022, when there was “dramatic impact” from a decline in law firm transactional practices, said William Josten, manager for enterprise legal content at the Thomson Reuters Institute, which shares the same parent company as Reuters.
In Q2 2023, “we’re seeing that the counter-cyclical practices have now started to pick up and start to pick up some of the softening” in the market for transactional work, Josten said.
Demand grew 5.7% for bankruptcy work, 4.6% for antitrust and regulatory work, and 2.4% for labor and employment work in the second quarter. Litigation work climbed 4%, which Josten said could also be a result of courts clearing pandemic-era backlogs.
Demand for corporate practice areas grouped together grew 0.1%, while mergers and acquisitions demand fell 6%. Real estate demand fell 8.4%.
Midsize and large law firms are using different tactics to strengthen profitability, the report said.
Looking to increase revenue, midsize firms grew their associate head count by 0.6% between January and June 2023.
The top 100 law firms, tracked by the American Lawyer and based on revenue, trimmed their associate ranks by 2.5% during that period. Firms that rank between 101-200 grew associate headcount by 0.4%.
A growing number of large U.S. law firms have laid off modest numbers of lawyers and staff as they navigated a downturn in demand late last year and into this year. Two more firms announced cuts this week.
The layoffs indicate “that firms are trying to find that balance and that right structure of their talent,” Josten said, noting that the legal industry is not conducting mass layoffs as it did in the 2008 financial crisis.
Source: Reuters
