Majority of US law firm leaders expect profits to grow despite pandemic strains, study finds
Thomson Reuters report shows that many law firm leaders are also anticipating billing rates to rise
Almost two-thirds of law firm leaders expect profits at US firms to continue growing despite the impact of the coronavirus pandemic on the country’s economy, according to a new study from Thomson Reuters.
The Law Firm Business Leaders report found that 64% of respondents expect profits per equity partner (PEP) to experience moderate or high growth over the next three years, with PEP at large US firms increasing 11.5% on average in 2020, according to Thomson Reuters Peer Monitor data. Some 38% of law firm leaders also expect at least moderate growth in billing rates over the next year, with 64% of respondents expecting moderate to high growth in rates in the next three years.
The findings are in line with robust financial results being reported by a range of top US firms, including McDermott Will & Emery, White & Case, Akin Gump Strauss Hauer & Feld and Cooley which all last month reported revenue increases ranging from 6.5% to 17.9% for 2020 against steeper profit-per-partner rises of from 16% to 26%, according to Bloomberg Law.
Meanwhile, almost half of law firm leaders (43%) expect to continue reducing overheads over the coming 12 months in response to the economic strains of Covid-19. Some 91% of firms said they had stopped or significantly slashed discretionary spending since the start of the pandemic. Yet only 5% of firms said they plan to further reduce headcount over the coming year.
William Josten, manager of enterprise content at Thomson Reuters, said: “It’s good to see that despite the dramatic impact of the pandemic, US law firm leaders are now looking to a recovery in rates and in profits. While economic concerns undoubtedly continue weighing on firms’ minds, they have managed to reduce costs and support revenues through higher rates.”
Law firms have also been ramping up their digital transformation efforts to help support the shift to remote working, with more than half (59%) saying they have invested in technology over the past year.
Nearly all firms (94%) said they plan to increase the use of technology to help improve performance and address strategic challenges. Another 47% of firms said they planned to use technology as a way to gain a competitive advantage, with 28% saying they will use tech to increase efficiency.
Josten said: “Firms have quickly realised how investment, particularly in technology, is crucial to improving performance in retaining market share in a competitive environment. Lockdown has been a huge catalyst for the advancement of technology across all types of businesses and law firms are no different.”
Last month, 77% of the 98 respondents to The Global Legal Post Snapshot Survey on Covid-19’s impact on working practices said there would be a slight (45%) or substantial (32%) shift to home-working after the pandemic subsides with just 23% expecting a full return to pre-Covid norms.