Lawyer productivity, demand dropped in 2022 - Wells Fargo report
(Reuters) - U.S. law firms' biggest challenge in the near term will be dealing with keeping their expanded ranks of attorneys busy as they face a drop in demand, according to a new report from a Wells Fargo unit that tracks and analyzes legal industry data, among other services.
The law firms that Wells Fargo's Legal Specialty Group surveyed reported a 1.9% drop in demand — calculated as the number of hours lawyers bill — with the top 50 highest-grossing law firms seeing a 2.9% drop, Wells Fargo said Tuesday.
Wells Fargo surveyed more than 140 law firms, including 68 of the top 100 highest-grossing U.S. firms.
The drop in demand comes as law firms have kept on most of the lawyers they hired in 2021 and in early 2022 to handle a record-breaking amount of M&A work — lawyer count was up 4.5% in 2022, said the report.
But the M&A market cooled in 2022, dropping 37% compared to 2021's record-breaking $5.9 trillion in global announced deal work, according to Refinitiv.
Lawyers in 2022 logged fewer billable hours than the year prior — 1,568 hours per lawyer, 102 fewer hours than in 2021. Owen Burman, a senior consultant in the Wells Fargo unit, said he has never seen productivity at a top 100 law firm drop below 1,600 hours before.
Burman said he was surprised there haven't been more layoffs across the industry. Cooley, Goodwin Procter and Stroock & Stroock & Lavan have all said they're laying off lawyers due to a slowdown in work.
"I’m a little surprised that firms appear to be willing to make an investment and carry underutilized lawyers for a little while longer," Burman said. "It’s been relatively quiet."
Net income — which is distributed to the equity partners who own a share of a law firm — dropped by 3.1% in 2022, after two years of double-digit growth. But a drop of only 3.1% should be considered "a victory" in the face of the drop in demand, Burman said.
Profits per equity partner dropped by 3.9%, while overall revenue grew by 3%, Wells Fargo found.
"The sky is not falling," Burman said.
Wells Fargo's findings come a week after Thomson Reuters Institute and the Center of Ethics and the Legal Profession at Georgetown Law also found drops in demand and profits, as well as an increase in expenses. The Thomson Reuters Institute is part of the same parent company as Reuters News Agency.
(NOTE: A previous version of this story incorrectly stated that Thomson Reuters Institute's Law Firm Financial Index released last week found a drop in law firm demand and profits and an increase in expenses. Those findings were actually from the 2023 State of the Legal Market Report from the Thomson Reuters Institute and the Center of Ethics and the Legal Profession at Georgetown Law.)
Read more:
Law firms face daunting 2023 amid falling profits and demand
N.Y. law firm Stroock trims lawyers and staff, citing slowdown
Law firm M&A rankings show players competing for smaller prize
Law firm Goodwin Procter cuts lawyers and staff amid shrinking demand
Cooley lays off 78 lawyers as U.S. law firms fight demand dip
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