Latest News – After a slow start, law firms concluded 2023 on solid financial footing, according to an industry assessment that was made public on Monday.
The most recent Thomson Reuters Law Firm Financial Index, opens new tab, shows that after a dismal 2022, earnings grew year over year in the fourth quarter for both big and midsize law firms. This gain was primarily driven by rate growth and increasing demand for countercyclical work. Key financial variables are monitored by the index for 173 major and midsize legal companies.
The American Lawyer trade newspaper rated the 100 most lucrative legal firms in the United States, or Am legal 100 companies, and found that their profits-per-equity partner increased by 6%. Midsize businesses—defined in the research as those outside the Am Law 200—had a.3% increase in profitability, according to the index, while Am Law 200 firms experienced a 2.5% increase in earnings during the fourth quarter of 2022.
Profit decreases of 4% or more were observed in all business segments in 2022; however, 2023’s advances in profitability were not as large as the double-digit rises that legal companies saw in 2020 and 2021.
In 2023, law firms demonstrated “resilience” by “aggressively” boosting fees while simultaneously controlling costs, particularly those related to associates, according to Tommy Williams, interim general manager of global and major law firms at Thomson Reuters, a division of Reuters.
Demand for legal firms increased by over 2% overall over the previous year, but it differed greatly by profession. The demand for countercyclical practices—those that thrive in a challenging economic climate—rose in the fourth quarter compared to transactional practices, which saw a 3% increase in demand and a more than 6% increase in bankruptcy cases, according to the index. Demand for labor and jobs increased by over 3%.
In the fourth quarter of 2023, attorneys invoiced an average of 115 hours per month, continuing the previous downward trend in lawyer productivity. The indicator indicates that’s the lowest number since at least 2005. The analysis pointed out that the relationship between hours worked and profitability is becoming less direct due to technology and other charge structures.
It will be challenging to raise that 115-hour average, according to William Josten, the Thomson Reuters Institute’s senior manager for enterprise legal content.
“Massive demand surges are unlikely to occur,” he stated. “And significant headcount reductions are unlikely to occur either.”
Sources : Reuters