The headline numbers from this year’s Global 100 report do not make upbeat reading, even before the Brexit effect and resulting vote began to chill the market in Europe.
While total revenue moved forward 3% to $95.99bn and lawyer headcount grew 6% to 122,945, the per lawyer and per equity partner metrics are flat: average revenue and profit per lawyer (RPL and PPL) are down 2% to $781,000 and $308,000 respectively, while average profit per equity partner (PEP) stood still at $1.6m.
With income growth flattered by consolidation – primarily Dentons’ merger-mania and the digestion of Bingham McCutchen – the world’s 100 largest firms are not, as a breed, growing at all.
It was yet another indifferent 12 months for leading London-bred firms, though at least this time they didn’t have to witness Wall Street’s finest comprehensively outclassing them. In the US – aside from outlier Wachtell, Lipton, Rosen & Katz – it was overall a better year for national players such as Cooley, Ropes & Gray and Morgan, Lewis & Bockius rather than Wall Street.
A comparison with our 2008 report, which chronicled the last high point before the credit crunch and banking crisis recast the market, makes a telling contrast. Although group revenue has grown 26% from $76.18bn in 2008 the number of fee-earners has swelled by 21%. Average RPL was $751,000 in 2008 – eight years later the amount of revenue the world’s top 100 law firms can wring out of their average foot soldier has edged up just 4%, not close to tracking inflation. Despite strenuous rounds of cost-cutting, PPL has moved up just 8% from $286,000. Unsurprisingly, global law firms have focused energies on nurturing PEP. The total number of equity partners has increased by 18% to 23,726, with PEP close to matching that increase, up 14% from $1.4m to $1.6m.
Such figures are a stark reminder that the elite legal profession is stubbornly stuck in New Normal land, even as it faces up to the threat Brexit and the resulting fallout in Europe will give the global economy another Lehman-style shock.
If the market for top-end services is not growing overall, the gap between winners and losers is considerable. Looking at some leading firms that have avoided significant mergers and acquisitions since 2008, headcount is down, in some cases materially. Clifford Chance has slashed lawyer headcount by 16% since our 2008 report; Skadden, Arps, Slate, Meagher & Flom by 17%; and Weil, Gotshal & Manges by 12%.
Also striking is the extent to which the US-bred law firms now utterly dominate the top 100 – partly due to the strong greenback post-crisis, but that still strengthens the hand of Americans abroad.
The Global 100 has faced some severe headwinds since 2008 and now can look forward to a potential eurozone crisis, a charged US election and the slump in commodities. The question will be when – or if – top 100 firms respond to that challenge with something radical in consolidation or the business model. Because the good old days are not coming back soon.
Read more in ‘Global 100: Hitting the wall’