There is a curious phenomenon that affects both the NHS and, now it seems, the legal sector. The reality gap. Ask a patient treated in hospital for a broken leg what their experience of the doctors and hospital was, and in the main it will be positive. But ask the same person what they think of the NHS on the whole, and usually they will say that the whole system is going to the dogs.
The same reality gap seems to be happening in the legal sector. Ask individual partners and law firm leaders how their business is doing and usually they will tell you that it’s been a solid year: nothing record-breaking, but a robust year nonetheless. Ask the same individuals how the legal market is performing as a whole, and they will pull a face and suggest what dreadful results other firms will be announcing.
Take this comment. ‘We had another record year in 2011 in revenues, in PEP and RPL,’ says Duane Morris chairman John Soroko. But in our Global 100 report he says: ‘It’s going to be another very tough year in the US market.’ Now that’s not to pick unfairly on Soroko, his attitude is typical of nearly all of the Global 100 managing partners that we spoke to about their results this year.
The general mood of partners may be doom and gloom, but actually, as this year’s survey of the world’s top 100 firms reveals, things in the legal sector are not too bad. A quick glance across the pages of this year’s Global 100 main table shows a sea of green arrows indicating revenue and profit increases. Indeed, just 11 firms saw revenues decline this year compared to 29 firms last year, and 70 firms in 2009/10.
Yes it’s been a difficult market, but actually the reality gap is too wide. Growth is back.
On the whole, law firms are back in the black. The total fees brought in by the world’s top 100 law firms increased by 7% this year to reach $81.8bn – higher even than the top of the market in 2007/08. Even the Magic Circle has managed to increase its revenues by 2.6% on average (see opposite).
In many instances, that muted growth has been hard won. Linklaters, for instance, increased its PEP (in sterling) by 2% to £1,184,000 this year but it came at a high price, with 41 partners being de-equitised or asked to leave.
Some of that top line growth across the Global 100 has come from consolidation, with global mergers swallowing up smaller firms to create new beasts like Hogan Lovells, Squire Sanders and SNR Denton. But even including the global revenues of a number of freshly merged firms, the picture is still positive.
Growth may have been tougher to achieve than in the heady days of 2007/08, but there has been growth in the legal sector and that in itself is worth noting. This perception lag isn’t surprising; the news is saturated with the ongoing ‘eurogeddon’ crisis, and even the normally sleepy legal sector has managed to make headlines in the wider business press with the high-profile demise of Dewey & LeBoeuf.
Yes it’s been a difficult market, but actually the reality gap is too wide. Growth is back. Time to cheer up, it isn’t all that bad.