The steady drumbeat of stealth and not-so-stealth layoffs over the last six months struck terror into the hearts of associates everywhere. Doom and gloom predictions dominated industry coverage. When would the next shoe drop?
And then it… didn’t.
Because — as some of us kept saying — the economic hard times appeared to be localized to firms heavily servicing the tech sector. Despite the best efforts of the Federal Reserve, the “Little Recession That Couldn’t” never progressed beyond the hypothetical. Now — finally — the Fed seems to realize that the inflationary bump produced by Putin invading Ukraine and the Bird Flu killing off egg-laying hens has little to do with fiscal policy. If this marks an end to their interest rate death drive, things should soon get back on track.
Which tracks the findings of the Leopard State of the Industry Report released this week. As the American Lawyer wrote:
“Across many industries, hiring is firm, which complicates the fix to inflation by the Federal Reserve. The higher interest rates caused a pullback on M&A work, but today’s mortgage rate of 6.6% is significantly lower than the 8% rate that was available in 2000,” the report states. “Once the initial shock of higher rates is absorbed, M&A will return, and firms will seek those associates again. It might be wise for firms to hold on to these specialists now, because the need will return, and luring them back after layoffs can be brutal.”
Especially in light of that forecast, law firms should “hit pause” on fee increases, the authors also wrote.
There’s no evidence-based reason for M&A to be slumping other than the fear that the rate hikes weren’t stopping. If they reach a soft landing soon, it’s game on!
But let’s push back on the second half of this conclusion.
Inflation may not be a byproduct of an overheated economy right now, but it did happen. Law firms are entitled to catch up after holding the line last year. Firms took it on the chin so clients didn’t have to and now it’s time to pay that back.
Moreover, rates have to go up because clients are not just paying for hours billed in Q3, they’re reimbursing the firm a share of what it’s costing to keep that expertise on staff and not generating revenue in Q1. Everyone wants the firm to be fully primed and ready to go on July 1, and part of that is guaranteeing there isn’t a staffing shortfall on June 30.
Don’t get greedy about it. Partners may have to take a haircut on their profits to make this work too. But clients who want a turn-key law firm should expect to pay a bit more for it.
Can Law Firms Hold the Line on Layoffs and Billing Rates in 2023? [American Lawyer]
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
