We all realized that demand was up across the industry, but the magnitude of the 2021 spike is significant.
The Thomson Reuters Institute and the Georgetown University Law Center on Ethics and the Legal Profession released the 2022 Report on the State of the Legal Market today, and mostly confirmed that the state of the legal market is… pretty darn good.
You have to go back to 2007 — 14 years earlier — to find comparable demand growth. That year ended with the economy just about to teeter over the cliff into massive recession, so it wasn’t all good news back then. Still, as the market recovers from the aftermath of COVID (we are going to have an AFTERmath, right?), the market should enjoy healthy growth for a little bit longer than the December 31, 2007 market got to see.
Of course with great demand comes a great scramble for resources. The hot lateral market and booming compensation numbers followed:
The significant growth in lawyer headcount during 2021 offset the increase in demand to moderate any growth in productivity. As can be seen in Figure 8, on a YTD basis through November 2021, productivity improved as compared to 2020, but was only 0.3% above the average daily demand per lawyer in 2019. As can also be seen, Am Law 100 firms fared a bit better in this regard than other segments of the market.
This figure doesn’t seem all that troubling. Productivity had probably plateaued as a matter of reasonable demand on a human being’s time and energy already. Until new tools improve the amount a lawyer can accomplish in the same time period, it was too much to ask that lawyers would squeeze out more work. And, indeed, hours are still only slightly ahead of where they’ve been lately.
And while direct expenses were up 8.8 percent and overhead grew 5.1 percent, we needn’t rend our garments on behalf of the partnership just yet.
Though a prolonged talent war could leave some firms in the cold. High turnover is costly, and paying top dollar to add a few more marginal hours can hit a limit:
This data leads inevitably to the question of whether the approach to the talent war that is being taken by most firms is sustainable for the long term. In response to the fierce competition for talent, firms are spending huge amounts of money and putting their profits at increasing risk for fairly modest returns — at least if you consider the real costs of high levels of lawyer turnover.
The intriguing question thus becomes, whether refocusing recruitment strategies to emphasize factors other than (or in addition to) compensation might not prove more productive?
We’ve seen talk about this before. I continue to be skeptical that the top of the market will pull back any time soon. If anything, these pressures seem likely to reset the pre-COVID status quo where the Biglaw elite continue to outpace other segments simply because they can afford it. At some point in the not so distant future, other segments will reach the limit when it comes to keeping up with the elite firms and have to find alternative incentives or admit defeat in the talent war. How well they navigate that juncture will define their next decade.
And maybe the bundle of preferences colloquially referred to as The Great Resignation will hold up. As the report notes:
Emerging from the pandemic, the attitudes of associates toward life and work have clearly changed, and the loyalty of associates to their law firms has waned. About 27% of the 3,700 associates from 77 Am Law 200 firms surveyed by The American Lawyer for its 2021 Midlevel Associates Survey, said they would leave their current law firm for higher compensation. More importantly, 60% of respondents said they would consider leaving their firm for a better work-life balance.
How sticky are those beliefs? Everyone talks about wanting a better work-life balance, but how many will cast that vote with their feet? I’d like to see how many of that 60 percent still haven’t left Biglaw by next year. Because there are opportunities for a better life right now…
Yet somehow Biglaw keeps adding headcount.
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.