Covid Effect Update (Aug. 2020) - Uneven Performance Among Law Firms

The Covid Recession appears to have had uneven effects among major law firms to date.  Roughly 1/3 are meeting budget or exceeding, according to law firm management consultant Kent Zimmermann (Recession Highs: How Some Firms Are Ahead in 2020, Christine Simmons, 8/10/20, National Law Journal).  And several firms have reversed salary cuts and resumed partner distributions (Some Big Firms Are Walking Back Earlier Pay Cuts, Samantha Stokes, 7/22/20, American Lawyer).  This uneven performance has created opportunities for firms to recruit top lateral prospects from their competitors, a process that has been streamlined, due to the replacement of air travel to multiple offices with Zoom meetings.  (Recession HighsFrom Six months to Six Weeks: Lateral Hiring is Speeding Up, Dan Packel, 7/29/20, American Lawyer).


Practice mix is likely one differentiator in law firm performance in recent months, with countercyclical practice areas like bankruptcy/restructuring and sectors in high demand like life sciences and health care buoying results (Recession Highs).  Bankruptcy was the only practice that showed an increase in hours billed in Q2 (6.2%), compared to Q2 2019, according to data collected from 160 major law firms and reported by Thompson Reuters in its Peer Monitor Index; all other monitored practices were down, with real estate showing the sharpest drop in hours billed (-12.2%), followed by patent litigation (-10.6%), tax (-9.1%), litigation (-7.5%), corporate (-5.5%), labor & employment (-4.4%), and patent prosecution (-2.5%) (Peer Monitor Index, Thompson Reuters, Q2 2020 Executive Report, 8/10/2020).


Interestingly, the average rate billed went up in Q2, by 5.2%, compared to Q2 2019 (Peer Monitor Index).  This growth reflects not just rate increases that went into effect before Covid hit, but also the mix of partner vs. associate hours, which has shifted in favor of partner hours.  Thompson Reuters found that while hours billed were down 7.1% overall compared to Q2 2019, associate hours were down 9.4%, and partner hours were down only 4.4% (Peer Monitor Index).  This is consistent with the Great Recession when partners faced pressure to maintain their hours and had less work to push down.  Another contributing factor could be legal departments requesting more advisory services, which require partner-level expertise (Peer Monitor Index).


Speaking of legal departments, a recent survey of 130 in-house counsel found that 73% expected their use of outside counsel to stay the same (55%) or increase (18%) (Corporate Legal Departments Forge Ahead with Spending Amid Coronavirus Outbreak, Phillip Bantz, 8/6/20, Corporate Counsel, citing June survey conducted by ALM Intelligence and Wicker Park Group). Relatedly, only 28% were keeping more work in-house due to the recession (Corporate Legal Departments). When asked what law firms could do to add value beyond legal services, the top answer was proactive thinking and problem solving, which ranked fifth in last year’s survey (Corporate Legal Departments).  The overwhelming majority were satisfied with their outside counsels’ communication and accessibility during the crisis and 72% had not hired new law firms. (Corporate Legal Departments).   

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