Recession Proof?; Legal Spend Up; Remote-work & Mental Health
Law firms are much better positioned for any downturn than they were in 2008. Capital contributions are up. According to Citi Private Bank Law Firm Group, the average paid-in capital per equity partner by the end of 2021 was $618,000 (compared to $285,000 in 2007), and partner capital levels for the average firm are more than double what they were at the beginning of the Great Recession (less than $70 million in 2007 to $145 million by the end of 2021) (Facing a Potential Recession, BigLaw is More Adept at Weathering a Crisis, Andrew Maloney, 7/6/22, American Lawyer).
Reliance on debt is also down. The average debt level for firms with 600-plus attorneys is less than $7M, down from about $12M in 2007 (Facing a Potential Recession, citing Citi Private Bank Law Firm Group). And many firms have secured committed credit equivalent to about 3 months of operating expenses, should they need it, according to Citi Sr. Client Adviser Michael McKenney (Facing a Potential Recession).
Legal Spend Up
Corporate legal spend was up 22.5% in 2021, according to Lexis Nexis CounselLink’s 2022 Enterprise Legal Management Trends Report (Legal Departments’ Spending Soared Last Year, Fueled by Merger Frenzy, Outside Counsel Rate Hikes, Trudy Knockless, Corporate Counsel, 6/30/22). The Report analyzed data based on $49 billion in legal spend across 350,000 timekeepers, 8 million invoices, and more than 1.2 million matters.
Partner rates grew 3.4%, with the largest increase originating among partners at firms with 750 or more lawyers (4.6%). The median hourly billing rate for partners at those firms was $895, 54% higher than the median hourly billed rate for partners at firms with 500 to 750 lawyers ($580). This was the largest differential between those two bands in the 9 years tracked by CounselLink.
Part of that differential could likely be attributed to relatively high rate growth in M&A and finance and a majority of that work flowing to firms with 750+ lawyers (66% of M&A work; 62% of Finance). Partner rates for M&A and Finance increased 6.1%. and 3.6%, respectively 1st and 3rd in rate growth by practice area.
Generally, billings were consistent with a trend over the last decade to winnow outside counsel lists and provide more work to a smaller number of firms; CounselLink found that 59% of legal departments in its database consolidated 80% or more of their legal spend with 10 or fewer law firms. Firms with 750 or more lawyers accounted for 46% of total legal spend.
Remote Work’s Effect on Mental Health
Conducted in March and April, ALM Intelligence’s Mental Health Survey included for the first time a section on remote work (Pandemic Anxiety Wanes, but Legal Industry’s Mental Health Struggles Persist, Patrick Smith, 5/10/22, American Lawyer). 81% of the Survey’s 3,400 respondents work at firms with 200 or more lawyers. 95% of respondents felt like hybrid work arrangements will become the norm. Respondents reported several positive effects of remote work:
59% of respondents said remote work increased their quality of life (no impact: 19%; decreased: 22%).
46% said remote work increased their work productivity (no impact: 33%, decreased: 21%).
54% said remote work increased hours worked, presumably through savings on commuting time (no impact: 31%; decreased: 15%).
46% said remote work had increased their physical health, perhaps replacing commuting and grooming time with exercise (no impact: 26%; decreased: 28%),
A majority 55% felt that remote work had no impact on the quality of work product (increased: 28%; decreased: 17%), and 46% felt that remote work had no impact on firm performance (increased: 41%; decreased: 13%).
On the negative side, 76% saw a decline in interpersonal relationships with colleagues. Remote work’s effect on stress was fairly mixed; 33% said remote work decreased their stress levels; 31% reported no impact and 36% said remote work increased their stress levels, perhaps due to the inherent challenges of working under the same roof as dependents.
