Wells Fargo Survey Finds Large Performance Gap between Law Firms
A latest survey of law firms conducted by Wells Fargo Private Bank's Legal Specialty Group found an average increase in gross revenues by just 2.2 percent across 2013, while net income grew only by 1.6 percent. This fell far short of the 5 percent increase in gross revenues witnessed in 2012. The survey analyzed results from 115 law firms in total with a little more than half of them from the Am Law 100 and the rest from a mix of regional firms and firms included in the Am Law 200.
However, the survey pointed out that in matters of performance there was wide dispersion. The best performing law firms marked by the survey saw their gross revenue increase by 20 percent while the poorest performing firms saw their revenues drop by close to 21 percent. So, an average figure of 2.5 percent revenue growth does not tell the whole story.
Similarly, the survey marked that the firms which had the greatest growth in net income witnessed net income growing by 32 percent, while poor-performing firms at the other end of the spectrum saw their net income fall by 35 percent.
According to Jeff Grossman, national managing director of Wells Fargo's legal specialty group, there is a large performance gap between law firms which is difficult to breach. "What you see," said Grossman "is that there are some firms that are doing exceedingly well given the conditions in the market, but there are many firms that are under pressure or even some that are in distress."
Grossman says the performance gap between firms grew wider across 2012 and 2013, and that he finds it is difficult to close the gap any time soon. For the performance gap to decrease, Grossman says, "the economy has to improve, especially the law firm economy, because when there was a high demand, everyone was performing well."
The survey predicts that demand for legal services will continue to be flat in 2014 and better performance would depend upon better management of expenses. Grossman also suggested the reduction of real estate space per attorney, something that a large number of law firms are already practicing. He said law firms should keep client costs down and limit office space to below 1,000 square feet per attorney.
The survey also found that net income earned by top attorneys were better than those earned by firms in general, largely because law firms continued to closely manage their equity partner staffing. Profits per equity partner grew at an average rate of 2.3 percent.