Top 100 US law firms rebound with a 6% increase in profits per equity partner
By Law News
This growth is fuelled by rising hourly rates, increased demand in insolvency and litigation, and strategic cost control
In a remarkable turnaround from the challenges faced in 2022, the Am Law 100 firms, the largest law firms in the US by turnover, experienced a substantial 6% surge in profits per equity partner (PEP) in 2023. This positive shift contrasted sharply with the 4.1% decline in profits-per-equity partner witnessed the previous year.
A standout contributor to this success was the significant uptick in hourly rates across the entire US large law firm market. During the fourth quarter of 2023, "worked rates" rose by 6.5%, marking the most substantial increase since the Global Financial Crisis of 2008-09. This surge in rates translated into an overall 7% increase in "fees worked," underlining the robust financial health of the legal industry.
Notably, the demand for legal advice on insolvency matters, specifically bankruptcy services, rose by a notable 6.4%. Concurrently, litigation experienced its strongest quarterly performance in over two years, with a 3% increase in demand. Counter-cyclical practices, including insolvency and litigation, played a pivotal role in offsetting weaknesses observed in transactional practices like corporate work (-0.5%) and real estate (-0.8%).
In response to the rising competition for talent, law firms managed to rein in their expenses in 2023, exhibiting a disciplined approach to salary growth and year-end bonuses. This strategic cost control resulted in a modest 5.3% increase in direct expenses on a 12-month rolling basis, the slowest growth seen in over two years.
One noteworthy trend unveiled by the report is the consistent reduction in billable hours over the past decade, a phenomenon that has not impeded the upward trajectory of law firm profits and associate salaries. The driving force behind this paradox lies in technological advancements, empowering lawyers to enhance the value of their billable hours. The advent of generative AI is poised to further accelerate this transformative trend, solidifying the legal industry's resilience and adaptability in an ever-evolving landscape.