U.S. Law Firm Industry defies market odds during Covid-19 pandemic posting better than expected results
NEW YORK–(BUSINESS WIRE)–Citi Private Bank Law Firm Group and Hildebrandt Consulting today released their 2021 Citi Hildebrandt Client Advisory, which establishes the broad landscape for the law firm industry, how firms are responding to industry challenges, including the Covid-19 pandemic and resulting economic recession, and their best opportunities for growth in the year ahead.
The Client Advisory finds that law firms saw better than expected performance in 2020 due in large part to a strong start of the year, the successful move to a fully remote work environment and the robust performance of certain practice areas. Revenue growth is expected to be in the mid-single digit range, and with the benefit of expense reductions, PPEP growth for the industry could be in the mid to high-single digit range. With modest momentum going into 2021, we are optimistic about the year ahead.
Total expenses are down 2.1% for the first nine months, in no small part to the agility we have encountered across the law firm industry. With attrition grinding to a halt and headcount up over last year, the expense relief has been driven by reduction in operating expenses, which declined 5.3%, while compensation expense was still up 1.9%. Some firms report they are prepaying expenses, especially where they have met their revenue targets, and in an effort to manage expense growth in 2021.
“Looking forward to 2021, we remain optimistic, and expect that the market will favor firms with a strong brand who stay close to their clients and have the right practice mix,” said Gretta Rusanow, Head of Advisory Services for Law Firm Group at Citi Private Bank. “While these factors will drive topline growth, we also expect that firms who capitalize on the success of the remote working experiment to accelerate further adoption of operational efficiencies, will be rewarded.”
This year’s Client Advisory also finds that the Covid-19 pandemic accelerated a number of trends affecting growth and operational efficiency, how lawyers work, how equity partners are compensated, and how firms fund their businesses. Some of the key trends to watch in 2021 and beyond include: more outsourcing by law departments, a greater focus on business development, more diversity in practice, industry and geography, a remaining combination of remote and office work, and re-examining lawyer headcount and leverage.
“What’s clear going into 2021 is that firms will need to consider the expected balance of remote and office work as part of their growth strategies, including focusing on maintaining a cohesive and inclusive culture” said Brad Hildebrandt, Chairman of Hildebrandt Consulting. “The legal industry typically weathers downturns better than expected, and better than other industries. This has been the experience of 2020, and we expect the same to be true of the law firm industry’s performance next year.”
Our analyses and projections are based on data collected from a sampling of primarily US-headquartered law firms by Citi Private Bank, as well as conversations with law firm leaders. For third-party providers of legal services, our information is mostly anecdotal. Sources include the “Citi Annual Survey Database” of 212 US and UK-headquartered firms, including 44 Am Law 1-50 firms, 37 Am Law 51-100 firms, 55 Am Law Second Hundred firms, and 76 additional firms; 138 firms from the “Citi Flash 1H’20 Survey (Q2 Performance and 2021 Projections)”, including 32 Am Law 1-50 firms, 21 Am Law 51-100 firms, 37 Am Law Second Hundred firms and 48 additional firms; 182 firms from the “Citi Flash Survey”, including 44 Am Law 1-50 firms, 31 Am Law 51-100 firms, 48 Am Law Second Hundred firms and 59 additional firms; 88 firms from Citi’s “Coronavirus: How Are You Responding? Surveys” conducted during March to October 2020; and the “Law Firm Leaders Confidence Index” which reports the forward-looking opinions of law firm leaders from 166 firms.
The full report can be accessed via the Citi Private Bank website here.
About Citi Private Bank:
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About Hildebrandt Consulting:
Hildebrandt Consulting is continuing its long and distinguished history as the preeminent global consulting firm in the legal profession. With clients in over 15 countries, Hildebrandt has built up unmatched expertise in every aspect of professional firm management. Our reputation for helping firms arrive at strategic solutions comes from our knowledge of the interdependent elements that contribute to overall business performance.