Big Law Firms Under Pressure to Reduce Size Amid Low Billing Hours
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According to a Wells Fargo & Co. survey of 66 of the largest US law firms, Big Law firms are pressured to reduce their size due to attorneys' billing hours at a historically low rate. The survey's first quarter data shows that attorneys billed at an annual pace of less than 1,600 hours, the lowest figure in at least 15 years. This drop in productivity has led firms such as Cooley, Gunderson Dettmer, and Goodwin Procter to lay off lawyers. According to Owen Burman, managing director of the Wells Fargo legal specialty group, more announcements of this kind are expected. The pandemic's frenzied hiring led to decreased demand for lawyers' time, causing corporate transactions to dry up. The survey reveals a 1.5% decline in orders from the year-ago period, while the number of lawyers increased by nearly 5%. The drop in productivity is putting pressure on firms' profits per partner, which fell by 4% last year, as reported by Wells Fargo earlier. Although law firms are highly profitable businesses that can choose to keep lawyers employed and invest in recovery, less than 1,600 annual billable hours is something other than what firms have traditionally accommodated, according to Burman.
According to the Wells Fargo survey, the big associate classes expected to join law firms, combined with lower-than-expected attrition rates, will pressure firms to reduce their headcount. Out of the 100 largest US law firms, 66 responded to the survey and reported a 4.7% increase in revenue from the first quarter of last year. This increase is mainly due to rate hikes and successful collections from work completed in 2022. Law firm consultancy Zeughauser Group's partner, Kent Zimmermann, predicts that firms will downsize by shedding underperforming lawyers and adding talent in essential areas. This targeted approach to right-sizing will continue, with firms investing in productive teams of lawyers who can perform their work efficiently and increase profitability by charging higher rates.
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