In a recent report released by a division of Wells Fargo that specializes in tracking and analyzing data within the legal industry, it has been highlighted that US law firms continue to wrestle with an overabundance of lawyers as we reach the midway point of 2023. The comprehensive study examined data from over 130 firms, including 66 of the highest-grossing law firms in the US.
Wells Fargo's Legal Specialty Group delved into the survey results to unveil a concerning drop in productivity among law firms during the initial six months of this year. Notably, attorneys have logged an average of 1,538 billable hours during this period – a decrease of 150 hours compared to the first half of 2021, which saw peak billable hours. Owen Burman, a senior consultant within the Wells Fargo group responsible for the survey, said, "We are confronted with figures of unprecedented lows."
Wells Fargo underlines that the foremost challenge facing law firms in the immediate future is the discrepancy between the volume of lawyers they employ and the actual demand for their legal services from clients.
While several law firms have executed attorney layoffs since November, others are adopting a different approach; as Burman elucidates, "Certain firms are choosing to retain their staff, biding their time for a more favorable market condition." This comes despite a noticeable reduction in new hires by law firms, coupled with the postponement of start dates. Astonishingly, the number of full-time lawyers employed by the surveyed firms rose by 3.9% during the first half of this year, as disclosed by Wells Fargo.
Comparing the initial six months of 2023 to the same period last year, there has been a slight 0.4% decline in the overall demand for legal services, a notable contrast to the 0.2% demand increase in the previous year.
During the first half of 2023, net income – the distributable sum allocated to equity partners within law firms – saw only a marginal uptick of 0.4%. Interestingly, profits per equity partner declined 1.3% due to the expansion in equity partners, according to Wells Fargo's findings.
On a global scale, mergers and acquisitions (M&A) activity dwindled to $1.3 trillion in the first half of the year, marking the slowest start-of-year period for deal-making since 2020, as per Refinitiv data.
Burman postulates that law firms are placing their bets on a more favorable M&A market during the latter half of 2023. He asserts, "They are focused on retaining their current workforce and optimizing their present circumstances."
As the legal landscape evolves, law firms face the challenge of recalibrating their strategies to navigate the complex terrain of demand fluctuations and workforce dynamics.
