While 2011 began on an optimistic note for law firms, the same cannot be said for how the year ended – on a “decidedly low note” according to December data from the Hildebrandt Institute’s Peer Monitor. Hitting a 12-month low, productivity fell 4.8%. Demand fell 2.2% — its biggest drop since July, capping a downward trend that steadily deteriorated over the last four months of the year. And AmLaw 100 firms shouldered much of this downside as the result of sluggish transactional practices and robust growth in lawyer headcount which contributed to a sharp drop in productivity in this segment of the market.
But when looking at all segments of the market and the year as a whole, the picture is a little more nuanced. The year ended with worked rates up 3.0%, demand up 1.0%, headcount up 1.4% and productivity down 0.5% compared with 2010. However, most of these metrics were trending negatively into year-end.
As for practices, Litigation grew in 10 of the 12 months and Patent work and IP Litigation were particularly strong across all segments. IP Litigation was the best performing practice in 2011, up 6.2% for the year and 1.6% in December. Labor and Employment was also up, gaining 1.7% in December and 3.0% in 2011. However, transactional practices such as Capital Markets, General Corporate work and M&A were hard hit, falling for a fourth consecutive month in December.
Realization rates resumed their long-term downward trend, resulting in a new historic low for collections. The drop in the second half of the year was the largest seen in over two years, reducing real rate growth for 2011 to a weak 1.6%.
Lawyer headcount grew in 2011, rising every month to finish the year up 1.4%. However, the increase in headcount outpaced demand growth, causing productivity to turn negative in the last four months of the year. As a result, productivity fell 0.5% for the year as a whole.
The outlook for 2012 is cautious, with firms needing to carefully balance capacity against an uncertain demand picture.
Posted by Marianne Purzycki