Category Archives: Peer Monitor

The Good, Bad and Interesting Q4 2012

Posted on February 12, 2013 by | 1 Comment

Some things are up (although modestly) and some things are down, but one thing is certain—the legal market is settling into a new normal of flat demand and real growth seen only in regional, midsize firms, or so says the Peer Monitor Index for the fourth quarter of 2012.

The Good

Demand was up 1.5 percent for the fourth quarter, averaging out the year’s overall growth to 0.5 percent. By practice area, corporate work topped the other areas with a gain of 6.2 percent for the quarter to finish the year with a 1.2 percent overall gain. Worked rates saw a 4 percent rise—the strongest growth rate of the last two years—but the overall 2012 growth of 3.4 percent was only a little bit better than 2011.

The Bad

Expenses were up 1.2 percent in Q4, falling from the peak of 6.9 percent in Q4, and realization rates were at a historic low of 83.6 percent. Demand for litigation moved from positive to negative through the year, ending with a 2.3 percent loss. This was significant because “weakness in litigation was a significant drag on overall market demand in 2012 as it accounts for roughly one‐third of firm billings.”

The Interesting

Real growth, however, was seen by region and in midsize firms. New York showed the strongest growth in demand with a 3 percent rise for both the fourth quarter and year. Midsize firms also did well, rising 4.3 percent for the quarter (2.6 percent for the year) while demand for Am Law 100 firms only grew 1.4 percent (0.5 percent for the year). The report says:

This data support the idea of work shifting towards smaller, regional firms as clients pursue lower costs and perhaps greater perceived value. This shift appears to be structural, and one that may persist even if economic conditions get stronger…. So the difficulty will be in generating growth in a flat overall market, perhaps taking share from others, and thinking strategically towards growth.

To download and read the full fourth quarter Peer Monitor Index, please click here or on the box on the right. For more special reports, please visit Peer Monitor.

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Is It Time to Burn the Ships?

Posted on February 6, 2013 by | Leave a comment

That’s the question asked by the 2013 Report on the State of the Legal Market. Prepared by The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor, the report examines the legal market trends in 2012 and the factors that will impact the market in 2013 and beyond.

While the 2012 U.S. legal market did show moderate growth in demand—an overall 0.5 percent as measured by billable hours—it was hampered by “the combined impacts of sluggish demand, declining productivity, falling realization rates, and the need for further expense reductions.” We were not alone; the U.K. market also showed low growth (a reported 5 percent to 6 percent increase in revenues over 2011 figures). And although the growth in Asia and Latin America was high, “as 2012 drew to a close, however, even the  powerful economic engines of China and Brazil had begun to slow somewhat,” the report states.

Broken down by practice area, only labor and employment and corporate practices experienced an increase in demand (4.1 percent and 1.2 percent, respectively). All other practice area demand declined. Other measurements and their growth rates included in the report:

  • Productivity was down 1.5 percent.
  • Billing rates went up an average of 3.4 percent, but realization rates decreased to an all-time low of 83.6 percent.
  • Expense increases, however, appeared to level out.

Good things did happen in 2012, however. “These included the rapid continuing pace of globalization, the shifting economic and demographic realities resulting from persistent overcapacity, and the growing pressures on the traditional partnership model of law practice,” the report says.

“It is becoming increasingly apparent that the market for legal services in the United States and throughout the world has changed in fundamental ways,” the report says. “[It] is an increasingly difficult and challenging environment, one that calls for clear thinking, strategic focus, and flexibility in addressing rapidly changing realities.”

The report cites the legend of Spanish conquistador Hernando Cortez who, upon landing on the shores of the Yucatan in 1519, ordered his men to burn their ships so they had no choice but to move forward and conquer the Aztec empire.

“Perhaps it’s time for us, like Cortez, to burn the ships,” the report posits, “to force ourselves to think outside our traditional models and, however uncomfortable it might be, to imagine new and creative ways to deliver legal services more efficiently and build more sustainable models of law firm practice.”

To read the full 2013 Report on the State of the Legal Market, please visit Peer Monitor here.

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The State of the Legal Market: By the Numbers

Posted on November 6, 2012 by | 1 Comment

On Friday, the U.S. Bureau of Labor Statistics (BLS) released the latest set of jobs numbers for the U.S. employment market.  On the same day, our sister business Peer Monitor released the 2012 third quarter Peer Monitor Index (PMI).  Together, these numbers paint a cautious picture for the U.S. legal sector for the rest of 2012 and going into 2013.

Employment gains

The final set of economic figures before today’s presidential election were released on Friday.  The BLS October employment figures show that the national employment rate remained almost unchanged from the previous month, at 7.9%. October also saw a modest increase in jobs for the month – 171,000 jobs were added. The figures provided both presidential candidates with rhetorical tools for last-minute campaigning in what is likely to be a close election. While the report was better than expected, enabling President Obama to tout continued job creation and improvement in the unemployment rate, Mitt Romney can claim the job growth remains too slow over the course of the President’s first term.

In terms of legal industry employment, Thomson Reuters News & Insights has analyzed BLS’s job numbers for the U.S. legal sector, reporting that the sector gained 600 jobs during the month of October. BLS also revised the numbers for September, from 1,000 new jobs added to 1,300.  The revision, along with the more modest October gain, means that legal sector employment is now at its highest level since July 2009, representing some good news for the sector.

Falling demand, realization and productivity

However, the legal job growth came despite a fall in the Hildebrandt Institute’s Peer Monitor Economic Index (PMI), which declined by one point to 50 in Q3.  This is the second straight quarterly decline in the PMI. The index is a composite score measuring change in the factors affecting law firm profitability such as billing rates, demand, productivity and expenses and indicates the economic state of the U.S. legal market.

Demand for legal services fell 0.8% in the quarter, with almost all practice areas affected. Labor & Employment, up 2.5%, was the only major practice area that saw elevated demand.  Demand levels in both Litigation and Corporate work were down 1.3% and 1.0%, respectively.

While demand levels were flat among AmLaw 200 ranked firms, the mid-sized segment fared better. For the second successive quarter, mid-sized firms had the highest relative performance of any size segment. It was the only segment to witness demand growth (up 1.9%) and also displayed the greatest relative productivity performance.

In terms of billing rates, worked rates for the entire market improved slightly to 3.4% in Q3, continuing the low rate growth trend that has prevailed over the past two years. However, realization rates fell, reaching an historic low of 83.9%.

Law firm productivity declined by 2.5% in the face of increases in headcount.  Although the rise in headcount of 1.7% was the smallest quarterly rise observed in 2012, headcount overall is up 2.3% for the year to date, compared with the 1.4% increase observed for the full year 2011.

Cost pressures soften, but still rise

Firms’ cost growth moderated slightly, with direct expenses rising 3.5% and overhead expenses up 3.4% in Q3. This represented a slowing in the rate of expense growth for the second successive quarter. However, Peer Monitor noted that the slowing of expense increases did not occur fast enough to fully compensate for revenue declines, which will be impacting margins.

These data point to demand for legal services continuing to remain largely flat, an ongoing trend which has been observed from August 2011. Furthermore, as realization rates and client pricing pressures remain high, substantial increases in billing rates are not expected in the short term. As a result, achieving revenue growth remains particularly challenging for many law firms, and current strategies are likely to be focused on expanding strong practice groups, seeking additional business from existing clients and growing market share. While capacity and costs remain higher than revenue gains, pressure on firms’ overall profitability will continue.

For more information on the PMI and how Peer Monitor can help your firm successfully manage through today’s economy, please contact Mark Medice at +1 412-203-2155 (mark.medice@thomsonreuters.com) or visit peermonitor.thomsonreuters.com.

Posted by Tricia Pelton

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PMI Index: Weak Demand in Q2 Points to Challenging 2012 Outlook for Law Firms

Posted on July 27, 2012 by | 5 Comments

The Hildebrandt Institute’s Peer Monitor Economic Index  (PMI) fell 4 points in the second quarter, to 51.  Demand growth was slightly negative and rate growth was also weak.  Expense growth, which has been a cause for concern this year, appears to have slowed, but not enough to counter stagnation in demand and rates.

Following recent trends, the drop in demand can be largely attributed to weakness in litigation, corporate and transactional practices.  IP litigation, which had previously been a bright spot in litigation, was also weak to slightly down.  Labor and employment, however, has stayed on the positive side and is up 4.7% for the second quarter.

Mid-size firms had the strongest relative market performance for the quarter, with demand up 1.9% despite a slight drop in productivity.  The Am Law 100 segment, in contrast, saw drops in both demand and productivity.  The Am Law 200 segment (firms ranked between 100 and 200 by earnings) saw demand rise slightly (1%), but headcount growth led to declines in productivity similar to that in the Am Law 100.

These results, combined with a stagnating economy, leads Peer Monitor to predict a challenging economic environment for the remainder of 2012.  The result could be another drop in hiring levels, as well as possible reductions in non-lawyer staff and overhead spending.  The outlook is not dim for all firms, however.  Peer Monitor takes a closer look at rising disparity in firm performance in this quarter’s PMI.  For that story and the more details on the quarterly results, read the full report here [insert link when ready].

For more information on the PMI and how Peer Monitor can help your firm successfully manage through today’s economy, please contact Mark Medice at 412-203-2155 or mark.medice@thomsonreuters.com, or visit the Peer Monitor website.

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IP Litigation Looks Bright

Posted on January 26, 2012 by | 7 Comments

Tomorrow we will be reporting on data from Peer Monitor’s Q4 2011 Peer Monitor Index (PMI), and the picture is dim.  Productivity and demand both fell to 12-month lows, due in large part to sluggish demand for transactional work and increases in lawyer headcounts.  But there is a bright spot.  Despite negative trends in both the legal market and the broader economy, intellectual property is actually seeing significant growth.  Demand for IP litigation was up 6.2% for 2011, including a 1.6% increase in December.

Within the AmLaw 100 and AmLaw 200 segments, the numbers are even more interesting. AmLaw 100 firms saw the biggest boost in IP litigation in 2011, with a strong 6.9% increase.  The AmLaw 100 also saw gains in IP patent work, which was up 6.2% in 2011.  Meanwhile, the AmLaw 200’s IP litigation numbers were more stagnant – up just .8% for the year.  At the same time, the AmLaw 200 posted impressive gains in IP patent work, with a 7% increase over all of 2011 (including a 6.2% increase in December.

What’s driving IP litigation and patent work up when so many other legal sectors are seeing declines?  The rising stakes of competitive technologies are one factor.  In a recent article on the biggest IP litigation wins of 2011, Corporate Counsel cites the struggle between two technology powerhouses for helping to fuel the fire:

Another recession-proof phenomenon is Apple Inc., known lately for must-have mobile gadgets—and now, apparently, for employing legions of IP lawyers in its battle to take down Google Inc.’s Android operating system.

These sorts of battles of equals are changing the patent landscape, raising the stakes and thus the amount of money companies are willing to invest in IP litigation.  Brian Busey of Morrison Foerster, whose clients include Toshiba and Sharp, explains in a new article in Inside Counsel:

A couple of years ago, we were fending off trolls, but now it seems like we’re doing global warfare for competitors… Trolls haven’t gone away, but now at the same time companies have to manage larger litigation involving competitors, and it’s gone global.

It’s been a boon for IP litigation departments across the board.  Companies must now combat IP threats at multiple levels, from the patent trolls that result in multiple, nearly identical cases in several jurisdictions, to high stakes patent lawsuits against market equals.  And as Inside Counsel points out, IP litigation has indeed “gone global,” with the International Trade Commission initiating a record number of new investigations in 2011.  The result is more opportunities for more firms, a rarity in our current economic environment.

Posted by Emily Fisher

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Rising Expenses, Sluggish Demand Lower PMI in Third Quarter

Posted on November 3, 2011 by | Leave a comment

By Mark Medice

HILDEBRANDT INSTITUTE’S PEER MONITOR INDEX (PMI), a composite index score representing the quarter‐over‐quarter change in drivers of law firm profitability, broke a string of three consecutive upward quarters by falling 6 points to 56 in the third quarter.

The legal market continues to grow, but at a sluggish pace. Growth in demand for legal services slowed to 0.8%, its weakest reading so far this year.  Rates strengthened slightly, up 3.5% compared with the same period a year ago.

For a breakdown of changes in major factors influencing law firm performance, including rates, demand, productivity and expenses, please read our full, detailed report.

Rising expenses are a worrisome trend PMI is closely tracking this year.  Following widespread cost reductions by firms in 2009 and 2010, expense growth turned positive early this year. But in 2011, costs have steadily accelerated to the point where they now easily outpace both demand and rate growth, thus impacting profitability.

Costs – both direct and overhead – rose significantly in the third quarter. Direct expenses jumped 5.1%, while overhead expenses were up 3.2%. Both increases were the highest seen in more than two years.

Attorney hiring is one contributing factor, and in the third quarter headcount increased 2.4%, reaching a high for the year.   The attorney replenishment ratio has risen to 1.3 for the overall attorney population, indicating a ratio of 1.3 new hires per departure – its highest level in more than three years – as new hires are now easily exceeding retirements, layoffs and other departures.

Until recently, firms had generally been doing a good job of balancing expenses against slowly growing demand. But firms have stepped up their hiring in recent months in a modest return to traditional seasonal hiring patterns, while demand has slowed as the year has progressed. The gap between law firm capacity and available work is widening. Whether this trend persists will depend on the performance of the broader economy and if we see continued recovery in litigation and transactional work. Firms will have to tread a fine line between their desire to add additional lawyers against an uncertain demand picture.

Overhead expenses are also rising as firms are unable to continue putting off certain investments in technology and other strategic areas. With expenses growing and the economy facing continuing headwinds, achieving meaningful top line growth will be crucial for success in the coming year. Growth may be elusive, but firms following market trends closely and adopting a strong strategic focus will be better positioned to capture market share.

For further discussion on how advanced market analytics can help drive successful firm strategies, or to learn more about Peer Monitor, contact elizabeth.lilleboe@thomsonreuters.com.

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Peer Monitor Q3’2011 Index Now Available

Posted on October 28, 2011 by | Leave a comment

Peer Monitor has released the Peer Monitor Index for the third quarter of 2011.  You can access the full report here.

Next week, Peer Monitor will be sharing some of the results from the PMI with our readers here on the blog.  To learn more about Peer Monitor, you can visit the Peer website or page.

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