The contrast between last year’s Global 100 report and this year’s could hardly be starker. Last year saw firms blow away even optimistic predictions to post extraordinary results. Total revenue increased by 15% to $147.5bn – more than double the previous year’s already impressive rise of 7%. Average profit per equity partner (PEP), meanwhile, shot up 19% to $2.37m.
This year, gross revenue increased by just 1% to hit $149.2bn, while average PEP dropped by 3% to $2.29m. Last year, we deemed a firm to be struggling in relative terms if it did not put both revenue and PEP up by 10% or more. This year, double-digit increases are far rarer: only eight firms increased revenue by 10% or more, and only two – Gibson Dunn (see analysis) and Polsinelli – managed double-digit increases in both revenue and PEP.
Those law firm leaders that were willing to speak about their firm’s performance over the past year remain broadly optimistic. The year was ‘strong’, ‘exceptional’. Many firms noted that it was their best on record, or at least equal to what was overwhelmingly regarded as a ‘historic’ 2022.
‘It’s been a good year, not an amazing year. That will be a common comment across the industry.’ Richard Youle, Skadden
Some, though, could not even make this claim. Thirty-eight firms saw revenues decrease, while turnover was flat for a further three. On profit, the picture is bleaker still: 65 firms posted a decline in PEP, while only 30 notched an increase. Clearly, when it comes to profits, the pressure is on.
One of the more sober assessments of the market comes from Richard Youle, managing partner of Skadden’s London office. ‘It’s been a good year, not an amazing year,’ he says.
‘That will be a common comment across the industry. While we’re still getting the big mandates, M&A volumes have been down across the board – whether it’s corporate, financial sponsors, whatever, the market has been softer.’
Ashurst global chief executive, Paul Jenkins, concurs. ‘We’re seeing softer economic conditions in many of our markets,’ he admits, citing ‘geopolitical issues, supply chain issues, and higher inflation’.
Still, there is little sign that firms are pulling up trees. Headcounts continued to grow across the board. The total number of lawyers employed at Global 100 firms almost stayed flat at 173,385. Total partner numbers rose by 2% to 50,030, with equity partner numbers decreasing by 1% and non-equity partner numbers increasing by 7%.
Firms also continued to expand their operations. The much-vaunted merger between Allen & Overy (A&O) and Shearman & Sterling is the most high-profile example of a play for scale and will have a material effect on the Global 100 table in a couple of years’ time. But it is far from the only one, and many commentators predict it will be followed by further consolidation. Firms opened offices around the world and continued to invest in everything from lateral hires to technology.
‘There’s been an uptick in work,’ says Simpson Thacher London managing partner Jason Glover. ‘People are generally optimistic about 2024.’ With interest rates and inflation beginning to settle down, this optimism may yet prove well placed.
For Justin Stock, London managing partner at Cooley: ‘The market is desperate to turn.’ And when interest rates settle to a level that gives businesses certainty, ‘things are going to really take off. A common view is that when the M&A and capital markets turn it isn’t going to be slow and steady – it’ll be a pretty significant jump in activity. I’m cautiously optimistic that that will happen before the summer.’
Topping the charts
There was little change in position among firms at the top end of the table. The only change in the top five saw Dentons move up from sixth place, pushing Skadden into sixth after the New York firm edged out the international giant last year. Dentons increased its revenue by 5% to hit $3.1bn, becoming the sixth and sole new entrant into the club of firms with revenues over $3bn. Skadden, meanwhile, held steady at $3.02bn, retaining its position in the $3bn+ club that it entered last year.
‘We’re intensely focused on strategic growth,’ says Dentons global chief executive Elliott Portnoy. Characteristically for the firm that still bills itself as the world’s largest law firm by headcount, even after its split from China’s Dacheng this year, Dentons continues to bet on scale: ‘We’re targeting continued growth across the United States, not only in New York. We’re also focused on growth in our other existing markets. In India, for example, we’re currently the only global law firm operating, through our combination with Link Legal. We’ll be launching in early 2024 in the Philippines, and we’ll continue to focus on other markets in Asia as well as in Latin America and the Caribbean.’
Kirkland was once again in first place, pushing revenue up by an above-average 8% to $6.51bn. This is a far cry from the 25% increase it posted in our 2022 report, but still a sign of rude health in a difficult market. The firm also put PEP up by 2% to $7.52m. Latham easily held on to second place, despite a much tougher year – a 3% decrease in revenue to $5.32bn and a 10% decrease in PEP to $5.15m.
Kirkland was also one of only two firms to report a triple-digit revenue increase since 2018, with a healthy 106% rise. It is second only to Goodwin, which reported a five-year growth rate of 114%, continuing its impressive rise through the ranks, moving five spots up to land in 18th position, after last year rising six places to 23rd. Its revenue increased 12% to $2.21bn, making it one of 23 firms this year to notch revenues of $2bn or more – up from 20 last year. Goodwin’s PEP dropped by 6%, however, to $3.46m.
‘We found in the last year, as the business world has been challenging, our diversified platform has been exceptionally resilient.’ Anthony McCusker, Goodwin
Anthony McCusker was elected chair of Goodwin in April and took over the role in October. He reflects on the firm’s performance: ‘We found in the last year, as the business world has been challenging, our diversified platform has been exceptionally resilient.’
He points to ‘pockets of growth’ in key sectors, including technology, financial services, real estate, and, crucially, life sciences: ‘In January of last year we opened a Philadelphia office with a team of life sciences, healthcare, private equity, and complex litigation partners, to service all our industries, but with a focus on healthcare. Healthcare is exciting because it overlaps with so many other sectors.’
Life sciences and technology are among the most cited areas of focus for Global 100 firms, along with energy and infrastructure. Firms from 27th place McDermott to 61st place Arnold & Porter point to life sciences as a key area of investment, with Arnold & Porter citing its September opening of an office in Boston, inaugurated with the hire of former Foley Hoag life sciences industry group co-head Hemmie Chang. The past two years have seen firms from A&O to Covington & Burling and Clyde & Co open offices in the city. Arnold & Porter’s London managing partner Kathleen Harris gives one reason for the explosion of activity in the sector: ‘The pandemic has really invigorated investment in global health equity.’
Elsewhere in the top ten, Sidley regained its seventh-place spot from White & Case, with a 5% revenue increase taking it to $2.92bn, while White & Case suffered a 1% decrease in revenue, to $2.83bn (see White & Case analysis). At Sidley PEP rose 12% to $4.17m – one of the strongest performances on partner profits across the entire Global 100, though partially explained by a decrease in equity partner headcount of 45. Still, it has also made notable investments in key markets. In 2022 it expanded in Singapore with two hires: private equity specialist Daniel Lindsey joined from Goodwin’s Hong Kong office, and Yuet Ming Tham rejoined as global co-chair of the firm’s white-collar: government litigation and investigations practice after just five months at McDermott. This year, it continued to focus on private equity with a host of hires from Paul Weiss. In London, it brought over Ramy Wahbeh and Kaisa Kuusk, while in New York in November it announced its hire of Jeffrey Kochian, Gerald Brant, and Brittany Harrison.
‘In contrast to the Magic Circle firms who, with the exception of Slaughters, have adopted a global strategy, US firms have tended to focus on specific markets and particularly those that are non-dilutive of profits.’ Jason Glover, Simpson Thacher
Movers and shakers
A key theme was once again the dominance of US firms. For the first time in Global 100 history, not a single UK-headquartered firm featured in the top ten (although DLA Piper clearly has strong UK origins). Clifford Chance (CC) has waved the Magic Circle flag since A&O first dropped out in 2020, following Freshfields in 2017 and Linklaters in 2018. But this year CC slipped four places to 13th, with a decline in revenue of 6% taking it to $2.55bn. This put it behind A&O, which this year holds the crown of top-performing Magic Circle firm, down one place to 12th, with a 4% dip in revenue taking it to $2.57bn. While Freshfields is the lowest ranked of the international Magic Circle firms, in 17th place, it is also the only one not to move down the table this year, and is ahead of its competitors on PEP, with a 9% drop taking it to $2.59m.
The currency effect (see box, below) is of course skewing things here: each of the Magic Circle firms’ financials look healthier when measured in GBP, as illustrated in our LB100 report. But the weakness of the pound relative to the US dollar is itself a symptom of the strength of the US economy.
For Glover, as for many in the market, the strong performance of US firms also reflects a fundamental difference in strategy: ‘In contrast to the Magic Circle firms who, with the exception of Slaughters, have adopted a global strategy, US firms have tended to focus on specific markets and particularly those that are non-dilutive of profits.’
Notably, though, the last year has seen even many US firms expand their offerings abroad. Cravath made its first English-law-qualified hires in London in March, bringing over private equity duo Korey Fevzi and Philip Stopford from Shearman. The firm slipped five places to 69th position, with a 5% revenue decrease taking it to under $1bn, and a 19% drop in PEP to $4.69m.
More notable were the moves at Paul Weiss, which broke into English law in August with a raft of high-profile London hires from Kirkland, including leveraged finance star Neel Sachdev. The moves were a further step in a pivot towards corporate work inaugurated with the firm’s 2016 hire of New York-based Cravath deal star Scott Barshay as global head of M&A. In the view of one market commentator: ‘They’re still litigation kings, but in the last seven years they’ve built into a corporate powerhouse.’
‘We will continue to be opportunistic,’ says Paul Weiss chair Brad Karp. ‘If we have the opportunity to add world-class talent in strategically critical areas, where there is a strong cultural fit, we will continue to do so.’
The firm with the biggest drop down the table this year was Shearman. It plummeted nine spots to land in 72nd position. In last year’s report, we noted Shearman as a firm perhaps enjoying a bounceback after a difficult five years, with turnover up 18% and PEP up 58%. This year, the picture is markedly different.
A 10% drop took Shearman’s revenue to $906.9m, while PEP fell 18% to $2.48m, despite a drop in equity partner numbers of 18. Worse, Shearman was the sole firm in the table to see its revenue decrease over five years, with a drop of 1% – a monumental swing of 12 percentage points from the 11% growth it posted for 2017-22. With all the excitement over its upcoming combination with A&O, it can be easy to forget that Shearman was earlier in the year linked to Hogan Lovells, which itself suffered a 6% dip in revenue to $2.44bn and slipped three places to 15th.
Wachtell suffered the biggest decrease in revenue of any Global 100 firm this year: a drop of 12% took it to $983.6m, leaving it the only other firm alongside Shearman and Cravath to drop out of the $1bn+ revenue club. Still, those looking for struggling US firms to approach as potential merger partners will find little interest from Wachtell. Perhaps the last true Wall Street stalwart, the firm has remained steadfast on both lockstep compensation and a US law-only approach. And even with a 13% dip taking it below Kirkland, it remains the firm with the second-highest PEP, an eminently respectable $7.29m. The November announcement that corporate partner Andrew Nussbaum and litigator William Savitt will take over as co-chairs from incumbents Edward Herlihy and Daniel Neff, in post since 2006, should not be taken as an indicator of a change in strategy: Herlihy and Neff will remain on the executive committee. Still, as Paul Weiss seems soon to become the latest white-shoe stalwart to introduce a non-equity partner tier, the question looms over how long Wachtell will hold to its model in the face of mounting pressure.
Under pressure
Above all, firm leaders identify rising client expectations as a key source of pressure. ‘Clients are getting squeezed,’ notes Gregor Pryor, Europe and Middle East managing partner of Reed Smith since July. ‘They’re asking us to hold our rates. But if firms hold their rates, they’re losing money.’
‘We will continue to be opportunistic. If we have the opportunity to add world-class talent in strategically critical areas, where there is a strong cultural fit, we will continue to do so.’ Brad Karp, Paul Weiss
Jenkins makes a similar point: ‘As economic conditions have become softer, clients rightly expect greater efficiency.’ For King & Spalding’s London managing partner, Tom Sprange KC: ‘Client expectations in terms of availability and quality inch up each year.’
And while ‘the fee sensitivity we saw 12 months ago has dissipated a bit’, clients are far from ‘lackadaisical’.
This pressure on rates is exacerbated by continued increases in both headcount and salary. Many commentators note a potential threat to firms that do not cut numbers in response to tougher economic times. ‘There is always a risk that the legal market is over-lawyered, and it tends to react very slowly to such a circumstance,’ says Glover, whose firm saw overall headcount increase by 118 and non-equity partner numbers by 29, with a loss of four equity partners. He adds: ‘There is a significant risk of that happening in today’s market. The problem with this is that while providing a short-to-medium-term fix, in the long run it leaves significant gaps in consecutive class years with consequential difficulties in staffing transactions with appropriately qualified personnel.’
As ever, despite notices to the contrary, firms have found no real alternative to the billable hour model. Instead, they look for other ways to give clients more for less. ‘We’re looking to supplement legal advice with risk advice,’ says Jenkins, pointing to growth in both the firm’s consulting business and its Ashurst Advance legal and business solutions offering. While Ashurst is far from alone in offering services beyond traditional legal advice, though, the model has yet to truly take off. To the contrary, A&O sold its aosphere compliance unit to Inflexion at the end of October, though it retains its A&O Consulting business.
Partners also point to advances in technology as both a risk factor and a means of responding to client demands. ‘I’m a tech lawyer,’ says McCusker, ‘so I can be accused of being too focused on tech. But I think AI is both the biggest opportunity facing the legal market and the biggest threat.’
Bird & Bird chief executive Christian Bartsch is particularly enthusiastic: ‘Generative AI opens up hugely exciting possibilities for us and businesses all over the world, including our clients. We’ve seen a huge surge of client interest in Generative AI over recent months and we don’t expect that to change any time soon.’
Still, as so often when the conversation turns to novel technology, commentators could offer few specifics on how they would use tools like generative AI to alter their offerings. Notably, though, many lawyers reported similar levels of uncertainty from clients, even as those same clients push for evidence of investment from firms. ‘There are competing soundbites from clients,’ says Youle. ‘They say, “we want the efficiency AI can bring, but none of the vulnerabilities, no blink in services”. All law firms are in a place of trying to get their heads around that. We can’t compromise on integrity and confidentiality.’
In this respect, attitudes towards technology can be seen as emblematic of the state of the industry more broadly. No-one doubts the market is changing. And there is much overlap on the nature of that change: firms must go further to find clients, link up their global offerings, focus on profitability, and be ready to embrace changing technology. But the specific means by which they can do so remain murky. And the shape the legal market may take in the near future is not at all clear. LB
Legal Business would like to thank SSQ for its sponsorship of the Global 100.