We have written extensively in the past about how Am Law 100 firms seem to have solidified their position as market leaders among the segments we track through our Peer Monitor data. The largest firms seem to have been at or near the top of the market in every key performance indicator we track for most of the past two and half years.
The beginning of 2019 appears to be no exception.
In a new report prepared by Thomson Reuters Legal Executive Institute and Thomson Reuters Peer Monitor, The BigLaw Market Through Q1 2019, we looked at how the Am Law 100 performed through the first quarter of this year and what that might mean for the rest of the year and for the rest of the market, as well.
The first quarter of this year was actually one working day shorter than the same quarter a year ago. This led the average firm in the Peer Monitor sample to experience essentially flat demand for the quarter, including lackluster performance in key practices like litigation and corporate transactional work. The Am Law 100, though, seemed less impacted by the missing working day.
For a more complete look at how 2019 has started for the Am Law 100 and what that might mean for the rest of the market and throughout the year, download a copy of our latest report, The BigLaw Market Through Q1 2019.
Am Law 100 firms saw demand grow by an average of 1.2% in the first quarter, exceeding even last year’s mark of 0.4% average demand growth for the segment. Litigation and corporate practice demand also led the market, setting marks of 1.0% and 1.2% average growth, respectively.
In a bit of a stumble for Am Law 100 firms, however, lawyer growth outpaced demand for the quarter, leading to a noticeable drop in productivity, but that decline was felt primarily by Of Counsel lawyers. Average associate productivity declined by only one hour per lawyer per month compared to Q1 last year, a negligible difference.
One factor that has been surprising about the dominance of Am Law 100 firms’ demand growth for the past several years has been their rate growth performance. Indeed, Am Law 100 firms continue to aggressively grow their rates. In Q1 2019, average worked rates (the rates clients agree to pay to engage work) grew by 4.4%, far surpassing the 3.8% average rate increase for the market.
Common economic principles would predict that as goods or services become more expensive, demand for them will flag. This is not happening in the legal services market. Am Law 100 firms already lead the market in terms of average standard and worked hourly rates; and they also lead the market in the rate of growth for their billable rates. Despite this, they continue to experience strong growth in demand.
However, one noticeable hiccup for these firms relates to realizations, or how much of their hourly rate they collect. Realizations against standard rates for Am Law 100 firms have trailed each of the other segments of law firms since 2014, with the gap incrementally widening as time goes by. While the start of 2019 was met with good news for Large Law Firms in terms of how their rates are growing, this news was tempered by a sharp drop in realization, bringing Am Law 100 realizations below 80% for the first time.
It must be noted that Am Law 100 firms are, on average, collecting 80% of a much higher and growing average rate than are law firms in other segments, but the marked decline in realization is something leaders of these firms would be well advised to keep an eye on.
All told, there are many positive factors in place for Am Law 100 firms as 2019 progresses. Owing in particular to their deep levels of expertise on a wide number of practices, Large Law Firms stand to capitalize well on the increasing client need for unique legal expertise in high-stakes matters where cost pressures are likely to be less.