By Jennifer Smith
Some semi-cheerful news out on the legal biz front—demand for legal services rose in the first quarter of 2012, according to a new report from Citi Private Bank.
But wait! Not so fast.
2012 isn’t all unicorns and rainbows for the $ 100 billion global corporate law industry, which has yet to fully recover from the beating it took during the economic downturn.
Demand in the first quarter grew by only 1.5%, and revenue saw just a 1.2% increase, according to Citi’s Dan DiPietro and Gretta Rusanow, who summed up the findings for AmLaw on Friday. (Sorry, the report, which came out last week, is for client eyes only.)
The real concern is how to control expense growth, if demand and revenue increases continue to remain modest.
Expenses jumped by 5.9%, far outpacing increases in demand and revenue among the 176 firms Citi polled to come up with the data.
Why the spike in costs?
Law firms that put off big investments, such as technology upgrades, in the years after the recession finally coughed up the dough, said Mr. DiPietro, chairman of Citi Private Bank’s Law Firm Group, which provides financial services to more than 600 U.S. and U.K. law firms and more than 35,000 lawyers.
“What appeared to be expense savings in 2009 and 2010 were actually just kicking the can down the road,” he said on Monday.
Of even greater concern to Mr. DiPietro: an ongoing 100-hour gap in lawyer productivity, compared to output in the years leading up to the downturn.
Between 2001 and 2007, lawyers billed on average 1,740 hours per year, he said. “That’s a pretty good benchmark to use for productivity, because it included a recession, it wasn’t all boom years,” said Mr. DiPietro.
Compare that with 2010 and 2011, when according to Citi’s data lawyers only billed on average 1,640 hours per year.
Law firms that shed lawyers during the difficult years following the 2008 downturn don’t want to boost productivity by getting rid of more attorneys, Mr. DiPietro said. To keep their lawyers busy, firms are taking work at lower billing rates than they normally would, or continued to extend discounts that undercut profitability.