By Jennifer Smith
The ailing legal industry showed some recovery in 2011, but a fourth quarter check of its vital signs by the Hildebrandt Institute, a division of Thomson Reuters, showed sagging demand, weak collections and rising expenses as firms ramped up headcounts.
“The market fell sharply out of balance between demand and capacity in the fourth quarter, as demand turned negative but expenses continue to climb,” according to the Institute, which publishes a quarterly report on legal industry performance. “With demand softening and rate growth weak, expense growth has effectively wiped out much of the profitability gains seen over the last two years.”
The numbers come from the Institute’s Peer Monitor Index, which based on real-time data from about 130 large law firms.
“The challenge law firms face for 2012 is we have rising costs and still pretty soft demand,” said Mark Medice, program director of Peer Monitor.
While bad economic conditions can lead to more work for some firms, Medice said the data indicates industry health won’t recover until the economy does. And continued pressure from clients to lower their legal bills makes bouncing back all the tougher, he said.
Things had been looking up in the first half of 2011, with continued growth in litigation, particularly in the area of intellectual property, and increased demand for labor and employment work. But the report said transactional practices, which hit a high note mid-year, caved in the fourth quarter. Grim details here:
“General corporate work was down 4.7%, capital markets fell 5.0% and M&A dropped 5.1%. For the year, capital markets and general corporate both dropped .5%; M&A was down 1.2%.”
Bankruptcy work offered no respite either, falling in all four quarters.
And a slight uptick in rates — which were up 3% last year, compared to 2.8% growth in 2010 — was undercut by a decline in collections.