Profits per equity partner at the Am Law 100 grew by 22% for the 12 months ending November 2020, according to actual firm data contained in Thomson Reuters recently published State of the Legal Market report. PEP will probably be tamped down through prepayments of rent, etc., and end closer to 15-17% but, even so, this is extraordinary performance given the prevailing economic conditions. What lessons should we take from this and what does it mean for what is to come? The following offers some food for thought.

Lessons

The experience of 2020 reinforces the view that the value clients derive from legal services is, at root, assurance in the face of risk and uncertainty. Thus, while the economy stalled, uncertainty abounded and aggregate demand for outside counsel support largely held. When the final numbers come in, we'll probably see Am Law 100 total hours down only 1-2%.

The year's performance also confirms something we've long known but of which we did not have proof: There was a lot of slack in law firm administrative structures. Firms have struggled over the last decade to get staff-to-lawyer ratios down from above 1.0 to 0.8 or 0.9. In 2020 we saw that with tech-enabled self-service, there was a further 0.2 reduction readily available. While there will probably be some rebound in this ratio when people get back to the office, we'll eventually resume the slow downward trend. As a benchmark, consultants, who are forced into self-service by constant travel, operate at staff-to-consultant ratios of about 0.2. Thus, there is still a long way to go.