Over the past few months, a number of economists and market watchers have begun to pull back from the notion that an economic downturn is likely in 2020, but, according to this year's Pennsylvania Managing Partner survey, law firm leaders in the state are still preparing to make cuts.

While just two of the 32 respondents to last year's survey, or just over 6%, predicted lawyer layoffs between June 2018 and June 2019, six of the 30 respondents (20%) said they foresee lawyer cuts at some point between June 2019 and June 2020.

All six said those cuts would account for 5% or less of their total attorney headcounts.

In addition, five of this year's 30 respondents predicted staff layoffs between June 2019 and June 2020, as compared to last year, when only one respondent, or 3%, said the same.

Still, that statistic may not be all that surprising. Earlier this year, Morgan, Lewis & Bockius confirmed that it was offering buyouts to its U.S. legal secretaries, though it promised that layoffs wouldn't follow. But after that news broke, consultants were quick to note that many other firms had already made moves to streamline their secretarial functions, decrease the number of secretaries per lawyer, and steer new staff hires into multipurpose administrative roles rather than the traditional legal secretary job. And that trend is likely to continue.

Indeed, seven of this year's respondents, or just over 23%, said they laid off staff between 2018 and 2019. The same number of respondents reported laying off attorneys during that time period, as well.

Still, it's not clear that these attorney cuts are necessarily indicative of financial struggles at Pennsylvania law firms.

Several industry surveys over the past year have shown Pennsylvania law firms to be outpacing the national average in terms of revenue growth. That appears to be reflected in this year's Managing Partners Survey as well, with 90% of this year's respondents reporting an increase in revenue over the past two fiscal years and 70% reporting an increase in revenue per lawyer. Only one respondent said they saw revenues decrease and only two said RPL dipped.

In addition, all but one respondent to this year's survey said they either grew headcount last year or stayed the same size. Similarly, only one respondent indicated the intention to shrink attorney headcount in the coming year.

It could be that firms are simply planning to cut loose unproductive attorneys of all ranks, while replacing them with new talent. Every respondent who predicted layoffs in the coming year identified the nonequity partner tier as a potential target for cuts. Meanwhile, three respondents said they plan to lay off associates and of counsel and two said they would cut equity partners. Only one said they would lay off staff attorneys.

And while firms don't appear to be struggling to generate revenue, costs continue to rise for most. This year, 60% said costs had increased, which is in line with responses to the past three surveys.

And although 19 respondents reported an increase in net profits over the past two fiscal years, seven said their profits stayed the same and four said they dipped.

Similarly, 20 respondents reported growing their profits per equity partner, but seven said PPP held steady and three reported decreases.

It also must be noted, as always, that year-over-year comparisons are not apples-to-apples in surveys like this one, which is anonymous and sent to a large and eclectic group of potential respondents.

The Managing Partners Survey is sent to managing partners of both Pennsylvania-based firms and Pennsylvania offices of out-of-state firms—everyone on our 100 Largest Law Firms list, plus leaders of some newer shops that formed following the dissolutions of firms that had traditionally made the list. There were 30 respondents to the survey this year, while there were 32 last year, and the demographic breakdown is somewhat different from 2019′s respondents.

Last year, the largest share of respondents (31%) were from firms with between 26 and 50 lawyers. This year, more than 41% of respondents were from firms of that size.

Similarly, 28% of last year's respondents came from firms with more than 125 lawyers, but this year that demographic accounted for 35% of respondents.

Also this year, 17% of respondents were from firms with between 81 and 125 respondents, as compared to 22% of respondents last year.

And while 9% of last year's respondents came from firms in the 51- to 80-lawyer range last year, just under 7% came from firms of that size this year. And unlike last year, there were no respondents from firms in either the 11-25 or 1-10 headcount range.

Last year, 61% of respondents were from Philadelphia, just over 6% were from Pittsburgh, none were from Harrisburg and more than 32% were from elsewhere in Pennsylvania. This year, more than 65% came from Philadelphia, closer to 7% came from Pittsburgh, one respondent came from Harrisburg and 24% were from elsewhere in Pennsylvania.

In 2018, close to 63% of respondents described themselves as full-service, with limited practice areas and boutiques each accounting for about 19% of respondents. This year, 72% described themselves as full-service, 14% as limited practice and 14% as boutiques.

Other Notables

The downward trend in managing partners reporting that their firms were actively seeking mergers in the coming year continued with this most recent survey.

In 2017, about 23% of respondents indicated they were actively seeking a merger. That figure was the highest it had been in seven years. But last year, that number was just over 9%, the lowest it had been since 2013. This year, however, that number dipped again to under 7%.

And while 75% of last year's respondents said they were open to the possibility of a merger, that number dipped to 60% this year. Meanwhile, 33% of this year's respondents said they're not interested in merging.

Of those who did report actively seeking a merger partner, 22% said they were eyeing firms in Pennsylvania, 44% said they were looking at other East Coast cities and 33% said their search extended beyond the East Coast.

One the steepest and most surprising declines in last year's survey was in the percentage of respondents who reported having a marketing budget. In 2017, about 91% of respondents reported allocating funds for marketing efforts, compared to 92% in 2016. But in 2018, only about 69% said they had a marketing budget. That may have been indicative of the fact that there were more small firm respondents last year, because this year nearly 87% of respondents reported having a budget for marketing. Meanwhile, 83% of this year's respondents said they had a nonlawyer marketing head on staff, up from 75% last year.

There was also a fairly sharp drop in the percentage of respondents last year who said they saw a clear return on their marketing investing, from 71% in 2017 to 59% in 2018. But this year, 70% answered that question in the affirmative.

Once again, the list of practice areas in which firm leaders saw the most growth potential was largely in line with last year's responses.

Commercial litigation once again topped the list of areas with the strongest growth potential, this year cited by about 62% of respondents as compared to 63% last year. And like the previous two years, intellectual property came in second, but was cited by only 24% of respondents this year as compared to 44% last year.

As for practice areas in which law firm leaders perceived a low potential for growth, banking, public finance, bankruptcy and insurance litigation topped the list.

Looking to the future beyond the coming year, succession planning remains far from a given at every law firm, despite repeated warnings by law firm strategists of how important it is. This year, 67% of respondents said they have such a plan in place, which, of course, means that about a third of this year's respondents do not.

Similarly, 63% of respondents this year reported offering leadership training.

Client satisfaction surveys don't appear to have caught on in a major way either.

The use of such surveys saw a rise from 26.6% to 33.3% in 2016, but fell back down to under 23% in 2017. Last year, that figure was up slightly to 28% and this year it was back up to 33%, with a 50-50 split between those who favored oral surveys and those who preferred written feedback.

On the flipside, the number of law firms that report having diversity initiatives in place continues to rise.

Last year, 71% of respondents said their firms have diversity initiatives, up from 55% the previous year. This year, that number climbed to nearly 79%.

That's perhaps not surprising given that, once again, the vast majority of survey respondents this year reported receiving requests for proposals that include inquiries about the number of minority and female attorneys working at their firms.

Meanwhile, 35% of respondents this year said they've gained clients due to diversity issues, while two respondents reported losing clients because of diversity issues.