Confidence Is Returning for Pa. Firm Leaders, Managing Partner Survey Shows

The past few years have been some of the most uncertain in recent memory, but as the world begins to emerge from the COVID-19 pandemic, law firm leaders appear to be regaining confidence about the future.

Data from the 2021 Managing Partners Survey shows that, when it comes to revenue and growth opportunities, law firm leaders in Pennsylvania are bullish about the coming year, and some anxieties about the need to cut lawyers, or de-equitize partners are also waning—all suggesting that managing partners are beginning to feel that they are once again finding solid footing, despite the lingering effects of the pandemic.

That sentiment jibes with the findings of another survey, which was released in November. That survey, which was conducted by Wells Fargo, suggested that an increased demand for legal services, stabilized billing cycles and reduced travel costs are combining to put law firms on good footing for growth in 2022.

According to the Wells Fargo legal specialty group’s survey, which compared the first nine months of 2021 to the same period in 2020, revenue at Philadelphia-based law firms got a healthy boost of nearly 13% in the first nine months of 2021 compared to the same time period in 2020. Revenue was driven by 5% demand growth and rate increases of nearly 6%, contributing to an 11% increase to value logged over the first nine months in 2020.

Legal industry analysts told The Legal that revenue growth in 2021 has been led by demand for legal services and a backlog of client work carrying over from 2020.

The results of The Legal’s Managing Partner survey bear that out, and indicate that law firm leaders are looking to capitalize on the growth in 2022.

According to the survey, in which 25 managing partners participated, most firms appear to be in growth mode. The vast majority of respondents—88%—said they intended to grow next year, with 44% saying they will grow slightly and the same percentage saying they will grow significantly. No firm leaders said they expected to shrink in the coming year, which is a slight change over last year, where 4% of respondent said they were expecting their firms to shrink.

That bullishness comes after a year of modest growth. According to the survey, 44% of firm leaders saying their firms grew last year, 16% saying they saw a small decrease and only one firm leader saying that their firm shrank significantly. Most firm leaders—88%—said they did not lay off any attorneys last year.

Respondents for the 2021 survey came from a good cross section of the Pennsylvania legal landscape. Seven said they oversaw a firm of more than 125 people, nine said they led firms of between 50 and 125 lawyers, seven said they oversaw firms between 11 and 50 lawyers, and one said their firm was 10 lawyers or fewer.

The majority of respondents—54%—came from Philadelphia, while 37.5% of respondents said they haled from outside the Philadelphia, Pittsburgh or Harrisburg regions. Most firm leaders also characterized their firms as full-service.

Despite the bullishness, when taking a longer view of things, fewer firms reported seeing revenue increases in recent years.

In the 2020 survey, 83% of firm leaders said they saw revenue increases over the past two years, while in 2021, that number dropped to slightly more than 60%. Revenue Per Lawyer also dropped slightly, from 82% seeing an increase in last year’s survey to 72% reporting seeing an increase this year. Fewer firms also reported seeing an increase in profits per partner, with nearly 92% seeing an increase in 2020 and slightly more than 68% reporting seeing an increase in 2021.

However, according to the survey, firm leaders reported easier collections in 2021, with nearly 46% of respondents saying clients paid their bills without much hassle—up from 29% last year.

Also, to keep profitability high, most firm leaders reported raising billing rates, but firm leaders also cited reduced marketing costs and laying off staff. The percentage of firm leaders saying they’re expecting to de-equitize partners also fell from nearly 21% last year, to 4.5% this year.

Layoffs, Mergers and Practice Areas

When it comes to anticipated layoffs next year, only one firm, or 4% of the respondents, said they expect to lay off any lawyers. That firm specified that they anticipate the layoff will only be as high as 5% at most, but would include both associates and non-equity partners. Those numbers show an increase in confidence from the 2020 survey, when 12.5% of firm leaders said they saw layoffs on the horizon.

Interest in mergers is also strong, with 28% actively looking and 48% saying they’re open to the possibility of a linkup. That outlook is up from last year, when nearly 17% said they were actively looking and almost 46% said they were open to possibilities.

Most of the respondents this year who said their firms are seeking mergers reported that they are looking to link up with firms inside the Keystone state. None of the firms said they were interested in matching up with a firm based in a foreign country, but 30% said they were interested in looking beyond the East Coast.

More firms also reported that they are planning to open one or more new offices next year, with 36% saying new offices were in the plans for 2022, while last year less than 22% of firms saw new offices on the horizon.

As for the work, firm leaders also expect to see significant upticks in several areas of law, including cybersecurity and employment work. Where firm leaders see the highest potential for growth is commercial litigation and mergers and acquisitions, with more than 52% of respondents excited about growth in both these areas.

Last year, firm leaders reported seeing less potential growth across the board, except for commercial litigation, in which more than 56% of firms leaders were expecting to see an increase.

This year firm leaders are expecting to see the largest decrease in banking, intellectual property and bankruptcy work.

Points of Interest

Firms reported seeing a big decrease in costs this year, with 52% of firm leaders saying they saw their costs drop and only 13% saying they saw increases. In the 2020 survey, 50% of firm leaders said they saw costs increase.

In a potentially troubling sign for future, more firms reported that they are paying their pension plans out of their current cash flow. In the 2020 survey, 10% reported paying out of cash flow, while more than 28% reported doing so in 2021.

But, on a forward-looking note, more firms are reporting having succession plans in place, and leadership training is on the rise. Almost 74% of firm leaders responded that they provide leadership training in 2021, which is up significantly over the 41% that reported provided the training last year. More than 87% also responded that they provide business training—up from 69.5% last year

This was also the first year we got a glimpse into how firm leaders are thinking about remote work, and many suggested they were open to the possibility. Of the 23 firm leaders who answered questions on remote work, 34% said they would be willing to allow their attorneys and staff to work remotely a quarter of the time. Nearly 48% said they would be willing to allow their firm to work remotely half of the time, and more than 17% said they would be willing to allow their attorneys and staff to work mostly remote.

Of the 24 firm leaders that responded, 10, or 41%, said their firm requires vaccines for staff and attorneys.

Almost all respondents also said they either had, or are planning to close an office, or reduce office square footage, and two law firms—more than 8%—also reported having suffered a data breach.