Historic. Extraordinary. Exceptional. Unparalleled.
Pick any adjective. It still probably won’t quite capture the gangbuster gains made by the worldwide legal industry in the last fiscal year.
The Global 100—the highest-grossing 100 law firms in the world, as ranked by Law.com International—increased revenue by 15.3%, up to more than $127.5 billion as a collective. Profits per equity partner also increased by nearly 17%, to more than $1.9 million for the group in 2021.
For perspective, this cohort of elite firms increased revenue 6.7% and PEP by 10.4% the previous year, in what this publication described as a “stellar” performance, especially given the grim prognostications that colored the onset of COVID-19 in 2020.
The story was similar for the Global Second Hundred. That cohort increased revenue 12.6% in the 2021 fiscal year—to more than $38.5 billion. Revenue per lawyer also shot up nearly 20%, to roughly $613,000, a more than $100,000 increase from the 2020 mark.
Altogether, revenue for the largest 200 firms in the world increased to more than $185.6 billion, as a confluence of high demand and high-dollar deal work drove the industry to dizzying heights. In general, but particularly in the United States, firms were also able to increase rates, increase utilization and increase their collections, “three big tics of the box,” says Tony Williams, a London-based principal at Jomati Consultants who advises firms around the globe.
“It was almost an ideal environment,” says Williams, also a former managing partner at Clifford Chance.
U.S.-based firms yet again made up more than three-quarters of firms in the Global 100, and more than two-thirds of firms overall in the Global 200. Williams says the fact that the U.S. is now home to $4 billion, $5 billion and now even $6 billion grossing firms shows “the strength and depth of the U.S. market.” He says that while the economic picture last year was a bit more mixed globally, with such issues as COVID-19 and trade tensions with China affecting some business, it was “generally a pretty good picture across the world” in 2021 and that the largest firms “generally had a good time.”
Indeed, firms with the majority of their lawyers in countries outside the U.S. made some of the largest jumps in the Global 200 rankings. Of the 10 firms that made the biggest leaps from 2021 to 2022, four are based in China, three in the United Kingdom and one in Australia.
In the top 100, Cadwalader, Wickersham & Taft (No. 96 from No. 111); Fenwick & West (No. 81 from No. 94), and Holland & Knight (No. 39 from No. 47)—fresh off its merger with former Dallas-based Am Law 200 firm Thompson & Knight—moved up the ladder more than any other U.S. firms.
Others, such as Bryan Cave Leighton Paisner (No. 72 from No. 64); Wilmer Cutler Pickering Hale and Dorr (No. 45 from No. 37) and Akin Gump Strauss Hauser & Feld (No. 48 from No. 41) fell more than other U.S. firms.
For better or worse, 2021 was also a volatile year for lawyer movement and attrition. In a year that coined “The Great Resignation” across industries, partner and associate hires last year roared back to life, eclipsing the totals from 2020 with major U.S. legal hubs such as New York and Washington, D.C., leading the way.
“The big issue for the U.S. firms was getting the talent to do the work, Because there was no shortage of work,” Williams says.
For Global 100 firms, lawyer head count increased 6.4%, and equity partners increased 2.2%. For the Global Second Hundred, it was the opposite story, as the largest firms picked off quality talent throughout the year. The Global Second Hundred saw a significant decrease in head count, to 62,877 from 66,830, a 5.9% decline.
That Was the Past
A more apt way to describe 2021 now might be “once upon a time.”
The white-hot transactional market that drove record profits has cooled significantly, with multiple industry reports over the last couple months showing decreases in demand as inflation, Russia’s invasion of Ukraine and lingering effects of the pandemic continue to hamper global business.
Last year “feels like a distant memory at this point,” says Julie Jones, chair of Ropes & Gray, nodding to the macroeconomic and geopolitical tides of 2022. She notes there’s been at least $150 billion in publicly announced deals that have stalled out since June 1 alone, and “a higher rate of abandonment than I’ve seen in 10 or 12 years.”
Ropes & Gray moved up four spots in this year’s rankings after grossing more than $2.6 billion in revenue last year.
But Jones says this year, as inflation has gone through the roof, dealmakers have become nervous about valuations. Meanwhile, credit markets and underwriting standards have also tightened up.
In Europe, with more direct exposure to the war in Ukraine causing an energy crisis and broad-based volatility, corporate clients are sitting tight and private equity buyers have been less active. And as China continues trying to enforce a “zero COVID” policy and mitigate its housing market slowdown, people are being more deliberate in general, but particularly in those foreign markets.
“The U.S. demand is looking relatively steady,” Jones said. “That’s not what we’re seeing in London and Asia. We’re seeing a pretty dramatic decline.”
Freshfields Bruckhaus Deringer London managing partner Claire Wills raised similar concerns recently in a conversation with The American Lawyer affiliate Law.com International, citing inflation, interest rates, energy crises, regulatory scrutiny and a retrenchment of globalization as pain points moving forward.
Wills adds, however, that Freshfields will be aiming to seize the opportunities that arise. “This will impact cross-border, transactional and regulatory activity, and I expect our teams to be busy advising clients on the related challenges and opportunities,” as well as focusing on “mass claims in the U.K. and continental Europe,” which the firm’s disputes practice has had particular success in “not least because we are located in claimant friendly jurisdictions,” Wills says.
Lee Ranson, CEO of Eversheds Sutherland International, similarly told Law.com International that “We shouldn’t kid ourselves that we’re not in quite choppy waters. As always when it’s like that, firms that are prepared to seize the opportunities that come from that will do well. Those firms that hunker down may find the market very hard indeed.”
After the dizzying performance last year, firm leaders and analysts were expecting a drop-off of some kind anyway. Gretta Rusanow, head of advisory services for Citi Private Bank Law Firm Group, said in an interview last month that it’s important to take the 0.6% decline in demand so far this year in context.
“We were anticipating we’d see a more modest demand environment. We were saying it even before the volatility in the markets, the war in Ukraine, inflation, rolling lockdowns in China—you could go on,” she said. “There are so many features unique to this year at the macro level that are having a detrimental impact on particularly transactional activity level. But it was always going to be a tough hurdle to jump over, particularly with what the market saw last year.”
Aggressive rate increases and a long-standing perception that the U.S. dollar is a safe haven for investors also helps even out some of the volatility in the U.S. legal industry. The greenback has gained significantly against other world currencies this year, and is close to level with the euro for the first time in a couple decades.
While there are still recession fears in the States, the dollar—the currency of choice for most firms in the Global 200—is still stable.
“I think the U.S. firms will be helped this year even if revenues don’t go up. They’ll be helped by the dollar, because firms reporting anything else will be down in dollar terms,” says Williams, of Jomati Consultants.
Rusanow says demand during the rest of the year will be a “wild card.” But she expects expenses to moderate, and says transactional work could kick-start again in time to build up and be converted into cash collections before year-end, or it could go into 2023.
Indeed, some firm leaders say they feel fine about 2022. But 2023, only a few months away, is a question mark.
“I think 2019 was great, 2020 was even better, and 2021 was way better. I think firms are wondering whether 2022 will be 2021—I think that’s realistic—or, is 2022 going to be more like 2020, which in the abstract is still plenty good,” says Honigman CEO David Foltyn, whose firm ranked No. 182 in this year’s Global 200. “If you talk to CEOs, I think what they’ll tell you is we are wondering where 2023 will fall.”
Williams says at this point, things would have to change dramatically in the next three or four months to have a significant impact on 2022 results. There are opportunities for that, of course, with some major economies flirting with recession, a new prime minister in the U.K. and November midterms in the U.S. right around the corner. Those variables could also certainly shape 2023 as well. Williams puts it this way: “When you’re doing the Global 200 next year, I don’t expect there to be 15% growth.”
“Much of what markets do is based on confidence,” he adds. “And confidence is much more fragile now.”