2022 Law Firm Profitability Looks Rough @Halftime

• Pages: 25-26
• Date: 01 October 2022
• Author: Daniel S. Wittenberg
• Subject Matter: Civil Law

021 was a banner year for law rms. Revenues and

prots were at all-time highs for many of the nation’s

largest rms; 2022, however, is turning out to be a

different story. The rst half of the year revealed

consecutive quarters of declining protability,

according to Law Firm Financial Index reports. The legal

sector reported nearly 9,000 jobs lost in August. Is it time to

worry about a crash? Hopefully not yet, but key quarterly

economic indicators at large and midsize law rms fell to their

lowest points in the past 16 years. Let’s look at the numbers.

By the Numbe rs—Q1 2022

According to the Law Firm Financial Index, which tracks

economic indicators at large and midsized law rms, law rm

protability slowed in the rst quarter of the year, with bloat-

ing expenses overshadowing gains in both demand for legal

services and lawyer billing rates. The Q1 2022 index score,

which is based on a multitude of factors, hit its lowest point

since the third quarter of 2009.

“If you ignore the expense categories, this would be a

remarkable quarter,” stated William Josten, St. Paul, MN,

manager of enterprise legal content for Thompson Reuters

Institute, in a recent Reuters article. “But you can’t ignore the

expense categories—particularly the direct expenses which are

attorney compensation and benets—because those are up so

substantially, and so is headcount. Every associate costs more

money, and there are more of them.” The quarter saw payouts

of unusually large bonuses, as well as three retroactive associ-

ate pay scale increases, which many rms scrambled to match.

Associate compensation increased 12 percent year-over-year

at all rms and more than 17 percent at Am Law 100 rms,

according to the report. Firms on average also spent 121 per-

cent more on recruiting than in the previous year.

The 100 top-grossing U.S. law rms tracked by American

Lawyer all reported gross revenue growth, buoyed by high

demand in mergers and acquisitions (M&A) and other trans-

actional work. That demand led to a talent war that pushed

starting associate salaries from $190,000 to $215,000 at

many major rms, on top of numerous bonuses. Overhead

expenses, including support staff compensation, technology,

and knowledge management and library services, all grew

moderately. But other support staff benets, ofce expenses,

2022 Law Firm Protability Looks

Rough @Halftime

By Daniel S. Witt enberg, Litigati on News Asso ciate Editor

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