Article: The American Lawyer – Change In The Legal Sector

This article is well worth a read. The Am Lawyer spoke to a number of partners at Big Law Firms around the country and got the sense that partners felt that change wasn’t affecting  or for that matter effecting the sector. So they decided to take a closer look at trends and numbers.

For our part we can’t believe that the introduction of tech like AI and blockchain aren’t going to have a huge effect on the industry never mind all the new legislation coming out of Beijing. We’d suggest the changes are as big if not bigger than the globalization period of big law.


The American Lawyer writes… by way of introduction..

Economics tells us an industry that experiences a drop in aggregate demand, adds production capacity, and increases the market overlap among competitors will suffer price erosion and profitability decline. Big Law fits this profile. Yet, in talking with law firm partners, you don’t get the sense that any such “disruption” is happening. Perhaps economics has bypassed law? A closer look seems warranted.

The Data

Big Law is a cyclical business. Thus, it’s important when looking at Big Law performance to do so in the context of the overall economy. Figure 1 shows how revenue-per-lawyer (RPL) has varied with U.S. gross domestic product (GDP) since 1994 (the first year of reliable data gathering). The early years of the timelines are not surprising: a very strong linkage between the economy (U.S. GDP) and Big Law revenue per lawyer (RPL). However, the two uncouple after 2007-09: while the economy has recovered, RPL has not resumed its upward trajectory and remains below its 2007 level. As RPL is a proxy for price realization, these data show (1) that the market’s price trajectory has changed dramatically and (2) price erosion has occurred because pricing is both below where it was in 2007 and well below where one would expect it to be at this point in the business cycle.

In analyzing cyclical businesses it’s important to look not at short or arbitrary time periods (e.g. five or 10 years) but to look at comparable points in the cycle. Accordingly, the following compares market data across two cycles: the first is between the law world peaks of 2000 and 2007, and the second between the peaks of 2007 and 2016, (if not actually a peak, 2016 is certainly close to a peak). The analyses adjust for inflation using the consumer price index.

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