Law Firm Economics: Fees Down, Salaries Up

Oh, dear. The leaders at the nation's top law firms—many of which, in case you missed the news, have been doling out bonuses and "special" bonuses to associates, or creating "happiness" committees and concierge services to pick up associates' dry cleaning and recommend psychologists—well, these leaders are jittery.

Anxious.

Downright worried about the future.

"The future is cloudy," Morrison & Foerster chairman Keith Wetmore told the The American Lawyer magazine, referring to the Magic 8-Ball childhood game. Of course, he exempted his own firm from the forecast.

The December issue of survey-obsessed publication unveils the results of its fifth annual poll of leaders at the AmLaw 200 firms, the top 200 grossing law firms in the country.

Just 72 percent say they are "optimistic" about the coming year, compared with 91 percent last year. And 26 percent say they're "uncertain," while 2 percent admit to being "pessimistic," compared with zero gloomy leaders last year.

But here is the best part: Despite all this gloom and doom, about two-thirds of the firms expect their partners' incomes will grow by more than 5 percent next year.

How, you may ask? Easy.

They plan to jack up fees: A hefty 62 percent say they will increase billing rates by more than 5 percent next year. Five years ago, a mere 34 percent of those surveyed admitted to planning such a hike. Another 37 percent plan to hike fees by 5 percent or less, while a mere 1 percent intend to keep rates flat or decrease them.

Some of the top lawyers now command $1,000 per hour. Can they possibly go any higher?

"Frankly, I think the rates are at the breaking point, although the firms don't want to admit it," says Peter Johnson of Law Practice Consultants in Boston. "Sometimes law firms are looking at their own economics and suggesting increases based on their own economic needs, rather than what the clients are willing to pay."

Clients are already fed up, and many say they are less than satisfied with the work product. Johnson expects many firms will not collect on all of those bills, "as clients push back on the fees being charged and scrutinize, even more, their legal bills."

Meanwhile, leaders of the big firms also plan some ugly changes for their own employees to keep partner profits fat. Two-thirds of the respondents to the survey say they plan to cut down on "equity" partners who share in the profits, either by "de-equitizing" current partners or bulking up on nonequity partners who work as glorified staff attorneys.

"We've got a bunch of hungry partners out there expecting us to deliver more money each year," one anonymous chair of an AmLaw 50 firm told the magazine.

Let's consult the 8-Ball. Will these findings induce more lawyer bashing, hatred even? Answer: "Signs Point to Yes."

by Karen Donovan

_{Photograph by Ryan McVay}