TMG's Take... on 2007's Financial Results
A perspective on legal management issues from The McCormick Group

As the law firm financial results trickle in, one can’t help but think that firms are of two minds about reporting the largely good results from 2007. From a public relations standpoint, firms appear to be trying to strike a delicate balance between “the war for talent” and “the war for clients.” On one hand, firms want to put their best foot forward in reporting their 2007 results (which includes continued tinkering with who is included as an “equity partner”) so that they look good in the eyes of potential lateral recruits, and for that matter, their own existing partners who are ever-so-aware of potential opportunities elsewhere.

On the other hand, corporate clients must wonder what is going on when they see the publicity about double digit increases in both revenue and partner profits. Look at it this way: in 2007, there was not one, but two rounds of associate salary increases, combined with an increasingly difficult economy for at least the last half of the year. Despite indications by some law firm leaders that partners might have to make less money to pay for the increased associate costs (see the article “Big Firms Say They'll Eat Cost of Raises”), results indicate otherwise.  Forty-three out of 52 firms that have reported their financial results in the press indicate at least a 5 percent increase in profits per equity partner, and around 40 percent reported an even higher rate of increase than in the previous year.

Perhaps it’s the nervousness about what the clients are thinking that is helping fuel articles like the one entitled “Why Big Law is Bracing for a Leaner 2008” in the Wall Street Journal. Certainly, firms will be facing challenges in 2008 due to the slowdown in the financial markets. But even the somewhat sober 2008 Hildebrandt/Citi Client Advisory, released earlier this year, predicted net income growth in the 3 to 5 percent range (not bad after some pretty strong 2007 numbers). And judging from the firms we talked to, the first two months of this year seemed business as usual. So don’t be surprised that at this time next year, we see another round of increases, albeit more modest, in both revenues and profits.
  
TMG's Take is a regular e-mail advisory produced by The McCormick Group. The company's Law & Government Affairs and Law Firm Services groups combine the expertise of more than 15 Consultants to help law firms fulfill all of their lawyer and administrative recruiting needs. TMG's Take covers topics across the spectrum of law firm management, including associate and partner compensation, growth strategies, marketing and business development, operations and facilities management, finance and accounting, professional development, and technology. Please direct all inquiries to Steve Nelson, Managing Principal, at 703.841.1700 or snelson@tmg-dc.com.