The first years of the new century have seen remarkable growth for law firms. Consider the AmLaw 200 (a readily available data universe, but presumably typical of UK and global firms as well). From a combined headcount of 78,894 lawyers in 2000, they expanded to 106,742 lawyers in 2008 – an increase of 35.3 per cent.
But the gains in revenue were even more impressive, with total revenues of $40.77bn (£28.52bn) in 2000 rising to $81.49bn (£57bn) in 2008 – an almost exact doubling.
This is understandable. It’s safe to say the default strategy of many firms over this period has been to embark on the professional equivalent of a land grab, opening offices opportunistically, merging with and acquiring other firms at an unprecedented pace and constantly being on the prowl for laterals who can bring both additional capability and additional revenue.
The rationale? “Our clients are going global and we have to match their footprint”; “If you’re not big, you’ll become irrelevant”; and perhaps the most popular, albeit unspoken, reason, “Because we can”.
I’m here to suggest that the strategy of growth for growth’s sake may be in at least temporary eclipse. My nominee for the new default strategy? Higher profit. Profit is the new growth.
In part, as all these things must, this shift reflects the times. Rapid-paced growth is not just suddenly unseemly (never underestimate the potency of intellectual fashion), but relatively impractical compared with the immediate past.
If growth requires financing, through bank debt or partner capital contributions, austerity is the hallmark and prudence the watchword of the day.
The pell-mell worldwide expansion of the great US and UK investment banks and financial institutions has hit a brick wall, and it would be charitable to characterise predictions of when it might resume in future as being compromised by an extreme ‘lack of visibility’.
As for the firms themselves, no one knows what the hot new practice areas may be. How does one decide where or how to grow when one has no map and no compass?
Finally, we have seen cautionary and even scarring examples of firms failing or succumbing to ‘emergency acquisitions’ because they had gotten in too deep in particular undiversified practice areas, or because they had achieved mergers in name only –mergers that may have been closed, but which were never truly consummated.
But it’s not all about the sudden breakout of blemishes all over the complexion of our erstwhile fair-haired child, growth. Rather, there’s a strong and positive reason why profit should be your new lodestar. If, in hard times, you need the best defence, then profit is that and your best form of offence as well.
A robust and growing profit – particularly with static or slowly eroding headcount – guarantee that your firm will be increasingly attractive to your critical audiences of interest, including potential clients, laterals and student recruits. It’s more true than ever, in times like these, that ‘nothing succeeds like success’.
The structure of our industry may well look materially different when we emerge from this tunnel of uncertainty and gloom.
Challenges such as those we face now tend to disrupt, not cement, the status quo.
If you want your firm to be able to deal with this interregnum from a position of strength, be prepared to capitalise upon opportunities that others may be too weakened to seize, and turn your eyes to profit. There will be ample time for growth to follow.