A report by PricewaterhouseCoopers (PwC) published on 21 November revealed that, despite aggressive budget-setting and record performances by law firms in 2005-06, fee-earners missed their average chargeable hours targets.
Unlike The Lawyer UK 100 Annual Report, PwC’s survey of the UK’s top 100 law firms is undertaken on a no-names basis. However, some of its findings will give law firm finance directors cause to worry.
Utilisation levels are being squeezed, with chargeable hours below budget for many of the firms in the survey. This has affected the profitability of a number of practice areas, notably banking, construction and IP.
Among the top 25 firms the average number of chargeable hours fell by 3 per cent from the previous year. The report suggests that this may be due to high levels of staff turnover in the top 25, and in particular the top 10, firms.
The issue over chargeable hours appears to be concentrated at the upper end of the market. An analysis of the top 100 as a whole shows that the average number of chargeable hours has increased slightly.
The report warns: “With 95 per cent of the top 25 firms intending to increase their fee-earner numbers in the current year, management teams should ensure they have fully factored in any potential change in the economic cycle into their strategic planning.
“This is a worrying trend for firms and is inconsistent with an objective of sustainably increasing profits in the future.
“Managing partners may, therefore, be faced with an unpopular decision: driving more chargeable hours from staff, reducing staff numbers or reducing profits available to partners.”
However, actual fee levels per partner were reflective of strong revenue performance, particularly taking into account the fact that partner numbers remained mostly static.
According to the survey, 62 per cent of the top 25 firms posted an average revenue per partner of more than £1.5m, compared with 50 per cent of firms the previous year.