November 11, 2015
LOS ANGELES DAILY JOURNAL
By Amanda Schallert
NORTHERN CALIFORNIA – Law firms in Northern California number among some of the nation’s strongest performers despite slowing growth in demand nationwide, according to a Citi Private Bank Law Firm Group report released Tuesday.
The report, based on surveys of about 180 law firms, found that demand increased at a rate of 0.6 percent in the third quarter, down 1 percent from 2014. Law firms are seeing demand grow at a slower pace in the third quarter than they did at the same time in 2014, the report reveals.
But Northern California firms saw revenue increase 4.7 percent, above the national average, according to the report, which surveyed 30 firms in the state. Revenue in the region rose slightly faster than expenses, and demand went up 3.3 percent, far above the industry average.
Southern California firms saw an overall 2.7 percent increase in revenue, the report shows. However the region experienced a 4.3 percent increase in expenses while demand in the region stayed relatively flat at .1 percent.
Paul D. Allen, partner in the San Francisco offices of Major, Lindsey & Africa, said the growth in Northern California is likely driven by robust activity in capital markets, mergers and acquisitions, and general corporate advisory work in growing technology and sciences companies. He added that demand in recruiting has been “off the charts” in recent years.
“Every law firm in the top 200 wants to grow in Northern California to try to tap into technology and life sciences companies,” he said.
Nationwide, the Citi study showed revenue rose 3.6 percent and expenses continued to rise this year. For a few years after the recession, law firms cut operating costs, but both compensation and operating expenses went up this year.
Gretta Rusanow, head of advisory for Citi Private Bank, said firms are spending more on increased staff and bonuses as well as cybersecurity and new technology for firms.
Last year’s surge ended in an overall 1.9 percent demand growth and profits up 6 percent, Rusanow said. This year, however, the law firm group predicts overall smaller revenue growth more in line with the few years before 2014.
The national decrease in demand growth stems from worries about the economy and a decline in litigation this year, experts agreed.
“Legal services follow in direct correlation to things that are happening with the economy,” said Larry Watanabe, a longtime legal recruiter in California and founder of Watanabe Nason.
Edwin B. Reeser, a former managing partner in Los Angeles and counselor who specialized in lateral hiring and law firm economics, said he thinks the survey reflects several other changes in the legal industry, including a movement toward more legal process outsourcing to non-law firms and a shift toward more corporations maintaining in-house legal counsel.
However, Reeser said he thinks it’s important to remember that the report may not be “comparing apples to apples.”
An increase in demand may be the result of a law firm merging with or taking on lawyers from a small firm, for example.
“[When] you see there’s an increase in demand you have to find out if its a true increase or fewer people sharing in the same pie,” he said.
Watanabe believes the slow down in growth is not enough to significantly jolt the market for new lawyers.
“It’s nothing surprising and nothing alarming and nothing that should deter anybody from moving forward,” he said.