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Midsize law firms are making significant strides in the legal industry, positioning themselves favorably in comparison to their larger counterparts, the Biglaw firms. Recent financial performance reports indicate that midsize firms have experienced higher increases in revenue and net income compared to the Am Law 100 firms, as reported by Law.com.
While larger firms have been expanding their workforce by adding more personnel, midsize law firms have also been increasing their lawyer count, including partners. Interestingly, when analyzed on a per-lawyer basis, midsize firms continue to exhibit stronger performance than the Am Law 100. While both categories saw a slight decline in revenue per lawyer, the decrease observed at midsize firms was relatively smaller. Additionally, profits per equity partner displayed an upward trend in midsize firms for 2022, whereas the same metric experienced a decline among the Am Law 100 firms.
Several industry analysts were consulted to gain further insight into these developments, including Nathan Cemenska, the Director of Legal Operations and Industry Insights at Wolters Kluwer ELM Solutions. Nathan emphasized that the legal market is a complex landscape influenced by internal considerations within legal teams and external forces in the economy. As a result, it becomes challenging to determine whether one tier of firms universally outperforms the other.
The COVID-19 pandemic significantly impacted companies across industries, consequently affecting their corporate legal departments (CLDs) and the outside counsel firms they engaged. Many companies opted to allocate more work to larger firms, particularly amidst the increased M&A activity. Consequently, Biglaw firms experienced a surge in business during this period. However, with the uncertainty surrounding the 2023 economy, these firms are now witnessing a downturn. Conversely, midsize firms have not been subjected to the same boom-and-bust cycle.
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Nathan explained, “During the pandemic, yes, there was a ‘flight to quality’ or prestige, with many deals getting done by the largest firms. The lower-ranked firms didn’t have the high highs, so they haven’t had to come down off those highs. But outside of the pandemic, I haven’t seen evidence either way that mid-market firms are any more or less stable than their larger competitors.”
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When corporate legal teams evaluate which firm to engage for specific matters, the decision-making process can be intricate. Some technologically advanced companies adopt a data-driven approach, utilizing legal operations tools to analyze past performance in similar cases and even employing AI algorithms to enhance decision-making. However, personal relationships with firms still hold considerable weight for many legal professionals when making their selections. In such cases, Biglaw firms often enjoy a significant advantage. Nathan highlighted this phenomenon, stating, “A lot of CLDs are staffed with in-house attorneys who are alumni hailing from some of the industry’s largest firms. Those alumni know, like, and trust those firms and, on average, prefer to use them over a firm they don’t know. This increases demand for those firms. If in-house attorneys were from smaller firms, that would probably decrease demand for the largest firms.”
Overall, the rise of midsize law firms and their notable financial performance indicate a shifting dynamic within the legal industry. While midsize firms may not always possess the same level of prestige as their larger counterparts, they have been able to capitalize on their stability and resilience, particularly during uncertain times. The influence of personal relationships in firm selection decisions highlights the ongoing relevance of human connections in the legal profession. As the legal landscape continues to evolve, it remains important to closely monitor how midsize law firms further establish their strong position relative to Biglaw.
