If there’s one thing Big Law leaders can be certain 2023 will bring, it’s uncertainty.
While some firm leaders will be trying to undo the decisions they made during the recent bull market, like hiring too many associates, many of the factors that will determine large firm performance in 2023 are out their control.
For instance, it’s still unclear whether the economy as a whole will experience a recession in the coming year, and if it does, how deep it will be.
Geopolitical tensions are also a cause for concern. What will happen with Russia’s war on Ukraine? Will China ratchet up tensions with the West by attempting to increase its interference in Taiwan?
And what about the tech sector? Will IPOs recover?
And then there’s the problem of high inflation and more interest rate hikes by the Federal Reserve. How will those factors impact financial markets?
With so many confounding variables in play, Big Law leaders will likely play things conservatively, which means raising their billing rates, prudently investing in top practices, and looking for cost savings.
Each year, Citi Private Bank’s Law Firm Group and Hildebrandt Consulting release their Citi Hildebrandt Client Advisory, which establishes the broad landscape for the law industry; how firms are responding to industry, economic, and market challenges; and potential opportunities for growth in the year ahead.
The outlook for Big Law is so murky right now that Brad Hildebrandt, Chairman of Hildebrandt Consulting, and Gretta Rusanow, Managing Director and Head of Advisory Services for Citi’s Law Firm Group, decided not to even attempt to make a forecast for 2023.
“It’s one of the most difficult reports of our 15 years,” said Hildebrandt. “This year, we just couldn’t figure it out. We just didn’t have enough data.”
Demand was down 1.2% through nine months this year compared to the same period last year, while lawyer headcount has grown 4.5% and rising associate salaries have pushed expenses up almost 13%.
Some firms have already laid off associates, while others have reduced headcount under the auspices of their annual review processes (aka stealth layoffs) — but Hildebrandt and Rusanow were willing to predict one thing: layoffs are unlikely to spread industrywide. The associate purge that followed the 2008-2009 recession still looms large in the memories of many firm managing partners, when they were left with a shortage of mid-level lawyers when the market eventually rebounded.
“That’s a very clear memory for a lot of law firms,” Rusanow said. “And while it may be painful in the short-term next year, the market will rebound, and we may very well find ourselves in the war for talent again if firms make too many adjustments.”
While some may read the Citi-Hildebrandt report as advising Big Law leaders to sit back during the possible impending downturn and hope for the best, that’s not Hildebrandt’s advice.
“Law firms are a business, they have to be run like a business,” he said. “You can’t just sit there and do nothing, that doesn’t work. Our report is saying be cautious about what you do.”