Tight Controls Boost Profits at NY Firms, Survey Shows
New York-based law firms on average grew their profits per equity partner by 9.5 percent last year, far outpacing the industry average, according to a Citi Private Bank annual survey that credited a mix of moderate revenue growth, fewer equity partners and a tight control of costs for the rise.
"It's fair to say strong expense control has helped New York firms because the revenue growth was decent but, if not for a very disciplined focus on expenses, you wouldn't have quite the increase on the profits side," said Dan DiPietro, chairman of Citi Private Bank's law firm group.
Citi surveyed 180 law firms, including 26 headquartered in New York. Among the 26 New York firms, five are national and 21 are regional, meaning they have more than half of their lawyers in New York.
The 9.5 percent increase is the largest rise in profits per equity partner at New York firms since the 2008 financial crisis, said DiPietro. Among all firms surveyed nationwide, profits per equity partner grew an average of 3.5 percent from 2012, according to the survey results.
New York was the only legal market to see an increase in productivity last year, as there was greater growth in demand for services than in head count growth. The rest of the legal market still had excess head count, DiPietro said.
"With a pick up in demand, they [New York firms] were able to absorb that work without a significant increase in head count," he said, adding that expense control included limiting head count on lawyers and staff.
The number of equity partners at New York firms declined 1.7 percent in 2013 compared with the industry's 0.3 percent decline, the survey found.
"I don't think most firms have done formal layoffs" in 2013, DiPietro said. "But I think they've been very aggressive on their performance reviews … and they've certainly cut back on the size of incoming classes."
Large firms have raised their standards in quality of work and billable hours, while the size of incoming associates classes at Am Law 100 firms remains about 40 to 50 percent lower than it was pre-2008, DiPietro said.
However, he said firms consider lateral hiring differently, and lateral hiring continued last year at rapid clip.