October 22, 2020
Dynamic Law Firms Report Identifies Key Distinctions of Top-Performing Firms
Differentiating characteristics can better position firms for both long-term success and adapting to downturns
MINNEAPOLIS-ST. PAUL, October 22, 2020 — A new report identifies key characteristics that tend to distinguish top-performing large law firms from those that are more likely to struggle to compete. The 2020 Dynamic Law Firms Report from Thomson Reuters Institute, Peer Monitor and Acritas, part of Thomson Reuters, concludes those differentiators can better position firms for long-term success and greater ability to adapt and weather downturns.
The report examines firms in the top quartile – dubbed Dynamic firms – against those in the lowest quartile – termed Static firms – as measured by overall firm profits, revenue per lawyer and average profit margin.
Greater Operational Efficiencies
Dynamic firms tended to have greater operational efficiencies, including strong teams that enabled greater use of leverage. For example, Dynamic firms had a higher average ratio of associates to equity partners of nearly four-to-three – meaning four associates for every three equity partners. This helps to control costs and improve profit margins. By comparison, Static firms had nearly a one-to-one ratio of associates to equity partners.
In addition, Dynamic firms had stronger billing, budgeting and profitability analysis functions, as well as better management of productivity and lawyer headcount levels, important determinants of a firm’s cost structure.
Stronger Brand Reputations
Dynamic firms also were more likely to have a strong brand to help drive consideration for high-value work. Such firms tend to invest more in marketing and business development, leading to a stronger brand reputation in boardrooms, and are perceived as having business-savvy lawyers that understand their clients’ business and provide strategic advice.
The report also examined the impact of the current market downturn resulting from the COVID-19 pandemic. It concluded that the characteristics shared by many Dynamic firms not only better positioned the firms for long-term success but may also provide greater ability to absorb shifts in rapidly changing markets.
Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters, noted that research from the last several years has continued to show common themes that tend to differentiate the top-performing tier of firms. “In addition to doing top-notch legal work, high performing firms tend to invest in areas such as business development, brand management, IT functions and operational support such as finance and profitability analysis. We’re seeing firms continue to try to do this even as they adjust expenses in light of the changing market conditions.
“While strong performance is no guarantee of future success,” Abbott continued, “we’re finding that having a strong strategic foundation and solid financial footing may also lead to greater resiliency in weathering the challenging environment that many firms are currently experiencing.”
A copy of the 2020 Dynamic Law Firms Report can be downloaded at https://www.legalexecutiveinstitute.com/dynamic-law-firm-report-2020.
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