Is the Global Recovery Benefiting Firms?aderantuser
Although many economists consider the recovery following the 2008-2009 global recession to be anemic, economies around the world are in fact rebounding (see the chart below on GDP growth in advanced economies and emerging markets). As The Economist recently noted, the financial crisis was a particularly “scarring experience” for advanced economies and has had a lingering negative effect on expectations for future growth.
The IMF reported in April’s World Economic Outlook Update, that global growth in 2014 was up 3.4% from 2013. Furthermore, global growth is projected to reach 3.5% and 3.8% in 2015 and 2016, respectively. Even though these numbers seem relatively weak compared to the early 2000s, they represent a significant improvement from the global financial crisis of just five years ago.
So how does this economic forecast relate to law firms? Thankfully, the days of job layoffs, firm consolidations and shrinking demand for legal services appear to be in the rearview mirror. The New York Times Dealbook wrote in an optimistic assessment last March, “Green shoots can be seen in the legal industry. The top global law firms ranked in the annual Am Law 100 survey experienced a 4.3% increase in revenue in 2013 and a 5.4% increase in profit. Bigger firms are hiring. Above the Law, a website for lawyers, recently reported a rising trend for lateral moves for lawyers in New York.”
It’s not just U.S. firms seeing improved market conditions. As the Financial Times reported last month, “Law firms struggled from a lack of work following the financial crisis, leading to unprecedented lay-offs, but a surge in regulatory and deal work has helped fuel a recovery. Allen & Overy and Clifford Chance, two of the UK’s largest international firms, reported record revenues last year of well above £1bn.”
Georgetown Law School concluded in their 2015 Report on the State of the Legal Market that “By most indicators, law firm financial performance in 2014 appeared modestly better than in 2013. Demand growth for law firm services finished the year in positive territory as contrasted with 2013 when demand actually declined. As a result, revenue growth across the market was stronger than in the previous year, though persistent challenges remain.”
How should law firms react to this optimistic economic outlook? A window of opportunity now exists to aggressively pursue change initiatives that create more effective processes and better client engagement strategies. Back in 2007, the technology to facilitate these improvements largely didn’t exist. As a result, the recession hit law firms hard. Today, law firms have many more options to use technology to drive improved efficiency and client relations. Implementing these new technologies drives profitability gains today and also provides some protection to weather future economic storms.