In what is rapidly becoming the “new normal,” it appears that 2015 will go down as another overall lackluster year in terms of law firm financial performance. While the picture obviously differs from firm to firm – and a few firms achieved remarkably good results – in the main U.S. law firms continued to experience very sluggish growth in demand, coupled with negative growth in productivity, and continuing downward pressure on rates and realization. Indeed, there is now some evidence of a drop-off in the growth of “worked rates” – i.e., the negotiated rates actually used by firms in work for their clients – which, combined with declining realization, has led to a sharp decline in collected rates.

Demand Growth

Demand for law firm services, as tracked by Thomson Reuters Peer Monitor, was essentially flat in 2015. As shown in Chart 1 below (which tracks performance on a year-over-year basis through November 2015), this continues a pattern seen over the last six years (with the exception of a brief up tick in 2011 and a sharp negative turn in 2013). It contrasts markedly with the 4 to 6 percent annual growth in demand seen in the legal market prior to 2008. Among different segments of the market, Am Law 100 firms reported the strongest relative strength in demand growth, followed by midsize firms, and Am Law Second 100 firms.

As indicated in Chart 2 below, while there was some year-to-date demand growth in corporate and real estate practices, other practices experienced negative growth, including litigation and patent litigation, which together account for more than a third of all work across the market. This negative growth in demand for litigation services has been part of a trend that has been fairly consistent since the beginning of the recession in 2008. 9 During 2015, the overall decline in litigation demand was driven entirely by Am Law Second 100 firms, as both Am Law 100 and midsize firms reported slightly positive litigation demand growth

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