A recent report from the Thomson Reuters Institute examines the factors that have contributed to the high performance of law firms that fared best financially during the COVID-19 pandemic. Understanding these factors can help other firms better position themselves for future disruptions.
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The 2021 Pandemic Performers report notes that some firms reacted to the financial threat by deeply cutting expenses. Others looked long term, maintaining investment and hoping it would provide a competitive advantage.
Whatever the approach, it turns out that most firms increased profitability during the pandemic. Demand held up better than expected, revenue per lawyer (RPL) was stable and cost per lawyer dropped. But firm performance varied greatly.
The report defines "pandemic performers" as those in the top quartile of performance based on RPL growth. The report suggests these firms were more prepared for the crisis in terms of culture and working practices.
Pandemic performers were better able to take advantage of their scale, practice diversity, brand and support for their attorneys. They also had good "financial hygiene" (for example, strong billing realizations). Above all, these firms were more likely to take a long-term view.
The report also points out that these firms tended to boast "an absence of weaknesses." Thus, firms wanting to improve their financial performance for the long run should seek out and address any perceived weaknesses.
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Red flags for poor performance
By contrast, firms in the bottom quartile of firm performance lacked practice diversity, often focusing on litigation. They cut overhead costs more dramatically and failed to increase their investment in technology. The latter poses a serious risk at a time that remote work is on the upswing - remote workers cannot be as productive if the technical support is not up to par.
Moreover, clients were less likely to cite such firms as top of mind, before and during the pandemic. As a result, the bottom-quartile firms won substantially less work, which in turn led them to discount their prices. The result? Productivity fell off for these firms and they did not retain comparably high billed rates against standard rates. They also reduced their use of other professional fee earners much more than the top-quartile firms did. This kept more work flowing through partners, a trend that may not appeal to cost-conscious clients.
Take the long view
The COVID-19 pandemic will probably not be the last crisis that confronts law firms and jeopardizes their financial performance. But it taught a valuable lesson: Adopting a long-term focus can help position your firm to withstand such events in the future.
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