What’s Behind The Big Law Office Closures?

The New Big Law Playbook: Less is More Tom Borman, LawFuel contributor There is a new reality creeping into the world of Big Law and it is the developing practice of closing offices as they move away from the 'grow or die' strategy into the consolidation phase. And the reason for consolidation, in large part, is greater profits-per-equity partner (PEP). Recent moves by industry giants like Allen & Overy Shearman Sterling (A&O Shearman) and Hogan Lovells are not just isolated incidents but harbingers of a seismic shift in how global law firms operate. Reed Smith has cuts its global workforce and other firms such as Taylor Rose in the UK have announced major reductions in staff numbers and the closure of some divisions and there have been an array of closures of China offices for major Western firms, most recently Sidley Austin, Perkins Coie, Latham & Watkins and Orrick have all either closed or announced their intention to close their Shanghai offices, as well as the recent departures from Beijing of Weil and Akin Gump. The day of having an office in every major city was a badge of honor? Those days might be behind us. A&O Shearman and Hogan Lovells have made headlines by closing offices in locations once considered strategic outposts. Johannesburg, Sydney, Warsaw – these aren't exactly backwater legal markets. So, what gives? Some firms that aggressively hired during the pandemic boom are now finding themselves overstaffed as demand normalizes. And firms are also looking towards a strategic realignment, closing less profitable offices or exiting certain markets to focus resources on higher-performing regions. The answer lies in a ruthless pursuit of profitability. One partner at a transatlantic firm (who preferred to remain anonymous) said, "It's no longer about planting flags. It's about maximizing return on investment in every single location." Recent data support this shift. According to the 2024 Am Law 100 report, firms with more concentrated geographic footprints showed higher profit per equity partner (PEP) growth compared to their more dispersed counterparts. The report highlighted that firms focused on key markets like New York, London, and Washington D.C. saw an average PEP increase of 8. percent , while those with broader global networks averaged just 3.2 percent growth. The Rise of the Mega-Firms Mergers are nothing new in our world, but the strategic thinking behind them has evolved. Take the A&O Shearman merger – it wasn't about expanding reach but about creating a transatlantic powerhouse. Similarly, the recent Womble Bond Dickinson and Lewis Roca merger , along with Troutman Pepper's tie-up with Locke Lord, signal a trend towards creating "super-regional" firms with enhanced capabilities and market share. The 2024 Global 200 report from Law.com International (set to be released next month) is expected to show that these newly formed mega-firms are outperforming their peers in both revenue growth and profit margins. Early data suggests that merged firms are seeing an average revenue increase of 15-20 percent in the first year post-merger, compared to the industry average of 5-7 percent. The London Factor And London law is also seeing some impressive results with London punching above its weight with some strong performers. London has become a global hub for high-value, complex legal work, particularly in areas like financial regulation and international arbitration. A recent survey by Legal Business found that 68 percent of Fortune 500 companies now list London as one of their top three jurisdictions for legal services, up from 52 percent just five years ago. This shift is reflected in the bottom line, with London offices of major firms reporting profit margins on par with, and sometimes exceeding, their New York counterparts. What This Means for You If you're a partner or associate at a global firm, these trends have significant implications: Specialization is key : Firms are focusing on high-value practice areas. The days of being a generalist might be numbered. According to a 2024 Thomson Reuters report, lawyers specializing in areas like private equity, tech transactions, and regulatory compliance saw their billing rates increase by an average of 12 percent year-over-year, compared to 3percent for general corporate work. Location matters more than ever : If you're not in a major hub, you might feel increased pressure to relocate or risk being left behind. The same Thomson Reuters report found that lawyers in New York, London, and Washington D.C. billed an average of 200 more hours per year than their counterparts in smaller markets. Adapt or perish : Firms are becoming leaner and more tech-savvy. A 2024 survey by Altman Weil found that 76 percent of Am Law 100 firms are increasing their investment in legal tech and AI, with the goal of improving efficiency and profitability. The Road Ahead The law business is changing rapidly, and the pace shows no signs of slowing. It's clear that the most successful firms – and lawyers – will be those who can adapt quickly, focus on high-value work, and leverage technology to enhance their services.

What’s Behind The Big Law Office Closures?

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Tom Borman

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Tom Borman

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