Rising staff costs coupled with a slowdown in fee income have put a squeeze on law firm profits – and prompted a quarter of top firms to warn of cuts in middle-ranking legal jobs this year. The latest annual survey of law firms’ financial management, conducted by PwC, shows about one-quarter of the top 25 firms expect “fee earner” numbers to fall in the 12 months to April 2004. A further 38 per cent expect the situation to be static.

This leaves 37 per cent still expecting some growth in fee-earners – that is, lawyers who rank below partner level. But even so, analysts at PwC say that represents a substantial shift in expectations from the past few years. Then, 60-70 per cent of top law firms were typically predicting that the number of fee-earner jobs would increase.

But the consultants warn that more action may be necessary, especially if the weak market conditions persist. Staff costs represent the main expense for many firms and the survey cautions that, as yet, not enough has been done to pull these into line.

Surprisingly, while firms appear to be increasingly aware of the need to control fee-earner numbers, similar discipline does not appear to be applied to equity partners. On this score, almost two-thirds of the top 25 law firms were anticipating an increase in the current year.

“Equity partner head-count has increased at many firms and is diluting profits per partner. Firms should seriously consider managing their partner numbers in line with both reducing staff numbers and the pressure on profitability,” said Alistair Rose, at PwC’s professional partnership advisory group.

The consultants warn that law firms may still have too rosy a view of future profits. “For example, 63 per cent of the top 25 law firms expect to increase profits per partner this year,” the report notes. This is despite their forecasting to increase partner numbers and decrease staff numbers.”

Scroll to Top