2018 Legal Executive Forum: Shining a Light on Law Firm Profitability
The 2018 Legal Executive Forum kicked off with a presentation by Dr. Evan Parker, who explored the use of statistical models to illuminate a law firm’s profitability drivers and differentiators. Parker, managing director of Analytics & Research, LawyerMetrix, provided specific examples for how his company uses data science to help its clients set their “profitability agenda.”
He framed his session with two goals in mind:
- To consider how we can think more productively about law firm profitability in order to address some of the complex problems that law firms are facing;
- Leverage “rigor and analytics” in an effort to bring new perspective to law firm management and performance and to set a “profitability agenda”
Parker, a former political scientist, began his talk with a challenge to attendees to consider how media strongly influences what its readers think about and, by extension, how the annual release of top-level law firm rankings tends to dominate the collective consciousness of the legal profession.
While he acknowledged the rightful place of such rankings in legal industry metrics, Parker explained that the risk is when they are reduced to a heuristic, as in: “Am Law 100 good; Am Law 200 disappointing.”
It was from this position that he asked, “Is that really the way you want to be thinking about law firm strategy or financial performance?”
As Parker explained it, traditional metrics such as gross revenue which underpin the Am Law 100, don’t tell the whole tale. To illustrate, he displayed an initial grid of the Am Law 100 firms, and then in a series of successive slides, revealed which firms were eliminated when measured for the Top 100 based on additional financial performance measures, including: revenue per lawyer, profits per partner, average partner compensation and five-year growth against each of those metrics. In the end, only 41 firms within the Am Law 100 met the revised criteria, while 10 Am Law 200 firms did.