Sergio Galvis. Partner Sullivan & Cronwell.

In this session, Galvis began an analysis of the period between 2010 and 2019, during which the legal market in the United States experienced consistent growth, marking an upward trend since the 2007-08 financial crisis. Throughout this decade, revenues showed a slight increase compared to expenses, resulting in an improvement in average profitability. This period was characterized by moderate growth in aggregate demand, mainly driven by increases in billing rates. Firms exercised cautious management regarding the number of equity partners, allowing for limited net growth. Additionally, leverage models experienced an increase, shifting towards a more senior model.

However, the year 2020 marked a significant shift in the landscape of the U.S. legal market due to the global COVID-19 pandemic. Despite initial fears of a massive crisis, governments, including the United States, injected liquidity into markets through fiscal and monetary policies. This had a notable impact on the demand for legal services during the period of 2020-2022, although some regression was observed in 2022. Throughout 2019-2022, the industry’s profitability improved, but expenses began to exert pressure on profits by 2022. The so-called “war for talent” raised lawyer costs, and the growth of operating expenses resumed.

Regarding different business models, some firms opted for more traditional approaches, while others adopted more aggressive strategies. Those with a more aggressive approach managed to drive revenue growth by capturing incremental demand, supported by significant investments. Both types of firms engaged in lateral hiring, but the more aggressive ones integrated it as a fundamental part of their growth strategy and culture.

As we move into 2023, some firms have already adjusted their staff growth, and the intensity of the “war for talent” seems to have decreased. Firms are preparing for the possibility of a recession in the United States and continue to focus their efforts on creating effective hybrid working models that foster collaboration and mentorship necessary for excellence in the legal sector.