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Profit Is the New Growth

For the largest of the world's law firms, revenue has long been the barometer of success. Gross revenue is, in fact, the measure The American Lawyer applies to compile its annual listing of the Am Law 100. And by the measure of revenue, the last decade has been a period of accelerated global warming for large firms. From 2000 to now, total revenues have nearly doubled, from $40.77 billion to $81.49 billion.

But as the times change, perhaps so should the measure, suggests Bruce MacEwen in an opinion piece published this week by the U.K. periodical The Lawyer. "The strategy of growth for growth's sake may be in at least temporary eclipse," writes MacEwen, who is author of the blog Adam Smith, Esq. "My nominee for the new default strategy? Higher profit. Profit is the new growth."

MacEwen's suggestion comes in part from his sense that rapid-paced growth has suddenly become not just unseemly, but also impractical. One reason it is impractical is the scarcity of available financing, whether drawn from bank debt or partner contributions. Austerity is now the hallmark, MacEwen says. Another reason he believes growth is impractical is law firms' doubt about where or how to grow. Who knows what the next hot practice area will be?

Along with those negative incentives to change the measure of success, there is a positive reason to do so, MacEwen says:

It’s not all about the sudden breakout of blemishes all over the complexion of our erstwhile fair-haired child, growth. Rather, there’s a strong and positive reason why profit should be your new lodestar. If, in hard times, you need the best defence, then profit is that and your best form of offence as well.

A robust and growing profit – particularly with static or slowly eroding headcount – guarantee that your firm will be increasingly attractive to your critical audiences of interest, including potential clients, laterals and student recruits. It’s more true than ever, in times like these, that ‘nothing succeeds like success.’

Surely, many large-firm partners would be happy to substitute robust profit growth for robust revenue growth. After all, larger gross revenues do not guarantee higher profits. At the end of the day, most lawyers would prefer more money in their pockets. MacEwen's proposed measure makes good sense. So if profit becomes the measure, then all lawyers need is the secret to turning up the heat.

Posted by Robert J. Ambrogi on February 5, 2009 at 11:06 AM | Permalink | Comments (0)

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