The outbreak of the Covid pandemic in March 2020 led to lockdown and an emerging economic crisis. Israel's law firms swiftly went into defensive mode and the richest of them were the first to announce across the board salary cuts, while capital partners halted withdrawals, postponed expenses and took loans. The sentiment was that senior lawyers would bear most of the brunt.
In practice, "Globes" has found that the vast majority of law firms survived 2020 unscathed and some of them even recorded improved performance. The first year of the Covid pandemic saw profits rise at Israel's major law firms and the biggest winners were the 'fat cat' firms with more than 70 lawyers.
The data is based on a survey by Precise, which provides financial management services to Israel's law firms and companies in the field of planning. Precise was founded in 1995 by managing partner Nir Yerushalmi. The company employs 270 economists, including 240 in its Tel Aviv office, and the remainder in offices in New York and London. The company provides assistance in financial control and management and its clients include Israel's leading and largest law firms.
Precise partner and head of the law firms division Roy Ben Amir recalled. "It took two to two and a half months for the firms to understand that no real damage would be done because there biggest clients had been left unharmed. They began to lower their defenses - repay loans that had been taken, bring back employees from unpaid leave, and cancel the salary cuts."
Billings brought more money into the firms
As part of the survey, the main performance indicators were compared for 40 law firms in three categories: firms with more than 70 lawyers (10), medium-sized firms with 30-70 lawyers (15) and small firms with up to 30 lawyers (15).
The survey found that despite the Israeli economy shrinking in 2020, the average revenue of a lawyer in 2020 rose by 2.5% to NIS 849,000 compared with 2019, when the average revenue for a lawyer was NIS 828,000.
In terms of profits - these also rose with each lawyer bringing in an average of NIS 400,000 for the firm, compared with NIS 344,000 in 2019. The highest profits in in 2020 were recorded by the larger firms with more than 70 lawyers, with an average profit of NIS 450,000 per lawyer.
The smaller firms recorded the most significant rise in profits in percentage terms, a 30% rise, with average profit of NIS 335,000 per lawyer in 2020, compared with NIS 258,000 in 2019.
Ben Ami explains that the most important indicators that examine economic efficiency at the law firms are the revenue of each lawyer, and revenue per hour per lawyer, including the partners.
"If we look at the figures for 2020, we see a rise in revenue per lawyer in virtually every type of firm (small, medium and large). Even though we are dealing with the year of Covid, a year with surprising characteristics, certainly compared with other economic sectors, with a rise in the work load and revenue, and some of the firms even reporting a record year for revenue," Ben Aim said.
He explained that an additional reason for a rise in revenue was the crisis in the professional workforce, which compelled firms to make do with a relatively small work force.
Some of the firms rushed to implement, at least at the start of the crisis, adjustments that included salary cuts, the amount of work hours and sending staff on unpaid leave. But once it was understood that work was continuing, the medium and large sized law firm were quick to remedy the situation and bring salaries back to their previous levels, and return employees from unpaid leave, as the amount of work returned to pre-lockdown levels.
Revenue per hour fell
At the same time as the rise in revenue per lawyer, so the number of hours worked also rose, which led to a 4.3% fall in the average revenue per hour's work to NIS 503 per hour in 2020 from NIS 525 in 2019.
Revenue per hour for a lawyer is calculated from the overall revenue of the firm from fees divided by customer hours. In the large firm the average in 2020 was NIS 547 per hour while in mid-sized firms it was NIS 485, and it small firms it was NIS 489. In all sizes of firms revenue per hour for a lawyer fell in 2020, compared with 2019.
The opposite trend explains Ben Ami is due to the rise in hours billed in all firms as a result of the high work load in 2020, which is also continuing in 2021. "The bottom line was a handsome rise in revenue while the rise in the number of hours worked was even higher."
In 2020, clients had greater needs due to the problems arising from Covid but these were not fully billed because of the situation. Ben Aim explained. "Take for example labor law and the handling of debt collection - two areas where we expected a rise during Covid showed lower financial performance in 2020. The reason was that clients consulted more but billings did not rise. In debt collection, the authorities lowered the pressure and did not collect debt strenuously, so there were less procedures. Debt collection procedures were put off until 2021."
Work load - More enquiries by clients
2020 saw growth in billable hours in almost every field. Law firms measure the hours worked by lawyers in two ways: how many hours the client is billed for and how many 'office hours' worked by the lawyer (for which a client is not billed). The data show that associates and partners worked more hours in 2020 than in 2019, so that a capital partner reported an average of 2,015 hours in 2020 compared with 1,700 in 2019, while a salaried partner reported 1,838 hours in 2020 compared with 1,736 hours in 2019.
These figures reflect a situation where capital partners invest more 'office hours' compared with their colleagues and during Covid needed to manage the more complex task of conducting work from home during lockdowns.
Expenses: Savings in indirect costs
The survey found that while direct expenditure (cost of salaries to employees) climbed in more law firms in 2020, indirect expenses (overheads) fell significantly. The salary cost of a lawyer in 2020 was an average of NIS 22,000 compared with 21,000 in 2019 and the cost of a salaried partner was an average of NIS 45,000 per month in 2020, compared with NIS 43,000 in 2019.
The salary cost of legal interns fell to NIS 10,300 in 2020 from NIS 12,000 in 2019 because of a fall in costs for travel, meals etc.
The data also show that the size of the firm directly influences the average monthly costs of employees. In a large firm the average monthly cost (for an associate and salaried partner) was NIS 51,000, in a mid-sized firm it was NIS 46,000, and in a small firm it was NIS 42,000. The cost of an associate ranged from NIS 20,000 (in small firms) to NIS 25,000 (in large firms). The differences in the monthly costs for legal interns ranged from NIS 9,700 to NIS 10,700.
The survey found that overheads (expenses paid by a law firm regardless of revenue) fell by 12% in 2020 compared with 2019 to an average of NIS 23,000 per lawyer per year. There was a major fall in costs like firm events including vacations in Israel and abroad, meals in the office, travel expenses etc.
Published by Globes, Israel business news - en.globes.co.il - on August 18, 2021
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