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July 18, 2006
Do the AmLaw 200 and the Fortune 500 Follow in Each Other's Footsteps?
My friend Professor Bill Henderson of Indiana University Law School/Bloomington continues his fascinating empirical research into the legal profession with a new piece which analyzes, over the past 20 years, the geographic migration of large law firms and their lawyers vis-a-vis the migration of the Fortune 500.
Before we get to the data, I want to give you a chance to hypothesize about what it will show. The migration of Fortune 500 headquarters has been...? Indeed, largely from the Northeast and Midwest to the Southeast and Southwest. But the migration of AmLaw 100 firms—and their concentration of lawyers by headcount, which is actually the statistic of greatest interest—is perhaps not so intuitive to divine.
In reviewing academic and popular literature on geographic factors and trends, one is immediately struck (certainly Bill was) by the ink spilled over the subject of "Global Cities" or "World Cities." They are, in short, centers of international business and finance. What makes a city "Global?" Researchers obviously have their different methodologies (airline links, concentration of banks and securities firms, etc.), but one that all agree is non-negotiable for a city to qualify is a high concentration of sophisticated service providers: Accountants, advertising executives, investment bankers, management consultants, and lawyers.
Bill theorizes that the two "primary drivers affecting the geographic growth patterns of large U.S. law firms" are what he calls "Follow the Client," and "Follow the Lawyer."
I happen to agree, as these coincide with the demand (client) side of the law business and the supply (lawyer) side. AmLaw firms will "follow the client" by migrating to the Southeast, Rocky Mountains, and Southwest. But by the same token, clients will "follow the lawyer" by selecting high-end legal services from providers in Global Cities, when the last word in sophistication is called for. In the US, says Bill, that means New York, Chicago, Washington, DC, San Francisco, and Los Angeles—with New York "always number one."
Finally, the irrepressible quant in Bill creates a statistic to compare the relative regional concentration of AmLaw 200 lawyers to the relative regional concentration of Fortune 500 firms. For lawyers, it's the region's percentage of all AmLaw 200 lawyers and for the Fortune 500 it's the region's share of F500 revenue.
And the bottom line is?
Despite the fact that both the Northeast Corridor and the Midwest have been losing Fortune 500 firms at rougly the same rate, the two regions diverge sharply when looking at changes in AmLaw 200 lawyer headcount. As Bill writes, the Northeast Corridor "has emerged--or consolidated its position as--the center of the large law firm universe. Although it accounts for only 30% of the Fortune 500 revenues, it has 48% of the Am Law 200 lawyers." And it's a strong net "exporter" of legal services, whereas the Southeast and Southwest are large net "importers" of legal services.
Coincidentally, Fortune just came out with its "Global 500" for 2006, which aside from ranking companies, interestingly, ranks cities by number of Global 500 firms headquartered there, and shows total annual revenue of those firms as well. Here are the top 5, although I'd actually argue the first four are in "a league of their own," given the more than 50% dropoff between #4 and #5:
| #1 | Tokyo | 52 companies | $1,662,496-million |
| #2 | Paris | 27 | $1,188,819 |
| #3 | New York | 24 | $1,040,959 |
| #4 | London | 23 | $1,054,734 |
| #5 | Beijing | 15 | $520,490 |
Lastly, for fun, Fortune mapped cities into visual size-by-revenue charts, which gives us the US, the UK, Germany/Italy, and Japan. (Countries are not to the same scale.)
Are you looking at the face of the future distribution of your firm's lawyers?
Published by Bruce at July 18, 2006 8:19 AM | TrackBackPublished to Cultural Considerations | Finance | Globalization | Leadership | Strategy
Published by: J. Heyison 
at July 18, 2006 11:15 AM
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