Despite strong showing in 2012, law firms continue ‘more business-like’ approach

March 10, 2013

Sequestration may have jolted the Washington economy, but you wouldn’t know it from the profits some law firm partners are reporting.

Most of Washington’s largest law firms, based on the number of local attorneys, reported increases in revenue and profits per partner in 2012 compared with 2011.

Seven of the 10 firms saw profits per partner — the industry standard for measuring law firm profitability — rise between 1 and 10 percent, and six of the 10 also reported overall revenue growth between 2 and 14 percent. Almost all the firms did it without reducing their number of partners.

The law firms reporting the highest profits per partner in 2012 were WilmerHale at $1.46 million, followed by Arnold & Porter at $1.4 million and Covington & Burling at $1.27 million. The data was self-reported by the firms to the legal trade publication the American Lawyer. Two of Washington’s largest firms, Skadden, Arps, Slate, Meagher & Flom and Wiley Rein, do not report financial information to the publication.

The figures reflect a growth pattern similar to 2011, when most firms reported single-digit growth in revenue and profits per partner. Still, law firm leaders expressed near-unanimous caution about the slow pace of the economic recovery and its impact on their business. They’re putting more pressure on partners to generate business, clamping down on expenses and agreeing to more alternative fee arrangements to keep clients happy.

“The economy seems to be continuing its recovery, but it is gradual, so generally we anticipate the market conditions will be somewhat the same throughout this year,” said Kent Gardiner, chairman of Crowell & Moring, which saw profits per partner jump nearly 10 percent in 2012. “For the legal marketplace, this means continued pressures on pricing and productivity.”

The gains follow a dark period for the legal industry. In 2009 and early 2010, major U.S. law firms cut sizeable numbers of attorneys and staff and began adopting more retainer, contingency and success fees in order to hang onto clients. While most firms have since stabilized, some are just feeling the pain now. Late last month, Patton Boggs, which houses the District’s largest and most profitable lobby shop, laid off 65 attorneys and staff, including 23 in the Washington office. The firm, which attributed the reductions to a decline in demand, also closed its Northern Virginia office last year.

Future opportunities

At most firms, mainstay Washington specialties such as antitrust, health care and intellectual property continued to help drive business. Cybersecurity and Foreign Corrupt Practices Act work — two booming areas for companies — are poised to bring in more legal work for years to come.

“Cybersecurity is reminiscent, for our region, of Silicon Valley,” said Bob Waldman, co-managing partner of Venable. “The industry is starting to mature to the point it now generates the normal legal needs that a more mature industry has, like labor and employment and mergers and acquisitions.”

Many firms are also seeing short-term benefits from fiscal cliff- and sequestration-related issues. Gardiner said sequestration is “front and center” for the firm’s government contracts practice.

“We are counseling clients every day on the issues and the formidable challenges resulting from that,” he said.

Waldman described the pace of Venable’s tax practice as “crazy in the fourth quarter.”

“Everyone panicked over the fiscal cliff and were trying to do tax planning and transactions that were tax-driven,” he said. “All that got squeezed into the fourth quarter.”

Profits per partner at Venable, rose about 3 percent from $817,000 to $845,000.

The only firm to report a drop in profits per partner was Hogan Lovells, down 8 percent from $1.2 million to $1.1 million.

“We’re more focused now than in the past on being more ‘business-like’ about how we approach things,” said Thomas Milch, chairman of Arnold & Porter, which credits much of its 14 percent rise in revenue to its 2012 merger with smaller San Francisco-based law firm Howard Rice. “We have raised our level of expectations of our partners and are more focused on making sure our colleagues are contributing to the firm on a regular basis. We’ve eliminated all the debt in the firm, we’ve given up some perks … more attention is given to the economics of the firm and trying to make sure we’re thinking long-term.”

Catherine Ho covers law and lobbying for Capital Business, which she joined in 2011. She was previously a reporter at the Daily Journal in Los Angeles, covering LA civil courts and labor and employment law.
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