Washington’s largest law firms saw profits vary widely in 2013 even as revenues stayed mostly flat.
Hogan Lovells reported that profit rose nearly 12 percent last year, for instance, while profit fell 15 percent Steptoe & Johnson, 14 percent at Finnegan, Henderson, Farabow, Garrett & Dunner and 10 percent at Arnold & Porter.
Most of the region’s largest law firms, as measured by the number of local lawyers, reported relatively flat revenue, growing or shrinking by single-digit percentages in 2013 compared with 2012. The financial data was self-reported by the firms to legal trade publication the American Lawyer.
The mixed results reflect the uncertainties that large law firms have faced since the financial crisis hit in late 2007. Few firms soared, but no area firm went bankrupt, either.
Relatively flat revenue pushed many law firms to tinker with expenses, for example reducing real estate costs — the second-largest expense after people — to preserve profitability.
“You see law firms focused on their management of space, of people. . . . Their overall cost structure is under a lot of pressure,” said Richard Alexander, managing partner at Arnold & Porter, which is downsizing its D.C. real estate by about 100,000 square feet when it moves to a new office by 2015. “The industry is going through some restructuring, and all law firms have been and will continue to address those issues.”
In 2013, Arnold & Porter saw its revenue fall 6 percent, to $686 million, and its profit slip 10 percent, to $319 million.
“We think 2014 will continue to be a challenging year for law firms,” said Arnold & Porter Chairman Thomas H. Milch. “Many of our clients, the [in-house lawyers at companies], are under enormous pressure from their own management to control costs. They are, in turn, challenging their major law firms to be stringent about ways to control costs and come up with new and different kinds of fee arrangements. It’s made client service more of a key factor in the selection of law firms and deciding to give certain law firms more work.”
The size of equity partnerships — partners who have a stake in the firm and share in its profits — changed little at most of the big D.C. firms. Five of the eight firms added a handful of partners, and the rest trimmed equity partnerships just slightly.
There were a few bright spots. Three firms — Hogan Lovells, Venable and Crowell & Moring — posted gains in four key metrics: revenue, profit, growth in equity partners and profit per partner.
Hogan reported its strongest financial results since the 2010 merger between Washington’s Hogan & Hartson and London-based Lovells, which at the time was one of the biggest law-firm mergers in history. In 2013, the 2,500-attorney firm earned $1.7 billion in revenue, a 5 percent jump from the previous year, and $628 million in profit, a nearly 12 percent gain.
Venable had a banner year, reporting its highest revenue and profit per partner in the firm’s 114-year history. The 9 percent growth in revenue, to $409.5 million, and 8 percent jump in profit, to $144.5 million, was driven by strong performances by the firm’s litigation and regulatory groups, said Venable co-managing partner Lindsay Meyer.
“From product liability to intellectual property to commercial litigation, each of those is really hitting their stride,” Meyer said. “Another area is the regulatory and legislative sphere. The regulators come whether the economy is good or bad. If you look at the broad spectrum we have in representing clients among all regulators — trade, privacy, [Food and Drug Administration] — all those areas were busy as well.”
Venable will continue to grow cautiously, Meyer said. It is one of few large U.S. law firms that has not opened offices internationally, a move that can be risky and costly to maintain. In October, Venable opened an office in San Francisco to accommodate greater demand from its Silicon Valley clients.
“Our rates are not as high as some comparable firms, and that’s played to our strengths when clients are looking to work with outside counsel,” Meyer said. “We’re in an era now where you see more [requests for proposals] than you did several years ago. As a business, we are conservative and careful in that space.”
To see a breakdown of law firm revenues and profits see this week’s Capital Business or go to www.capbiz.biz.