Former House Speaker Dennis Hastert, leader of law firm Dickstein Shapiro’s lobbying group, left, with Jim Kelly, the firm’s chairman. Hastert says his practice is adding lobbyists as it pursues new clients in the wake of the departure of its biggest client, tobacco company Lorillard. (Jeffrey MacMillan/The Washington Post)

On paper, Dickstein Shapiro, the 61-year-old Washington law and lobby firm, had a difficult year in 2013.

It experienced a 20 percent drop in revenue and a 35 percent drop in profits, declines that even in a challenging market for corporate law firms are considered sizeable. Since last summer, dozens of attorneys and professionals have left to join other law firms, including clusters that went to Crowell & Moring, Greenberg Traurig and Lowenstein Sandler. Today, Dickstein is at its smallest point in recent memory, with about 225 attorneys — nearly 40 percent smaller than it was five years ago, when it had about 360 lawyers.

But the firm’s leaders are confident they are not heading down the same path as Howrey, the Washington legal institution that filed for bankruptcy in 2011, or Patton Boggs, the legendary lobbying firm whose financial troubles prompted a deal earlier this year to combine with Squire Sanders.

Dickstein chairman Jim Kelly says his firm is making changes to its structure and billing practices that will not only keep the firm in business, but help it thrive for years to come.

Many of the tactics Dickstein is deploying deviate from the way the firm has been managed in the past. The firm’s leaders are giving more flexibility to practice groups, they have hired a chief operating officer for the first time, and they are freeing up some attorneys and staffers to experiment with new fee arrangements. The firm is also reshaping its lobbying practice, which recently lost half its members and its top-paying client, the tobacco company Lorillard.

”There are a number of business attributes we’re now trying to bring to the legal side that are different from how a lot of other firms do it, and how our firm did it in the past,” says Jim Kelly, the firm’s chairman. (Jeffrey MacMillan/The Washington Post)

“We’re trying to operate our business more like our clients do,” said Kelly, who prior to becoming chairman in January advised companies on putting together real estate deals and other transactions. “There are a number of business attributes we’re now trying to bring to the legal side that are different from how a lot of other firms do it, and how our firm did it in the past.”

Structural changes

Central to Dickstein’s strategy is to be a more-focused, specialized firm rather than a global full-service legal behemoth. Its sweet spot is in insurance coverage — typically representing corporations suing insurance companies over contested claims. It also offers expertise in antitrust litigation, intellectual property, government law and strategy, and a niche practice representing companies being investigated or sued by state attorneys general offices.

“We aren’t going to be everything to everyone,” Kelly said. “We recognize that different practices have different competitive and strategic profiles, and we permit each of those practice groups to have some flexibility in how they’re going to deliver value to their clients, which is a significant departure from how law firms have been historically managed.”

The firm is decentralizing some functions, such as having individual practice group leaders decide how many summer associates they want based on what clients in their group need. The move is pivot away from how Dickstein used to hire young attorneys — and how many law firms continue to hire young attorneys — which was to mandate a set number of firmwide summer associates, and then try to find groups to place them into.

The firm appointed its first chief operating officer last year, Kristan Morrell. The newly created position encompasses responsibilities that were previously handled by any of five people: a chief administrative officer, chief marketing officer, chief financial officer, chief information officer and chief human resources officer. The consolidation was partly to free up Kelly to get more face time with clients.

“As the CEO of a law firm, I should be spending a significant portion of my time looking at trends, and being client-facing, and not spending as much time as has been spent in the past meeting with each of the senior officers about what’s happening in their area,” Kelly said. “It’s important for me to get out there and be with clients and see how we’re doing. We’re a client services business. That’s our number one priority.”

Dickstein has also created about 10 “hybrid” attorney-staff positions across its six U.S. offices that allow the firm to charge lower rates for certain types of work. That work used to be done by senior attorneys, who charged higher rates, but are now done by paralegals or senior secretaries who previously had not done hourly billable work. Some of that work, for example, is “borderline administrative” like monitoring legislation and filing disclosure forms for clients in the lobbying group.

“It allows us to customize the support for clients in each of the practice groups,” Kelly said.

The numbers

Kelly pointed to several metrics that show the firm is on solid footing, though he declined to share revenue figures for 2014. Overall productivity, measured by the number of billable hours, is “solid,” he said. The firm has no debt, maintains a “strong capital base” — the pool of cash that attorneys contribute to the firm in order to become an equity partner — and leaders are optimistic about profit projections. Even though overall revenue dropped 20 percent to $207.5 million last year, revenue per lawyer stayed relatively steady, dipping 3 percent to $815,000. And the firm has increased the amount of business it does for its top 50 clients by 85 percent over the last five years, he said.

“At the end of the day, we’re going to be judged on how we perform in 2014,” Kelly said. “We’re on track and are very happy with our performance.”

Though some of the firm’s objectives echo that of other large law firms — expand business with existing clients and sign new clients by focusing on core practices — Dickstein stands apart in terms of its appetite for potentially risky contingency work, cases where the firm commits money and resources without the promise of getting paid.

The firm has historically allocated between 5 and 12 percent of its resources (in the form of attorneys’ billable hours) each year into contingency cases, the bulk of which is in antitrust, insurance coverage and intellectual property litigation.

Kelly calls this type of work “investments.” And there can be downsides.

“The deal with contingent [work] is that it’s hard to match the timing of the investment and the timing of the recovery,” he said. “Last year, the recovery time did not match the investment time. But this year, we’re quite pleased with where the recovery level is.”

Kelly declined to divulge how much in contingency recoveries the firm has collected in 2014, but said the firm is comfortable with the level of recoveries thus far.

“Contingent cases are part of our DNA,” he said. “It’s an important part of who we are.”

Loss of attorneys, clients

More than two dozen attorneys and lobbyists have left Dickstein for other jobs within the past year. Such movement is not unheard of in the legal industry, where business is portable and lateral moves have become the norm. The trickle of lawyers leaving Dickstein, however, was steady enough to get the legal community buzzing about what was happening inside the firm.

In July 2013, Larry Eisenstat, head of Dickstein’s energy group, went to Crowell & Moring with eight other energy specialists. Shortly afterward, intellectual property partners Clark Lackert and Keith Sharkin and insurance attorneys John Schryber and Andrew Weiner exited for Reed Smith. In May, lobbyist Brian Finch left to start the cybersecurity group at Pillsbury Winthrop. Last month, 13 members of the firm’s lobbying group, led by the group’s chair, Andrew Zausner, left for Greenberg Traurig. And in early August, four insurance lawyers, including partners Andrew Reidy and Cathy Serafin, jumped to Lowenstein Sandler.

Kelly declined to discuss specific departures and whether they were driven by people’s individual decisions to leave or whether they were encouraged to explore other opportunities, either directly or indirectly, by firm leadership.

“We took a hard look at the business and our people,” Kelly said. “We decided to be proactive and did things we thought would be the best interest in the firm.”

Some former Dickstein attorneys, who spoke on the condition of anonymity so as not to harm relationships, said they left to pursue better opportunities to expand their practice, but they expressed confidence in their former firm’s future. They said they do not expect recent departures to severely damage Dickstein’s bottom line. Some left after being asked to cut costs and personnel in their group, which they did not want to do. There is “some nervousness” within the firm, but it has not reached “panic level,” one said.

The departures to Greenberg were significant not in the number of people who left but in the business they took with them — the account for Lorillard. Dating back at least 16 years, the tobacco company had been Dickstein’s top lobbying client, paying an average of $1.9 million every year for the last 16 years — making up, on average, 39 percent of the group’s annual lobbying revenue, according to the Center for Responsive Politics. In 2013, the last full calendar year that Lorillard was a client, the company paid Dickstein $2.77 million in lobbying fees, or about 35 percent of the lobbying group’s revenue of $7.84 million. In 2013, Dickstein’s contract with Lorillard was the second highest contract on K Street, second only to that of Gila River Indian Community, which had a $2.83 million contract with Akin Gump.

Former House Speaker Dennis Hastert, the new leader of Dickstein’s lobbying group, is putting a positive spin on the loss of Lorillard’s business, which had forced the group to pass up on work in other industries, such as the medical and health care field, because of conflicts of interest. He described his group as “going through a catharsis.”

“We were limited in the kinds of clients we had before because we couldn’t get into medical stuff because of the clients we had,” Hastert said. “We couldn’t get into energy because of the clients we had. We’re able to expand into new horizons in areas we hadn’t been able to look at before because of the major dollar contributors.”

The firm has been scouting new recruits for its lobbying group. Joining the group in early September will be Carrie-Lee Early, an attorney on the House Energy and Commerce Committee, and David Thompson, a lobbyist at Capitol Hill Consulting Group who was an aide to Hastert when he was speaker of the House.

“We’re not falling apart, we’re building up,” Hastert said.