Technically, it may not have been a depression, but it sometimes felt like one. As a group, leading firms showed across-the-board declines in gross revenue, profits, and productivity (as measured by revenue per lawyer) from 2007 to 2009, according to a compound growth rate (CAGR) analysis. Some managing partners seized the opportunity to strategically reshape their practice mix. A few attempted a more radical reshaping, pulling off transcontinental mergers. But for most, it was a challenging year.
After years of seemingly inexorable rises, the 84 American and British firms that were on the Global 100 in both 2007 and 2009 saw average annual declines of 0.15 percent in gross revenue, 1.3 percent in revenue per lawyer (RPL), and 2.76 percent in profits per partner (PPP). About a quarter of them showed a positive RPL trend over the 2007–09 time frame, and about the same proportion showed a positive PPP trend.
Who stood out amid the wreckage? Only 13 U.S. firms could claim both positive RPL and PPP. But some of those firms gained ground the easy way, through layoffs. (An extreme example is Akin Gump Strauss Hauer & Feld, which achieved 10 percent annual PPP growth and 8 percent annual RPL after cutting head count 10 percent; gross revenue fell 2 percent over the period.) Eight happy firms stayed in positive terrain on all four metrics: Bingham McCutchen, Covington & Burling, Drinker Biddle, Fish & Richardson, King & Spalding, Lovells, McGuireWoods, and Perkins Coie.
Another way of sorting firms by their composite results is to add each firm’s percentage of compound annual growth in revenue, head count, RPL, and PPP. Call it the Recession Performance Index. This exercise gives high scores to firms that executed mergers or took on big chunks of defunct firms (examples include Bingham, Bryan Cave, Covington, K&L Gates, McGuireWoods, and Perkins Coie, all of which were in the top ten). But expanding during this period is itself a measure of achievement (especially without diluting RPL and PPP) and with the exception of Bryan Cave, all those firms performed well on those measures. Overall, this list is a pretty good gauge of which firms have coped well with the headwinds. At the same time, the component scores give a sense of how firm management has prioritized size, profit, and productivity.
To no one’s surprise, the Recession Performance Index is top-heavy with bankruptcy and litigation standouts, among them Cleary Gottlieb Steen & Hamilton and Quinn Emanuel Urquhart & Sullivan, as well as the members of the all-positive club. At the bottom are a quartet of firms that, in varying ways, combined declines in size and profit: Ashurst; Cadwalader, Wickersham & Taft; Fried, Frank, Harris, Shriver & Jacobson; and Simmons & Simmons. (The complete list is available at americanlawyer.com/global100.)
Perhaps the biggest surprise from our data is that the average American firm in our group of 84 firms posted compound annual head count growth of 2 percent from 2007 to 2009. Even the dozen U.K. firms in our group saw a compound annual shrinkage of less than 2 percent [see "Sound as a Pound," page 126]. Even as firms cut head count in some practice areas and locations, they were expanding in others. By circumstance or by design, each firm has gone through a makeover, predicated on a different vision of the future.
The American Lawyer asked a sampling of global law firm leaders how they are using the economic crisis to proactively shape their enterprise. Allen & Overy senior partner David Morley spoke for many (but with more honesty) when he said that his biggest step was firing 9 percent of his firm’s lawyers. But he hastened to add: “Part of restructuring is about reshaping the firm—taking out areas that are less busy, and focusing on areas that are likely to be busier.”
Dewey & LeBeouf is one firm that pulled off the signature shift of this recession—cutting its securitization practice to a third of its former size, while quadrupling its restructuring group. Its key move was hiring Martin Bienenstock, cohead of Weil, Gotshal & Manges’s bankruptcy group, soon before the downturn, in early 2008. “A grand-slam home run,” marvels Dewey chairman Steven Davis. Whether he was smart or just lucky, other firm leaders can only hope that their hunches look as prescient. (Weil survived the loss of Bienenstock just fine, scoring highest on the Recession Performance Index of any Top 15 firm by revenue.)
“Heightened regulation is the major issue pressing both corporates and financial institutions today, and we anticipate a significant uptick in activity in this area,” says Skadden executive partner Eric Friedman. Accordingly, over the course of the recession, Skadden has ramped up its health care group with four lateral partners, anchored by former U.S. attorney Michael Loucks in Boston, and latched on to nine lateral partners in litigation and white-collar crime, including former White House counsel Gregory Craig. Overall, Skadden was a middling performer in our CAGR analysis, but Friedman says that Skadden’s stability relative to some of its peers made this an opportune time to recruit. “We’ve used the market disruption to add unique strengths,” he says.
Freshfields Bruckhaus Deringer chief executive Ted Burke says that the trend is toward global enforcement in particular. In 2009, 30 percent of U.S. corruption investigations involved non–U.S. companies; the Securities and Exchange Commission asked foreign regulators for assistance 774 times; and the Financial Services Authority increased its investigations of non–U.K. companies by a factor of six. Freshfields has responded by expanding its litigation group by 20 percent over the course of the recession, to 63 partners. It gobbled up seven U.S. lateral litigation partners since last year, specializing in either investigations or the securities actions that follow them. “You often have a single fact pattern and multiple investigations,” Burke says. “Our clients told us it was a circus to coordinate.”
Several firm leaders say they’re targeting the tech sector, but each with a different twist. Sidley Austin launched a Palo Alto office with nine lateral partners in December 2009, in the hope that two of its D.C. laterals—the chief lawyers of the Food and Drug Administration and the U.S. Department of Energy—will give it an edge at the juncture of technology and regulation.
Allen & Overy is targeting IP as part of a broader push to increase litigation from 9 percent to 15 percent of revenue. (After three years, they’re halfway there.) “Traditionally, IP is done by smaller firms outside the U.S.,” Morley says. “We see it developing more into a global product.”
Meanwhile, Dewey hired a five-partner M&A team serving the tech sector from Cooley in the summer of 2009. “It’s an example of adding strategically in a sector with big potential for growth in a recessionary climate,” says Dewey’s Davis.
For Latham & Watkins, the sector to bolster was energy. Early this year, the firm plugged gaps in its energy, finance, and energy finance practices by launching new offices in Riyadh, Abu Dhabi, and Houston, and by strengthening its London presence, with 13 lateral partners from White & Case and another eight from three Texas firms. In all, Latham took on 25 lateral partners in the first quarter of 2010. “We didn’t think, ‘It’s a recession, we should be adding 25 partners,’ ” says managing partner Robert Dell. “ Rather, we asked ourselves, ‘Gee, should we be doing this during a recession?’ Our answer was, ‘Yes, we need to think long-term.’ “
Geographically, everyone’s attention is shifting to the emerging markets. Clifford Chance raised its Asian revenue by a whopping 21 percent last year, to 10 percent of firmwide revenues, and moved some heavy artillery from London to Moscow and the Gulf. Meanwhile, A&O is still building its global network at a bubbly pace. Since last year, it has launched offices in São Paulo, Doha, Jakarta, and, most splashily, in Sydney and Perth (with 17 Australian law partners jumping from Clayton Utz and Freehills early this year). “We are seeing more and more business in more and more countries previously thought of as not that interesting for global law firms,” says Morley.
Two American firms—Hogan & Hartson and Sonnenschein Nath & Rosenthal—transformed themselves completely in the quest for new markets, by combining with London-based empires. The formation of Hogan Lovells, says co–chief executive officer Warren Gorrell, was driven by the desire of global clients to reduce the number of law firms they work with. When Hogan & Hartson lost beauty contests, Gorrell says he kept hearing: “While it’s nice you have 20 percent of your business outside the U.S., we think you can do better.” Postmerger, Hogan now has 60 percent of its business outside the United States. In particular, Hogan went from fewer than 50 lawyers in Asia to more than 200. “Asia is an important driver long-term,” says Gorrell.
At SNR Denton, which was formed by the combination of Sonnenschein with Denton Wilde Sapte, co–CEO Elliott Portnoy tells a similar story: “We needed talent in set geographies, or we would jeopardize our client relations.” Specifically, he cites the need to be in London for financial institutions, and the need to be in both London and the Middle East for energy companies. When the two firms combined, Sonnenschein went overnight from zero to more than 300 lawyers in London, and from zero to 140 lawyers in the Middle East.
Gorrell and Portnoy agree that the economic crisis accelerated the trend for corporate counsel to shrink their lists of preferred providers, which galvanized them both. Portnoy goes further and credits the recession with changing mentalities, and opening partners to radical change. “When normalcy returns, people will return to the old way of thinking,” he says. “There’s a limited time-window for law firms to become global. Now’s the time.”