At first glance, it might appear that the economic recovery stopped with The Am Law 100.

While the nation’s 100 highest-grossing firms rebounded from a disastrous 2009 by posting healthy gains in 2010–a 4 percent increase in gross revenue, a 4.4 percent rise in revenue per lawyer, and an 8.4 percent pop in profits per partner—gains at the Second Hundred were less robust. The Second Hundred’s total gross revenue rose 2.2 percent, to $17.46 billion in 2010 from $17.08 billion in 2009, while average revenue per lawyer increased just 1.5 percent, to $579,749 from $570,999. Average profits per partner rose 3.4 percent, to $665,665 from $643,580.

But don’t break out the black bunting for the Second Hundred yet. Much of The Am Law 100′s gains were built on cuts in head count—average head count was slashed by 2.7 percent, while the number of equity partners fell by 0.9 percent, and the number of nonequity partners dropped by 1.7 percent ["Back in Black," May].

So where did those lawyers go? Often, it turns out, they went to the Second Hundred. Total Second Hundred head count grew by 0.7 percent in 2010, to 30,123 from 29,915, and partner numbers showed even more pronounced gains. Second Hundred equity partner ranks rose 2.7 percent, to 9,714 from 9,461, and the number of nonequity partners went up by 4.6 percent, to 5,805 from 5,548. In fact, lawyer head count was the one area where Second Hundred firms outpaced their Am Law 100 counterparts in 2010.

“The pool for lateral partners is as deep as I’ve ever seen,” says Ogletree, Deakins, Nash, Smoak & Stewart managing shareholder Kim Ebert, whose labor and employment firm has been in expansion mode, opening five offices in 2010. Last year the firm picked up Am Law 100 partners from Winston & Strawn, McGuireWoods, Perkins Coie, and Holland & Knight. “We acquired several talented partners last year, and there are some very strong partners having conversations with us right now,” Ebert says. Labor and employment lawyers are better off at a specialized firm than at a top general practice firm, Ebert says, since they can build their practices without needing to keep rates high and compete with other practice groups for resources.

Other Second Hundred firms followed Ogletree’s lead. Last year David Dukes, managing partner of Columbia, South Carolina’s Nelson Mullins Riley & Scarborough, saw an opportunity to build up several of his firm’s practice areas, particularly corporate, labor and employment, and intellectual property, and eagerly dove into the pool of lateral recruits. “Last year was probably our best lateral recruiting year in a decade,” says Dukes, whose firm added partners from DLA Piper, Duane Morris, and Seyfarth Shaw.

Dukes says that Second Hundred firms’ lower billing rates are a big draw for laterals: “We have more flexibility on minimum billing rates than some Am Law 100 firms I’m familiar with, and that’s beneficial for younger laterals who are still building up a client base and might be working with start-up companies or companies in the early stages of development, as opposed to ones in the Fortune 500.” In addition, Dukes says, older laterals looking for more flexibility with their practices might feel more at home at his firm than at an Am Law 100 shop. “By necessity, Am Law 100 firms have to be more rigid in some of their practices,” Dukes says.

Alan Levin, managing partner of Indianapolis’s Barnes & Thornburg, agrees. “A lot of people are moving to other firms because they are looking for platforms that may be more conservative and more competitive rate-wise,” he says. “We were able to pick up some good talent in the last couple of years as a result.” (Last year the firm hired partners from Mayer Brown, Fulbright & Jaworski, and Faegre & Benson.)

Lateral hiring was not the only business strategy that Second Hundred firms deployed during the recession. New York’s Patterson Belknap Webb & Tyler posted a 12 percent gain in revenue per lawyer, one of the Second Hundred’s highest, in part on the strength of its mortgage and credit crisis practice group, which the firm formed in 2007. “Our observation was that the beginning of the credit crisis would spawn a lot of litigation,” says Robert LoBue, Patterson’s cochair and managing partner. “By creating that practice group before the litigation, we were well positioned to pick up a lot of that work in the last few years.” In 2010 the firm brought suits on behalf of bond insurer Assured Guaranty Ltd. against two Deutsche Bank AG affiliates and represented Ambac Assurance Corporation in litigation against Countrywide Financial Corp.

Meanwhile, health care was a boon for Kansas City, Missouri’s Polsinelli Shughart, where revenue per lawyer rose 16 percent. (Part of the increase, however, was due to an $18 million contingency award the firm received for litigation work against Wal-Mart Stores Inc.; without the award, the increase in revenue per lawyer would have been 6.8 percent. The firm, which has made health care a priority for the past four or five years, attracted health care laterals from Bryan Cave and McGuireWoods, and an 11-lawyer health care group from Faegre & Benson in April 2011. “We thought it was a practice where we could establish ourselves, become known for our expertise broadly,” says chairman W. Russell Welsh, who also hired a litigation partner from Hogan Lovells and a bankruptcy partner from Sonnenschein Nath & Rosenthal (now SNR Denton), among others. “We’ve seen more work as a result of health care reform, both in terms of public policy and [in] operational issues relating to providers and hospitals.”

Houston’s Gardere Wynne Sewell posted one of the Second Hundred’s steepest drops in revenue per lawyer (14.4 percent), but its results suffered from comparison to an uncommonly strong 2009, when the firm received two contingency awards, one for representing a hospital in an antitrust suit, and the other for representing an oil and gas company in an insurance coverage case. Despite taking the hit in 2010, Gardere managing partner Stephen Good says he does not regret his firm’s decision to pursue streams of nonrecurring revenue, since it attracts clients who are looking for a firm to assume some of their litigation risk. (The largest decrease in revenue per lawyer, 28.7 percent, was posted by Howrey, which fell out of The Am Law 100 and disbanded in March [see "The Fall of Howrey," page 48].)

As the economy improves, heads of Second Hundred firms say that they are well positioned to compete with their Am Law 100 counterparts, thanks in part to their lower billing rates. “If corporations have learned one thing, it’s that they don’t get more value just because they go with the biggest name brand,” says Arthur Makadon, outgoing chair of Philadelphia’s Ballard Spahr, which posted a 10.8 percent increase in revenue per lawyer in 2010. “I think we have benefited greatly and will continue to benefit because we provide better service, better attention, and treat our clients like actual citizens.”

And what about the fact that, on average, Am Law 100 firms posted bigger gains in revenue per lawyer and profits per partner? “I’m not losing sleep over it,” says Barnes & Thornburg’s Levin. “I still think that strong regional or quasi-national firms like ours will compete well across the board with the global firms. I think what’s happened in the legal landscape is not a short-term blip but will be the future.” If so, firms like Levin’s will be able to count on some of The Am Law 100′s own talent to help.

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