All the key financial metrics for The Am Law 100 rose by single digits last year: gross revenue, revenue per lawyer, and profits per partner. Eighty-three firms posted revenue gains—25 more than in the previous year. And the terrifying days of mass layoffs seemed to be over: Firms reversed course and added to their head count. Even equity partners, who sometimes seem like an endangered species, grew their ranks on average after two years of flat or negative growth. But as a rule, income inequality continued to plague the rankings. Both The Am Law 50 and The Am Law 51–100 reported 6 percent increases in gross, to totals of $50.9 billion and $20.1 billion, respectively. But the Fabulous 50 kept more of that money for their partners. This group posted average profits per partner of $1.6 million last year—a 4.8 percent jump—versus The Am Law 51–100′s 1.4 percent PPP rise, to $1.1 million.
Let’s look at The Am Law 100 overall. Gross revenue rose 5.3 percent last year, to an average of $709,725,589. Firms continued to raise rates slightly, push work upward to partners, and see growth in their litigation, energy, and regulatory practices.
Dramatically increasing head count by entering into a verein combination or a formal merger also did the trick. SNR Denton (formerly Sonnenschein Nath & Rosenthal and Denton Wilde Sapte), Squire Sanders (previously Squire, Sanders & Dempsey and Hammonds), and Edwards Wildman Palmer (née Edwards Angell Palmer & Dodge and Wildman, Harrold, Allen & Dixon) had three of the five-biggest gains in gross revenue. SNR Denton’s revenue leaped 58 percent; Squire Sanders’s jumped 43 percent; and Edwards Wildman’s grew 18 percent. (For vereins, our comparison is to how the verein combination performed compared to the legacy firms’ revenues.)
In a bullish move, Am Law 100 firms also increased their lawyer head count last year. Overall, The Am Law 100 employed 86,272 attorneys in 2011, a 3.3 percent increase from 2010. Firms added more associates and other nonpartner lawyers last year—especially in areas where they had over pruned during the recession, and they upped the number of offers to their summer associates.
Quinn Emanuel Urquhart & Sullivan had the biggest head count jump of a firm that was not involved in a major merger or verein combination. The Los Angeles firm added 190 lawyers—a 42 percent increase—and opened offices in Washington, D.C., and Moscow, while boosting its PPP 15 percent. The litigation powerhouse also reported the highest profit margin on our chart—64 percent.
But the Am Law 100′s real head count “winners” were nonequity partners, whose numbers grew by 5.7 percent in 2011, to 12,599, after falling 1.7 percent the previous year. Some firms deequitized partners and pushed them into this holding pen. Other firms expanded the practice of moving potential equity partners (either homegrown or laterals) into this category—both to keep their PPP high and to give the lawyers a little breathing room before they face the rainmaking pressures of equity partnership. The vereins also continued to favor this side of the partner divide. Squire Sanders, Edwards Wildman, and SNR Denton reported the biggest jumps, respectively, in number of nonequity partners. (Of those, only Edwards Wildman is not a verein.)
The growth in The Am Law 100′s equity partner head count last year is also largely attributable to the vereins. Equity partner numbers grew 1.4 percent in 2011, but if you isolate out the vereins’ contribution to that metric (a 7.7 percent increase in equity partners), the rest of The Am Law 100 had flat equity partner head count growth in 2011.
Still, some of The Am Law 100 firms that added lawyers last year were able to capitalize on the increased head count, as revenue per lawyer for The Am Law 100 grew by 1.9 percent. Alston & Bird, for example, posted an 11.1 percent increase in RPL last year on gross revenues of $644.5 million. At the same time Alston grew its head count by 12 lawyers by expanding in California and opening a new office in Brussels. Arnold & Porter added 26 lawyers, a 4 percent gain, and posted a 10.5 percent increase in RPL, thanks in part to its internal investigations work. Wilson Sonsini Goodrich & Rosati kept its head count flat last year but grew its RPL 10.7 percent as a result of a strong tech M&A market. (The firm advised on approximately 145 announced or completed M&A transactions with an aggregate value of approximately $32 billion.)
Mayer Brown and Hunton & Williams both showed double-digit RPL gains, too. These came on the heels of shrinking head counts—each firm shed more than 100 lawyers—a decline of 7.4 percent at Mayer Brown and 12 percent at Hunton.
The Am Law 100 also showed an uptick when it came to profits per partner. On average, PPP rose 3 percent last year, to $1.4 million. Cutting into profits were technology upgrades, spring bonuses, and real estate–related expenses, according to firm leaders. Once again Arnold & Porter and Alston & Bird unveiled impressive results: They posted PPP increases of 25 percent and 24 percent, respectively—the highest gains on our charts.
When you look at the Am Law 100 roster by market segment, the picture is even more interesting. The New York–based firms, on average, had a challenging year. Typically, more of their revenues are derived from transactional work, and when the final two quarters of 2011 turned rocky, these firms felt the pinch, too. Gross revenue at the 20 New York firms rose just 2.4 percent on average, with RPL edging up only 1.9 percent. Profits per partner rose just 1.6 percent, albeit to a lofty $2,309,750.
Contrast that with the seven Washington, D.C., firms, which posted an average 6.8 percent increase in gross revenue and a 4.9 increase in RPL thanks to their litigation, lobbying, and regulatory work. They also enjoyed a 5.7 percent rise in PPP, to $1.1 million.
Even more impressive: Check out the year-over-year results for three of the vereins: Baker & McKenzie, DLA Piper, and Hogan Lovells. As a group, their revenues grew a stunning 7.8 percent. Some of that spike reflects their booming work in emerging markets, as well as energy deals and corporate and finance matters around the globe. But a significant part of that increase is due to head count gains. The vereins’ average RPL increase was 4.3 percent in 2011, which suggests that some of their gross revenue increase is due to their head count expansion. Still, on the profits front, they had a good year. Even if their average profits, at $1.1 million in 2011, are lower than the Am Law 100 average, their growth rate still beats that metric: The vereins’ PPP jumped 6.2 percent last year.
What’s the takeaway for firms? I have three suggestions:
• Change your name to Quinn. If that’s not possible, hire the best talent out there, give them flip flops to wear to the office, and pay them well. If that’s not possible (it’s hard to traipse around Manhattan in flimsy footwear), then lean harder toward litigation as a revenue source: Gibson, Dunn & Crutcher, Kirkland & Ellis, and Paul, Weiss, Rifkind, Wharton & Garrison also tack in this direction and had solid results.
• consider a verein. The Queen Marys of The Am Law 100, the vereins will never be as sleek and profitable as Cravath, Swaine & Moore or Wachtell, Lipton, Rosen & Katz, but their results make a strong argument for having a critical mass of lawyers. Clearly, these firms are prioritizing global footprints, head count, and gigantic gross revenues over a spectacular profit margin.
Sixty-three-year-old Baker & McKenzie, a verein, once again tops our gross revenue chart, and DLA (ranked number two and also a verein) continues to straddle the world. (The Australian market is a recent conquest. Canada could be next.) The five vereins on our list, DLA, Baker, Hogan Lovells, Squire Sanders, and SNR Denton, combined have more than 12,000 attorneys—that’s 14 percent of the total lawyers in The Am Law 100. Yes, they routinely lose certain lawyers in various markets over conflict issues and to more profitable firms, but overall these firms are a force, especially outside the United States, and the nonverein international firms will continue to find them formidable competitors.
• Read the tea leaves on partner churn. Making and staying equity partner is harder than ever. The lateral partner market set a record in 2010–11, according to our research, and smart firm managers are continuing to pare back less profitable groups and individuals and bring in shiny new ones. Firms that are deft at these transitions are showing impressive financial results. If you’re the unlucky partner who is not in this favored group, there may be a firm lower in the Am Law 200 ranks for you—depending on your practice. For those with the golden egg of a big book of business in a high-margin practice area, especially in a non–U.S. office, your future has never looked so bright.
—With Russell Miskiewicz