A "noticeable slowdown" in the real estate market, a continuation of strong lateral recruiting and a fiscal year that ended three months into 2008 made for a year of mixed results for Fox Rothschild.
The firm saw yet another year of substantial growth in gross revenue, moving 17.5 percent from $154 million to $181 million.
Administrative partner Mark Silow said the revenue jump was due to a 25 percent increase in attorney headcount as well as rate increases that were implemented earlier in the firm's fiscal year.
Fox Rothschild's revenue per lawyer (RPL), profits per equity partner (PPP) and average compensation for all partners all took hits in the last fiscal year. RPL fell by 5.6 percent from $535,000 in 2006 to $505,000 in 2007 and the PPP dropped 3.9 percent from $515,000 to $495,000. The average compensation for all partners fell by 4.6 percent from $416,000 in 2006 to $397,000 in 2007.
The numbers for Fox Rothschild recently reported in the Am Law 200 were estimates. The firm provided updated numbers after that publication's press time.
Silow attributed the drops to a tough economic year, collections coming in at a slower pace and an increase in expenses mainly to do with the firm's continued investment in its future.
"Our fiscal year spilled three months into '08, and I think they were maybe the most challenging three months we've experienced in the economy over the last couple of years," he said.
The drop in profits also caused the firm's ratio of the highest paid partner to the lowest paid partner to change. In the 2006 fiscal year, that ratio was 7.5 to 1 and last year it was 6.1 to 1.
Silow said that is a function of how the firm's compensation system is structured. The most productive, highly paid partners share more of the upside and bear more of the downside of the economy, he said. In a year when profits fell, he said, the highest paid partners took the bigger brunt of that dip than the lower paid partners.
While many firms say they are waiting to see what 2008 will bring, Fox Rothschild has already seen the financial results of the first quarter mixed into their 2007 fiscal year.
Silow said there was a "noticeable" slowdown in the real estate group and a temporary decrease in corporate work that has since picked up again.
While bankruptcy picked up into 2008, it wasn't enough to compete with the slowdown in real estate, which Silow said is a much larger practice than the firm's bankruptcy group.
The firm's labor and employment and intellectual property groups remained strong in the last fiscal year.
Other practices seem to be moving along at the same rates as in previous years, but Silow cautioned that perception is reality.
"I think clients are either definitely seeing some softness in their business or are reading about it and getting nervous," he said. "All of that makes for a less robust market for lawyers."
That outlook has caused Fox Rothschild to take a harder look at its expenses and budget a little more conservatively for the current fiscal year. While the firm isn't near the point of layoffs, it is looking at attorney productivity and staffing levels and taking a closer look at whether it wants to push certain initiatives through this year, or wait until the next fiscal year, Silow said.
In looking back at the firm's decision not to increase first-year associate starting salaries beyond the $125,000 mark, he said the firm "might not get everything right, but we got that one right."
For the firm's fiscal year that ended March 31, 2008, there was a continued focus on growth. It was less of the merger-focused growth seen in 2006, but included "ones and twos" in a number of offices the firm wanted to fill out, he said. The firm also focused on getting its infrastructure settled and taking care of redundancies in systems and personnel, he said.
The attorney headcount grew by nearly 25 percent from 287 full-time equivalent attorneys to 358 in the last fiscal year. Because the majority of growth was at the partner level, the firm's equity and non-equity tiers both grew last year. The equity tier grew 17.7 percent from 85 equity partners to 100 by the end of March 2008. The non-equity tier grew 8.5 percent from 59 non-equity attorneys to 64.
Silow said the firm accomplished its goal of becoming full service in some of its newer offices, like those in California and Las Vegas. It also filled out its offices in West Palm Beach and New York.
In looking ahead through 2008 and into 2009, Silow said "anyone who tells you they aren't nervous [about the economy] isn't telling you the truth."
But on the flip side, he said the firm is confident because of its largely middle-market focus and its strong diversification of practices and clients.
Fox Rothschild's top 50 clients accounted for less than 20 percent of its gross revenue in the latest fiscal year. The loss of any one client wouldn't have a "monumental impact," he said.
Silow said the goal of any law firm is to continue to upgrade the client base, which is something he said the firm has done in recent years and will continue to do into 2008. While there is no target number for the firm's growth, he said Fox Rothschild will continue to bring on laterals and will look at merger opportunities.
The firm is "very much committed to remaining independent and controlling our own destiny," he said.
Fox Rothschild is currently talking to firms of 20 to 30 attorneys but would not be interested in a mega-merger or a merger of equals, he said.
