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San Francisco's Legal Business Doing Better Than Most Cities'
100 firms participate in the Hildebrandt Peer Monitor system: 35 from the Am Law 100, 35 from the Am Law 200 and 30 from the NLJ 250
The Recorder
April 16, 2009
David Waldorf
San Francisco's legal business is holding up against the recession a lot better than other major cities', according to first-quarter data collected from about 100 large firms by Hildebrandt Peer Monitor.
Nationwide, demand for legal services dipped 8 percent in the first quarter of 2009, compared to the same period a year ago. Demand dropped 9.5 percent in New York City and 8 percent in Los Angeles. But in San Francisco, first-quarter demand dropped just 1 percent, according to billable hours reported by participating firms' electronic accounting systems.
"It's a very scary time for all. It's also a very opportunistic time for many firms," said Mark Medice, program director for Peer Monitor, an arm of consulting firm Hildebrandt International.
"There are many firms that are looking for a change that will better position them for strength going forward, whether it's pricing models, staffing models or compensation models. All of the fundamental structures of the business models for law firms are potentially available for change."
The data also reveals practice area trends. Nationwide, the only practice areas that are growing are bankruptcy, up 13 percent in the first quarter, and M&A, which grew 2 percent. Litigation remained flat, while all other practice areas are down significantly. General corporate work is down 14 percent, while real estate work is down 20 percent. (Compare the cities across Q1 of this year and last (.pdf), and see a national breakdown by practice area (.pdf) for the same period.)
City-by-city data on practice area demand is trackable, but was not available Wednesday.
About 100 firms participate in the Peer Monitor system, 35 from the Am Law 100, 35 from the Am Law 200 and 30 from the NLJ 250.
The data reflects an aggregated, anonymous view of their peers' performance.
Medice is still crunching Silicon Valley data, but said it's not looking good so far. Demand is "soft" compared to the first quarter of 2008.
"This time last year, Silicon Valley was one of the stronger markets," Medice said. "Silicon Valley is pretty weak compared to last year."
It's unclear whether San Francisco has long-term resilience, but it also held up well in the first quarter of 2008. At that time, overall demand dipped 1 percent in New York City and nationwide, and 6 percent in Los Angeles, but was flat in San Francisco. Nationally, demand was down 3 percent for all of 2008.
In the first quarter of 2009, total fees -- hours multiplied by rates -- are down slightly across the country, but in San Francisco, they are up 1 percent.
"If it's true that San Francisco is doing better, I have no idea why that would be the case. Unless we are single-handedly pulling up the average," said Geoffrey Howard, Bingham McCutchen's San Francisco managing partner.
The Hildebrandt numbers might be surprising to some, given disproportionately large layoffs by West Coast-born firms like Latham & Watkins; Orrick, Herrington & Sutcliffe; Pillsbury Winthrop Shaw Pittman; and Morrison & Foerster. But those firms have declined to break down layoff numbers by office, and there's no indication more people were laid off on the West Coast than in other offices nationally and worldwide.
However, reports available through the California Employment Development Department show Latham gave notice of laying off 99 people in Los Angeles in late February, 23 percent of the total 440 staff and associates let go. The reports do not list any San Francisco cuts at Latham.
IT'S ALL RELATIVE?
Howard said financial restructuring and securities litigation have been busy firmwide, and in Northern California in particular, Bingham's been busy on environmental, litigation and labor work.
Some of the data flouts conventional wisdom. IP litigation, which is usually a strong performer regardless of the wider economic situation, is down 9.5 percent. The decline appears surprising until it's compared to 2008, when IP actually grew, said Medice.
"This time last year, IP was growing 8 percent, compared to capital markets, which was shrinking 8 percent," Medice said. "[In IP] things are slower than last year, but they are just as strong as they were the year before that."
Another surprise is labor and employment, which is down 7 percent on average. But Medice said when he selects just high-end firms, there's positive growth in that practice area.
Employment work is up at Los Angeles-based Sheppard, Mullin, Richter & Hampton, which participates in Peer Monitor, said Chairman Guy Halgren.
"It's always been good for us, but now it's even busier," Halgren said.
Halgren said his busiest lawyers are determined by practice, not office, but San Francisco is doing relatively well.
"Our San Francisco office has held up very well through all this because it's got big bankruptcy and antitrust practices. It's also got a big real estate practice, but because of the bankruptcy and antitrust practices, the office is doing very well," Halgren said.
Litigation is picking up, after an initial lag.
"Litigation is typically a countercyclical practice, but initially it wasn't, and now it's picking up," Halgren said. "M&A is going to be choppy and corporate is going to be choppy into the next year, but there are going to be deals that need to be done, and we are doing our fair share of them."
