Everything may not be coming up roses in Philadelphia, but the grass is certainly greener there.
A recent survey of national law firms done by Wachovia's Legal Specialty Group shows that despite some economic hardships, the Philadelphia market is faring significantly better than its counterparts across the country.
The market's historically lower rate structure, which in turn forces a lower expense model to maintain profitability, has better prepared the area for the economic downturn and has given it some breathing room in terms of having to make systemic changes to the law firm model, according to National Managing Director Jeffrey Grossman, who heads the advisory side of the Legal Specialty Group.
"I would argue that certain markets like Philadelphia and Atlanta, [which was the least impacted by the economy, according to the survey] ... have almost a hedge as to what's happening in terms of alternative fee arrangements," Grossman said.
Clients are "reasonably satisfied" with the rates at Philadelphia firms because they are lower than most other markets. This lower rate structure generates lower revenues than other markets and that means area firms have long had experience in managing expenses to maintain profitability, Grossman said.
Firms in higher cost structure markets have to go through a major overhaul of everything from their real estate to the types of attorneys they hire, he said. Philadelphia has a competitive advantage in this regard because firms in the city are experienced at managing those cost centers. That means they might not have to do as much of the structural changes firms in other markets will have to endure, he said.
But that doesn't mean Grossman would advise Philadelphia firms to ignore alternative fee arrangements and other structural changes because clients would question firms that completely overlooked the trend. He did say, however, that alternative fee arrangements are just one arrow in Philadelphia firms' quivers.
There were 131 law firms across the country, including 15 in the Philadelphia area, that participated in the survey. The local firms ranged in size from fewer than 100 attorneys to more than 1,000. The survey compared the first nine months of this year to the same period in 2008.
The survey asked about revenues, expenses, profits, headcount, debt, capital and hours per attorney along with some questions on future rate and billing structures.
Grossman said he would describe the Philadelphia market as having "less wind in the face," with gross revenues down much less than in other markets. In the first nine months of the year, local firms have seen a 5 percent drop in gross revenue compared to a 9 or 10 percent decrease in markets like New York and Chicago. Philadelphia firms did vary in their responses with one firm showing a 10 percent decrease and another showing a 10 percent increase in gross revenues, he said.
Philadelphia outperformed Washington, D.C., in this category, Grossman said.