Flat is the new up.
That was how L. Gray Geddie Jr., of Ogletree, Deakins, Nash, Smoak & Stewart, summed up 2009 for big law firms.
Geddie, who was the firm's managing partner throughout last year, made the assessment borne out by Citi Private Bank's 2009 survey that reports an almost 5 percent drop in hours billed and a 4 percent drop in revenue last year for the 87 participating Am Law 100 firms. That compared to a steady 4 percent increase in work every year from 2001 to 2007 for large firms.
Atlanta firms expected a tough year and budgeted accordingly, after work dried up in the last quarter of 2008 following the September collapse of Lehman Brothers.
"We were planning for a bleak outlook," said King & Spalding Chairman Robert D. Hays. "For the last three months of 2008 we were like a prizefighter knocked to the ground. We were coming up off the canvas wobbly-kneed."
Sutherland's managing partner, Mark D. Wasserman, said his firm expected work to be down, and it was. "We didn't revise our budget in 2009. We didn't need to," he said.
Of Atlanta's largest 12 firms, only four reported significant revenue increases. Two of those were labor and employment firms, Ogletree Deakins and Fisher & Phillips, whose practices are somewhat counter-cyclical, while another, Troutman Sanders, added a 100-lawyer firm effective Jan. 1. The fourth was King & Spalding.
Even so, half the firms in the Dozen increased profit per partner, ranging from a $208,000 increase at King & Spalding to a $11,353 increase at Smith, Gambrell & Russell.
Firms responded to the dim prognosis for 2009 by cutting costs. All of Atlanta's big general practice firms laid off staff and associates in the first two quarters of the year, as did firms nationally. That was followed by associate pay cuts toward the end of the second quarter that rippled through the third quarter.
"We had to make some extremely difficult choices. I've never had to lay anyone off before," said Troutman Chairman Robert W. Webb Jr.
Firms also reported more mundane belt-tightening, such as renegotiating vendor contracts and cutting back on travel for firm business in favor of videoconferencing.
Some Atlanta firms said they raised rates modestly, but many said they confronted pushback on rates and experienced more trouble collecting their fees.
And most firms reported becoming more aggressive about collecting money from clients to avoid the drop in collections that dragged down revenue and profit for many at the end of 2008 -- with varying degrees of success.
Webb said he told his partners in September that Troutman would not hit its budget number unless they stepped up collection efforts. He said the firm's fourth-quarter collections increased $23 million over the prior year and it reported a more than 13 percent increase in profit per partner, to $670,000.
But at Ford & Harrison, a fall-off in collections derailed the firm's budget. C. Lash Harrison, Ford & Harrison's managing partner, said the firm budgeted for a flat year. If the firm had collected fees at the same rate as the prior year, it would have achieved flatness, he said. Instead, slow-paying and bankrupt clients caused revenue to drop about 7 percent.
"It doesn't matter if you have the work. If you're not getting paid for it, that's a problem," Harrison observed.
Hays said King & Spalding "became more aggressive with the arrangements we have with some of our clients," and even cut loose some underperforming clients.
"We're not interested in all work for all clients," he said. "It's hard for lawyers to get that through their heads."
Cost-cutting allowed some firms to pay partners more than they'd expected, even though revenue declined. Sutherland's revenue dropped 6.8 percent, but the firm's profit per partner increased 9.5 percent, to $910,000. (The firm's equity partnership shrank by six lawyers or 5.5 percent, which helped increase the profit payout.)
King & Spalding paid partners a lot more than anyone expected. Profit per partner shot up almost 17 percent, to $1.4 million. (That followed an almost 12 percent drop in PPEP the previous year.)
King & Spalding was the only firm in the Dozen to post increases in revenue, revenue per lawyer and profit -- despite flat lawyer head count and a loss of only two equity partners.
