Much like their Am Law 100 counterparts, Second Hundred firms struggled in 2009 under the twin burdens of decreased transactional work and increased client sensitivity to litigation costs.

With their regional footprints and (in some cases) more narrow practice focuses, Second Hundred firms had better year-over-year rates of growth than Am Law 100 firms as the recession took hold during 2008 ["Where the Work Was," June 2009]. But in 2009 the Second Hundred stumbled in two key areas. Its average profits per partner fell 0.3 percent, to $646,926, while The Am Law 100′s rose 0.3 percent. Second Hundred revenue per lawyer dropped 2 percent, to $575,855, a slightly worse showing than The Am Law 100′s 1.9 percent fall.

However, Second Hundred firms posted a smaller drop in compensation-all partners (CAP) than Am Law 100 firms–1.1 percent, compared to The Am Law 100′s 1.7 percent, and value per lawyer grew 2.3 percent at Second Hundred firms, compared to 1.8 percent at The Am Law 100.

For both sets of firms, the numbers reflect widespread cost-cutting, but it appears that The Am Law 100′s cuts had a slightly greater effect. The pivotal factor may be head count: Total head count grew 1 percent at the Second Hundred, while it fell 1 percent at The Am Law 100. The Second Hundred increased its equity partner ranks by 1.9 percent, while The Am Law 100 cut its by 0.7 percent.

The bottom line: Even with their oft-touted lower leverage and lower billing rates, Second Hundred firms, as a group, were just as vulnerable to the economic downturn as Am Law 100 firms were.

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Still, there were bright spots, where success was measured not in the mildness of declines, but in actual growth. Fifty-five Second Hundred firms had year-over-year increases in profits per partner, and 44 had increases in revenue per lawyer. Second Hundred firms in the upper Midwest’s manufacturing belt performed well, especially firms based in Indiana, Michigan, and Ohio. Although large swaths of that area have come to symbolize the economic downturn, upheaval in the auto industry has also led to work for the region’s law firms.

For instance, profits per partner grew 9.8 percent at Dykema Gossett, where the auto industry has historically accounted for about 15 percent of gross revenues. (Revenue per lawyer fell 2 percent.) “We had one of our biggest clients go bankrupt,” says Dykema chairman Rex Schlaybaugh, Jr., referring to General Motors Company. “There were a lot of dispositions of noncore assets and factory closures.” The firm also benefited from an increase in energy-related work resulting from consolidation of electrical transmission and distribution networks.

The GM bankruptcy also generated work for Detroit’s Honigman Miller Schwartz and Cohn, where profits per partner rose 5.9 percent and revenue per lawyer increased 1.5 percent. Among other matters, Honigman represented the Tempo Group, a consortium of Chinese companies, in a $100 million acquisition of portions of Delphi Corporation’s brake and suspension division. Honigman chairman David Foltyn says that the firm’s fee structure helped it land the work. “We were competing with global law firms [to represent Tempo],” he says. “The transaction cost of using us is a percentage of what it is for law firms in money centers, and clients appreciate that value more than they have in the past.”

Honigman was not the only midwestern firm to benefit from a lower fee structure. “For much of my career, being located in the Midwest has not been a geographic advantage,” says Robert Trafford, managing partner of Columbus’s Porter Wright Morris & Arthur. “Much of what happened in the profession has been on the coasts or in Chicago, but today clients are focusing on value, and that gives us an advantage.” In 2009 Porter Wright’s profits per partner shot up 8 percent, to $475,000, while its revenue per lawyer jumped 4.1 percent, to $505,000. The firm was involved in an array of litigation matters, including defending clients in securities enforcement actions, ERISA suits, and Clean Air Act cases.

In a year of low head count growth, many of the 40 Second Hundred firms that showed year-over-year increases in attorney numbers were based in the Midwest. Dykema’s head count rose 5.7 percent, to 351. Indianapolis’s Barnes & Thornburg posted head count growth of 9.3 percent, while its revenue per lawyer grew 4 percent, to $555,000, and its profits per partner leaped 10.3 percent, to $640,000. Part of Barnes & Thornburg’s growth came in new offices in Columbus and Atlanta. “The new offices give us the opportunity to do more work for existing clients and create new client relationships,” says Alan Levin, the firm’s managing partner. “We are more than a sleepy Indiana firm.”

The biggest head count increases came at Second Hundred firms that were involved in mergers with smaller firms outside the Second Hundred. Birmingham’s Bradley Arant Boult Cummings (previously known as Bradley Arant Rose & White) registered a 36.5 percent increase in head count, to 340, after merging with Nashville’s Boult Cummings Conners & Berry. Kansas City, Missouri’s Polsinelli Shughart (previously known as Polsinelli Shalton Flanigan Suelthaus) merged with another Kansas City firm, Shughart Thomson & Kilroy, resulting in a 39.5 percent increase in head count. And Cincinnati’s Frost Brown Todd increased its head count 24.7 percent after completing a merger with Indianapolis’s Locke Reynolds.

While Detroit’s firms succeeded into turning the auto industry’s woes to their advantage, coastal firms with significant exposure to the real estate industry had no such luck. The performance of these firms suggests that in many cases, real estate–related workouts weren’t sufficient to sustain the practices. At Los Angeles’s Allen Matkins Leck Gamble Mallory & Natsis, which is known for representing some of California’s most active developers, profits per partner declined 23.4 percent, to $590,000, and revenue per lawyer fell 7.4 percent, to $690,000. The declines would have been even greater had the firm not moved to diversify, beginning in the 1990s [see "Hedging a Real Estate Bet." ].

New York’s Herrick Feinstein, where the real estate practice accounts for about 37 percent of the firm’s head count, profits per partner fell 20.2 percent, to $930,000. Revenue per lawyer slid 8.2 percent, to $780,000. “We budgeted real estate to be down, and it was down,” says managing director George Wolf, Jr.

Other firms that felt the real estate industry pain were Atlanta’s Morris, Manning & Martin and Boston’s Goulston & Storrs. Morris, Manning’s profits per partner fell 9 percent, to $760,000; revenue per lawyer dropped 5.7 percent, to $605,000. “We are heavily into real estate, and it was our largest challenge in 2009,” says managing partner Louise Wells.

At Goulston, where real estate represents about 45 percent of the overall practice, profits per partner dropped 14.5 percent, to $530,000, while revenue per lawyer slid 8.2 percent, to $670,000. “I think 2009 was a steady progress from ‘not great’ to ‘getting better,’ ” says Goulston co–managing director Douglas Husid. “ What was so unusual about this downturn is that the wheels just stopped. Traditionally in a recession, the wheels go backward in the form of a lot of workouts, but in the first half of 2009, markets were essentially frozen, and transactional practices were slow.”

Both Wells and Husid say that real estate work has started to rebound in 2010, pointing to current matters involving real estate investment trusts. “A significant amount of money is on the sidelines looking for opportunity,” Husid says. The same could be said for many of the Second Hundred’s lawyers.