During three decades of convulsive change, marked by nationalization, globalization, megamergers and spectacular flameouts, it’s surprising how much has remained constant at the top of the NLJ 250.
Baker & McKenzie still sits at the top of the NLJ’s annual survey of the nation’s 250 largest law firms. Firms that originated in New York and Chicago accounted for about half of the top 25 back then and still do so today, though some of the names have changed and the tilt is now more toward Chicago than New York.
Perhaps most surprising, 24 of those top 25 firms on the inaugural list in 1978 are still thriving today. While some have slipped in ranking, all remain within the top 100. The sole exception is Donovan, Leisure, Newton & Irvine, which dissolved in 1998.
Beyond that top 25, change has been more dramatic. Of the remaining 175 firms on the inaugural list, 46 no longer exist — 30 have dissolved and another 16 have seen their brands vanish entirely following mergers. (The NLJ list was expanded from 200 to 250 in 1983.) Some of those dissolutions — notably, Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey’s in 1987 and Brobeck, Phleger & Harrison’s in 2003, followed several years of spectacular but unsustainable growth. Others, like Shea & Gould in 1994 and Bronson, Bronson & McKinnon in 1999, went belly up after struggling through years of stagnant growth or contraction.
Growth has been a necessity to keep pace on the NLJ 250. In 1978, the average size of firms on the list was 103 lawyers, and only 13 percent of them worked outside firm headquarters. But by the early 1980s, the globalization handwriting was already on the wall. “National and international companies want to be able to turn to the same law firm in their multiple locations,” we noted in an article that appeared with the 1983 list. “I think there will be a few thousand-person firms,” Chicago recruiter Bert Early predicted that same year.
Early’s vision may have seemed fanciful at the time, but he was proven correct just five years later, when Baker & McKenzie broke the 1,000-lawyer barrier. Today the United States is home base to 22 thousand-lawyer firms, and the average size of the NLJ 250 is 505 lawyers. Ninety of the top 100 firms on this year’s list boast offices from coast to coast, and more than half are spread across three or more continents.
“Long ago, we made the decision to diversify our practice offering and our geographic footprint,” said Eric Friedman, executive partner of Skadden, Arps, Slate, Meagher & Flom, which has grown from No. 30 on the 1978 list with 149 lawyers to No. 8 this year with 1,832. “That strategy has served us well during the recent financial crisis: Our litigation, regulatory and restructuring practices — all established and nurtured over decades — have been especially active over the past few years.”
The megamerger has been a popular route to the top of the NLJ 250. DLA Piper, K&L Gates, Sidley Austin, Mayer Brown and Reed Smith are a few of the firms that make up the top 20 today due in part to big mergers. Other firms have avoided them. Skadden and Kirkland & Ellis are two top 20 firms that have grown mostly organically or through individual or small-group lateral acquisitions. Still other firms have swooped in and picked up larger groups as competitors dissolved — Latham & Watkins, known for mostly organic growth, added 35 lawyers from Mudge Rose Guthrie Alexander & Ferdon when that firm dissolved in 1995, for one example.
Some of the most successful firms in the top 100 actually have fewer lawyers now than they did 10 years ago. Holland & Knight fields 365 fewer lawyers than it did on our 2002 list, Shearman & Sterling is down 253 over the same period and Akin Gump Strauss Hauer & Feld is down 226. Despite its 2001 merger with Winthrop, Stimson, Putnam & Roberts and its 2005 tie-up with Shaw Pittman, Pillsbury Winthrop Shaw Pittman numbers only 47 lawyers more on this year’s list than it did in 2000.
Pillsbury Chairman James Rishwain said in an e-mail that the firm has been focused during the past several years on integrating the merged firms, targeting key industries and improving the firm’s balance sheet and profitability. “Since the beginning of this year, we can count 10 new partners, with none lost to attrition,” Rishwain wrote. “Building on this expansion, 2012 will be a year of continuing our strategic growth plans for New York, D.C., California and Texas as well.”
Law firm management consultant Peter Zeughauser of the Zeughauser Group said that a lot of firms “shrank intentionally to get stronger financially” in recent years — eliminating some practices, exiting markets that didn’t make sense or counseling out underperforming partners.
TYING THE KNOT
Two sharply divergent paths have led the country’s largest law firms to the top of the NLJ 250. Some have grown steadily, expanding headcount almost every nonrecessionary year, but seldom by more than 10 or 15 percent. Los Angeles’ Gibson, Dunn & Crutcher and New York’s Cleary Gottlieb Steen & Hamilton are a couple that have taken this tack.
Others have grown in bunches. Reed Smith, No. 12 on this year’s NLJ 250, has doubled its headcount over the past 10 years to 1,500 lawyers thanks in part to three outsized mergers: in 2003 with California’s Crosby, Heafey, Roach & May, in 2007 with Chicago’s Sachnoff & Weaver, and 2008 with London-based Richards Butler. Reed Smith Chairman Gregory Jordan said key steps to making them work include gauging client demand and growth potential in a targeted market, picking a merger partner with the proper practice and cultural fits, and then getting new and legacy partners working together on client teams. “The other key tactic has been strategic lateral hiring on top of the merger to add people with key skill sets,” he said in an e-mail. “All of these tactics have helped us succeed over time.”
Some firms that have tried big mergers now avoid them. Jones Day, No. 3 on the NLJ 250 list, got its international growth kick-started in 1986 through its merger with Surrey & Morse, then added Atlanta-based Hansell & Post in 1989. Since then the firm has done only one major merger, with 200-lawyer Gouldens of London in 2003. “The problem with mergers is you get everything — good, bad and indifferent — and we decided we didn’t want to do that anymore,” said Jones Day partner Joe Sims, who has practiced at the firm since 1978.
For the most part, Jones Day has grown from 220 lawyers in 1978 to its present 2,407 mostly through organic growth and smaller lateral acquisitions. It has added lawyers almost every year, with one of the few blips coming the year after Sims joined the firm, when 53 left to start Crowell & Moring. “There was a debate inside of the firm over whether we were going to grow, particularly nationally, or not,” Sims said. “They didn’t see why they needed to do that.”
Sims said part of the reason for Jones Day’s steady growth is its closed compensation and lengthy tenure for managing partners. With no election campaigns and less squabbling over who’s making how much money, management is more free to invest in the future of the firm, he said. Still, it hasn’t all been rosy along the way. “We made a lot of mistakes because there’s no recipe book for this, but we made them when they were relatively cheap and easy to fix,” Sims said. “The world was not as competitive then as it is now.”
For some firms, mistakes were indeed costly. Finley Kumble numbered 60 lawyers in 1978, putting it at No. 60 on the NLJ 250. In just six years it became the second-largest firm in the country, and by 1987 it had grown to 684 lawyers. But the firm had run up $76 million in debt, in part to bring in star rainmakers, some of whom didn’t deliver the business they’d promised, and in part on a lavish, eight-figure office remodeling project, according to sibling publication The American Lawyer. The bottom fell out in 1987, when partners began running for the exits and the firm dissolved.
Brobeck, Phleger & Harrison was another firm that grew too much too fast — though not nearly as wildly as Finley Kumble. Brobeck numbered 398 lawyers in 1996, good for No. 43 on the NLJ 250. Then Silicon Valley’s dot-com era took full flight, and under the leadership of Chairman Tower Snow Jr., the firm doubled in size to 876 lawyers by 2000, putting it at No. 14. When the technology market crashed, Snow famously promised there would be no layoffs on his watch. By the end of 2001 he had resigned the chairmanship, and in 2003, a year after Snow’s departure from the firm, the partnership voted to dissolve.
For some firms, the crash and burn of a competitor has been a golden opportunity. When Brobeck dissolved, Morgan, Lewis & Bockius picked up about 50 partners in San Francisco and Silicon Valley to launch its presence there. Nine years later, Morgan Lewis numbers just over 200 lawyers in the Bay Area, with at least half of those ex-Brobeck partners still practicing at the firm.
Orrick, Herrington & Sutcliffe grew its ranks with 14 partners from Donovan Leisure just before it dissolved, 27 partners from Heller Ehrman just after it dissolved, and 20 partners from Coudert Brothers, 11 before and nine after it dissolved. Jones Day also has been active in the aftermarket, hiring 20 partners from Heller and a sizable chunk of Howrey. Goodwin Procter was the prime beneficiary of the Testa Hurwitz collapse, while much of Shea & Gould went to Myerson & Kuhn, a Finley Kumble splitoff that dissolved in 1990.
CHICAGO TAKES THE LEAD
Of the top 25 firms when our list debuted in 1978, 11 had originated in New York, four in Chicago and three in Houston. Today, those same four Chicago firms — Baker, Sidley, Kirkland and Mayer Brown — remain in the top 25, while Winston & Strawn, SNR Denton and McDermott Will & Emery have joined them. Despite the rise of Wall Street, and the addition of Skadden and Weil, Gotshal & Manges, the total number of New York firms in the top 25 has shrunk to five. Houston, meanwhile, is no longer represented.
Most of the New York firms that have slipped from the top 25 — firms like Cravath, Swaine & Moore, Sullivan & Cromwell and Davis Polk & Wardwell, remain among the most profitable firms in the country. But they have forsworn the global-goliath approach and chosen instead to focus more on a handful of key financial centers around the world.
Davis Polk is a good example. Although the firm has nearly quadrupled from 200 lawyers in 1978 to 742 today, that has dropped it from No. 13 on the list to No. 42. But the firm has established offices in 10 of the world’s most prominent capital markets. And last year it had profits per partner of $2.3 million last year, according to The American Lawyer.
“I think we’re pretty happy with our location, size and practice mix,” managing partner Thomas Reid said. As one example of the firm’s global reach, he noted that just last month the firm advised Brazil’s EBX Group on a $2 billion investment by Mubadala Development Co., the sovereign wealth fund of Abu Dhabi.
Reid joined Davis Polk 25 years ago. Although the business of law is far different now, and the firm has doubled in size and added six offices, some things haven’t changed much.
“The essential culture of the place is very much intact,” he said, thanks in part to advancements in communication strategies and technologies. “If you use them properly,” he said, “you can grow in numbers but maintain the same small feel of the place.”
Scott Graham, a senior writer for ALM on loan to The National Law Journal for this project, has been covering the legal community since 1988. He can be contacted at email@example.com.