In a year in which Reed Smith underwent a major leadership change, the firm finished out 2013 with a 6.1 percent rise in gross revenue and a 5.5 percent increase in partner profits.

Reed Smith grew gross revenue to an all-time high of $1.075 billion in 2013 from $1.013 billion in 2012. That was due in large part to a 5.9 percent growth in headcount from 1,468 lawyers to 1,555 attorneys last year. The bulk of that growth was from office launches in Houston and Singapore toward the earlier part of 2013 that gave the firm time to reap the revenue those new lawyers eventually began to generate.

Profits per equity partner (PPP) rose 5.5 percent from $1.08 million in 2012 to $1.14 million in 2013. The equity partner tier decreased 1.7 percent from 300 equity partners to 295 last year. The nonequity tier rose about 5 percent from 393 to 413.

Global managing partner Alexander “Sandy” Thomas, who took over for Gregory B. Jordan in October, said the firm improved PPP the “old-fashioned way” by managing “headcount within the equity” tier. He said the firm still views promoting existing attorneys into equity ranks as very important. But Thomas said, on the whole, earning and maintaining an equity stake in the firm is “increasingly challenging.”

Reed Smith’s revenue per lawyer (RPL) remained flat year over year at $690,000.

Reed Smith Chart

“It’s a harder number to move, but we’ve got some pretty clear objectives on that this year,” Thomas said.

Thomas said 2013 was a year in which the firm continued its focus on improving matter management.

“We are increasingly skilled at managing our client relationships toward profitability,” Thomas said.

At the start of 2013, Reed Smith hired Vincent J. Cordo to lead a then-recently-formed client value team, composed of nonlawyer professionals based in the firm’s Global Customer Centre in Pittsburgh. The team of project management specialists focuses on planning out matters and pricing from the time some of the firm’s matters come in the door.

Thomas said the firm was increasingly able to pair members of the client value team with those people in similar positions at the firm’s clients.

Reed Smith increased rates “modestly” in 2013, Thomas said, noting that isn’t something firms can rely upon anymore. In order to bolster the RPL figure moving forward, Thomas said, “I think it’s really a function of us getting the most efficient allocation of effort in the law firm and making sure we’ve got our leverage right in each of our practices.”

In terms of the practices with a particularly strong showing in 2013, Thomas pointed to the firm’s insurance recovery, real estate and financial industry group practices.

Thomas attributed the rise in headcount mainly to the opening of the Singapore and Houston offices. Houston, which started with 17 lawyers, now has close to 40. There are about 10 attorneys in the Singapore location. Thomas also noted the firm had a larger first-year class start in 2013, with 41 new associates coming on board. Unless the firm opens any new locations in 2014, Thomas said he wouldn’t expect Reed Smith to grow headcount at as a high a rate as it did last year.

At the end of 2012, Jordan had said the firm was looking at new markets such as Canada, Australia, South America and Frankfurt.

“I would say that we have a really tight filter on new market expansion driven by our clients and that filter does lead us to look at … a place like Frankfurt where we already have a very strong financial services practice kind of flowing from the U.S. to London and into Munich and Paris and around points in that network, so that continues to have a lot of appeal,” Thomas said of Frankfurt.

As for the other locations Jordan had mentioned, Thomas said the firm continues to evaluate those markets.

What Reed Smith may look to expand in the coming year is its back-office support model. It’s been about a decade since the firm moved the bulk of its back-office operations to a cheaper office building in Pittsburgh a few blocks from the firm’s headquarters in the Steel City. Now the firm is looking at how to realize even more savings under such a model.

Reed Smith kept a close eye on its expenses in 2014, though the firm didn’t increase its net income at the same rate as its revenue grew. Net income rose 3.7 percent to $336 million, while the firm’s profit margin dipped one percentage point to 31 percent.

“We are mindful that we were an early mover with our [Global Customer Centre] and our back-office operations in a high-quality, lower-cost environment,” Thomas said. “So looking forward we are going to try to find ways of keeping ahead of the industry on that, perhaps expanding what we do in the GCC and perhaps bringing on another facility like that, maybe outside the U.S., in order to see the kinds of expense gain” the firm saw in Pittsburgh.

Thomas said such a facility would most likely be in a market in Europe where the firm already has an office.

On Monday, Reed Smith moved into a new office in Philadelphia—a move that involved years of planning and significant renovations to the new space at Three Logan Square. Thomas said the cost of that move wasn’t felt in 2013, but will be felt in the coming year or so. The 16-year lease is ultimately expected to save the firm money in reduced space as well as a projected $1.8 million in savings over the term of the lease because of the energy efficiency aspects Reed Smith added.

According to the firm, 53 percent of its revenue in 2013 came from litigation and 33 percent from corporate work. The rest was split between real estate, restructuring and other practice areas. The majority of the firm’s gross revenue, or 72 percent, was from legal work derived from its offices in North America. The second biggest driver of work was Europe, with 21 percent of the firm’s revenue coming from offices on that continent. Reed Smith’s Asia offices generated 6 percent of firm revenue and 1 percent originated in the firm’s offices in the Middle East.

Some of the major matters Reed Smith handled in 2013 included serving as national strategic co-counsel for Toyota in a class action settlement and representing Merck in NuvaRing litigation. The firm also saw a significant rise in its international arbitration practice, mainly out of Kazakhstan. Reed Smith’s London office also conducted an independent review for the BBC of the broadcaster’s handling of the scandal involving Jimmy Savile, the late TV presenter accused of sexually abusing hundreds of victims.

And while the deal just recently closed, a good portion of the firm’s involvement in Caesars Entertainment’s $2.2 billion sale of four casinos to Caesars Growth Partners occurred in 2013.

Looking into 2014, Thomas said he expects increased transactional activity, particularly across borders.

“I think we’ll continue to see, as we have in years past, an increase in demand in the litigation practices, but we’re going to have to keep very sharp in terms of how we manage those matters because I don’t think that you’re going to see any sort of decline in the cost sensitivities among clients,” Thomas said.

He added, however, that regulatory investigations, of which the firm is seeing a lot both in and outside of the United States, are less rate sensitive.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI. •