Richard Dickson, Fenwick & West chairman ()
SAN FRANCISCO — For at least some of the major players in the California legal market, 2013 was a year for treading water. Revenue per lawyer at Morrison & Foerster, Pillsbury Winthrop and Sedgwick was unchanged last year, and profits per partner were either unchanged or fell slightly.
For other firms, it felt like 1999 all over again: Cooley’s revenue shot up 9.2 percent, and revenue per lawyer hit the magic seven-figure mark. Fenwick kept head count flat and saw healthy gains in all the other metrics. L.A.’s Munger Tolles & Olson saw double-digit growth in revenue, RPL and partner profits.
But for most firms, say consultants, it was a tough economic climate to grow the top or bottom lines, and early returns seem to bear that out.
“If you read between the lines, it may be a little better than it appears,” said law firm consultant Brad Hildebrandt.
After 2013 got off to a slow start, law firms saw an uptick in demand, but the boost in the last four months was “not enough to change the numbers of the large firms,” he said.
“When things get tough, flat is pretty good,” said MoFo chairman Larren Nashelsky.
“In this market, it’s important to continue to push practices that can be supported under lots of pricing pressures and competition,” he added. The firm has seen continued strength in demand in intellectual property litigation and its M&A–focused areas, Nashelsky said, such as technology, telecommunications and life sciences.
Tech-fueled Cooley and Fenwick were able to notch gains in average compensation for all partners, a metric that zeroes out the effect of tiered and nonequity partner structures. MoFo and Pillsbury both saw average partner paychecks shrink.
That’s probably true for many of the California firms that haven’t yet finalized their results. Pricing pressure and weak demand is squeezing profits and average partner pay, says law firm consultant Peter Zeughauser. Realization—the percent of potential fees that are actually billed and ultimately collected­—is at the “lowest level” he can remember.
There’s less pricing pressure at the high end, he said. “If you’re charging over $1,000 per hour, you’re getting less price resistance than if you’re charging $600 per hour. If you can justify charging $1,000 per hour, you’re offering something unique,” he said.
The early results suggest that, at least in this economy, bigger isn’t better. Small or focused firms are the ones seeing the gains.
“It’s very difficult to be all things to all people,” said legal consultant Ron Beard.
At Fenwick, where head count is still below 300 and the practices are mostly oriented around the region’s tech companies, revenue was up 5.8 percent.
Richard Dickson, who took over as Fenwick’s chairman on Jan. 1, 2014, said demand was up “significantly,” leading to rate increases and a rise in hours billed per lawyer.
And if Fenwick has most of its eggs in one basket, it sees that basket as getting bigger over time. “I actually think that focus is part of our strategic advantage,” said Dickson. “I’m confident that [in time] the tech companies we represent will become more important to our overall economy than less.”
Cooley saw its revenues surge for the second consecutive year. The number of IPOs Cooley handled in 2013 was “almost unprecedented,” said firm CEO Joe Conroy, adding that the capital markets practice was particularly strong during the second half. “We definitely finished the year with momentum,” he said.
Munger Tolles also saw high demand for its specialized services, with gross revenue rising 16 percent and RPL up 12 percent.
The results were powered by four major trials, managing partner Sandra Seville-Jones told The Am Law Daily, a Recorder affiliate. Significant engagements in 2013 included the representation of TransOcean Ltd. in litigation over the Deepwater Horizon disaster and an important deal for key client Berkshire Hathaway.
Zeughauser said the tech industry, particularly patent litigation, and the financial services industry, particularly Foreign Corrupt Practices Act work, were bright spots in 2013.
“If you had strength in one of those areas, you’re probably going to outperform the market, and if you had strength in two of them, you’re definitely going to outperform the market,” he said.
Pillsbury saw disappointing results, including a 3 percent revenue decline, after it was able to post strong gains in revenue and profitability for 2012. The firm, which held merger talks with Orrick, Herrington & Sutcliffe last year, said chairman James Rishwain wasn’t available to discuss its financial performance.
Sedgwick saw net income slide 4.2 percent in 2013 as gross revenue dipped 1.7 percent. On Feb. 7 the firm announced that it would move its back-office operations, including the finance, human resources, information technology, marketing and new business functions, to a service center in Kansas City, Mo. The move, beginning in the summer, would create 100 new jobs there, the firm said.
Irell & Manella saw gross revenue drop 7.1 percent; RPL decline 8.4 percent, to $1.4 million; and PPP slump 1.9 percent, to a still-whopping $3.3 million. The prior year, Irell saw a 19 percent spike in profits per equity partner, resulting from a reduction in both partners and attorney head count.
At Sheppard, Mullin, Richter & Hampton, revenue rose more than 6 percent, while RPL ticked up 1.2 percent and profits per partner dipped 1.6 percent, to $1.2 million.
As for 2014, law firm leaders expect competition to intensify. “I don’t believe that the basic market dynamic is changing,” said Cooley’s Conroy. “As boring as it sounds, it’s really going to be more of the same.”
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