Akerman Senterfitt has reported a dramatic 30 percent drop in its non-equity shareholders, capping off a difficult year marked by rapid turnover, the embarrassing collapse of a merger and the revelation that it missed its budget.
Non-equity shareholders also suffered a 15 percent drop in pay, according to financial information for the 2008 fiscal year released by Akerman for the annual ranking of top law firms by The American Lawyer magazine, an affiliate of the Daily Business Review.
Firm chairman Andrew Smulian attributed most of the drop in non-equity partners to promotions to equity partnership. But Akerman also reported a drop of more than 5 percent in its equity shareholder head count.
“I don’t want to get bogged down in line items, but basically a lot of the people who had been classified as non-equity partner became equity partners,” he said. “There were departures. A lot of people came. There’s no macro conclusion to draw from those line items. There were no layoffs of partners.”
The firm declined to specify how many non-equity partners were promoted and how many left the firm. Akerman bestowed partnership on four South Florida attorneys out of 13 such promotions firmwide.
It lost 15 non-equity shareholders, declining 29 percent to 37 in the year ended Oct. 31. Even with promotions, the number of equity shareholders fell 5 percent to 198 with some well-publicized practice group departures.
On the financial side, revenue was nearly flat, up 0.48 percent to $254 million. Revenue per lawyer was down 0.52 percent to $542,260. The firm’s head count grew 1 percent to 468 attorneys.
Total compensation to equity partners dipped 3.7 percent to $92.8 million. Profit per equity partner was up 1.6 percent to $468,909 for the smaller group.
In January 2008, the Daily Business Review reported that Akerman had missed its revenue targets for the previous year by as much as 12 percent. The revelation coincided with a succession of shareholder defections from Akerman. Those departures were fueled by ire over the firm’s compensation structure and a demand for more money from partners to build up the firm’s capital because of revenue shortfalls.
David Block, with Miami-based headhunting firm Hertner Block & Associates, said fluctuations in law firm finances may push some attorneys, particularly partners, to search for new posts. Searches will be undertaken at firms that aren’t doing well financially and by attorneys who aren’t confident in the direction their practice group is taking.
“Partners and associates don’t want to be on a sinking ship,” Block said, who said he was not familiar with Akerman specifically. “If a firm’s financials are not strong or if a partner feels a firm is struggling to stay afloat, there may be movement.”
Smulian said there have been no partner layoffs — an option put on the table last week by Britain’s Clifford Chance — but sources have said the firm dismissed five staff members and three attorneys late last year.
Smulian was quick to note the bump in compensation for equity partners and average partner compensation.
Profits per equity shareholder increased slightly by 1.6 percent, while average compensation for all partners was up almost 5 percent.
Amid the comings and goings, Akerman capped 2008 with gusto by closing the $4.5 billion merger of Fort Lauderdale-based Republic Services, the country’s third-largest waste management company, and Phoenix-based Allied Waste Industries in December. About two dozen Akerman shareholders plus other attorneys worked the transaction.
Bill Brennan, a Newtown Square, Pa.-based consultant with legal consulting firm Altman Weil, said the departure of non-equity partners may not necessarily hurt a firm.
“A law firm that reduces its head count, including even possibly the number of equity partners, is not necessarily a bad thing. In fact it could be a very important and necessary course of action for the firm’s leaders,” he said. “There are a very large number of lawyers currently looking for work. If the lawyers that left were relatively low-paid lawyers, the firm will have no difficultly in replacing them within 10 minutes.”
Without addressing Akerman specifically, Brennan said firms with growing profit per partner are faring well, given today’s economic climate.
“A law firm with a modest increase in profits per equity partner or even a decrease would have been an indication of a serious problem in prior years but not in 2008,” he said. An increase “implies they may have been losing lawyers who were not contributing a lot of value to the firm. Nevertheless, it’s essential for a law firm to be competitive in terms of the level of compensation paid to partners because of the increased partner mobility we see in the legal profession today.”
September’s announcement of Akerman’s failed merger with WolfBlock poses unique issues.
“Definitely a merger that is pre-announced in the press and then fails to be consummated is not good for either firms’ image. It raises questions in the minds of other law firms, clients and even employees of the firm as to why the proposed deal died,” Brennan said.
Smulian said last week that the firm continues its effort to grow by merger and is actively searching for a merger partner. He declined to name any potential suitors.
Sherry Schneider, managing partner of the Lucas Group‘s Miami office, a legal recruiter for Akerman, said her impression is that the partners that have remained with the firm are happy.
“What I hear in the marketplace is that it’s difficult to pull out partners. The partners that are there are pretty happy and loyal to the firm,” she said. “They’re certainly in a growth mode from what we can see.”
Compared with other large, Florida-based firms that have released their AmLaw 200 surveys, Akerman had the sharpest drop in non-equity partners; it was the only firm that reported a drop in profits.
Greenberg Traurig expanded its non-equity partnership by 11.3 percent, its equity partnership by 2 percent on a revenue increase of 0.31 percent and a profit increase of almost 3 percent.
Orlando-based GrayRobinson lost 13.3 percent of its non-equity partners while equity partnerships expanded by 6.9 percent, but GrayRobinson is an anomaly because the vast majority of its partners have equity status. The firm’s revenue jumped 10 percent, and net income increased by 7.3 percent.
Ruden McClosky — which is not an AmLaw200 firm — released limited financial information. The firm reported revenue was down 9 percent with a 7 percent loss of equity partners, and no change in non-equity partners.
The door at Akerman Senterfitt was revolving last year and is still turning this year. J. Rodman Steele took eight Akerman intellectual property attorneys with him last week to launch the West Palm Beach office of Houston-based IP boutique Novak Druce + Quigg.
Steele said compensation and the failed WolfBlock merger did not drive the group’s decision. He said the team wanted to work for an IP boutique that would allow the group to focus more on patent re-examination work, which has gained popularity in the recession.
The firm began an aggressive campaign to acquire new corporate associates by offering headhunters a premium 30 percent fee for each new hire. Some headhunters said the move was a sign of desperation, while other said it emphasized the firm’s need to staff a growing corporate practice. The firm later settled on a 25 percent fee for all associate finds, which is higher than the fee paid by some other South Florida firms.