Despite the flat demand for legal services, Atlanta’s largest firms fared pretty well last year.
The 12 top-grossing firms based in Atlanta generally posted positive results in 2013—a year when slow to no growth in revenue and profit was the norm for Am Law 100 and 200 firms.
Seven posted solid revenue increases—which exceeded 5 percent growth at four firms.
Ranked in order of percentage of revenue increase are: Ogletree, Deakins, Nash, Smoak & Stewart (10.2 percent), Morris, Manning & Martin (9.4 percent), Arnall Golden Gregory (8.8 percent), Smith, Gambrell & Russell (6.3 percent), Troutman Sanders (4.8 percent), Fisher & Phillips (4.5 percent) and King & Spalding (4.1 percent),
Five firms reported revenue declines. Decreases at three of these, Alston & Bird (1.6 percent), Sutherland Asbill & Brennan (1.4 percent) and McKenna Long & Aldridge (1.2 percent) were akin to flat, and Kilpatrick Townsend & Stockton’s 4.4 percent revenue drop to $388.5 million is a bit misleading because it followed a hefty 12.3 percent boost to 2012 revenue, fueled by a $38 million contingency fee. Ford & Harrison posted a 3.5 percent dip from the previous year. That compares with an overall revenue increase of 2.5 percent last year for large firms nationally, according to a Citi Private Bank survey of 180 firms. Of those, 126 were Am Law 100 and 200 firms, with 54 additional firms.
Even so, the Atlanta firms’ managing partners do not foresee much improvement in the legal market any time soon.
“I kept thinking and hoping that the broader economic picture would improve. It has, some—but it feels like we’re still playing football in a hard rain every game and every season,” said King & Spalding’s chairman, Robert Hays.
Fisher & Phillips’ managing partner, Roger Quillen, said downward pressure on rates from clients continues. While lawyer productivity was strong, average hourly rates at the labor and employment firm increased only by slightly more than 1 percent last year, Quillen said, a “big challenge” that has persisted since 2008, with only 1 percent or 2 percent gains each year. “I see no end to that in sight,” he said.
Automatic annual rate increases are a relic of the past, said Sutherland’s managing partner, Mark Wasserman. “Now we’ve got to have conversations with clients as to why it makes sense for rates to increase. There has got to be a good business reason for it.”
Keeping costs down continues to be a major concern for clients, Wasserman said. “Even if the economy does improve, which I’m skeptical about, I still think our business is being pressured to improve efficiencies.”
Clients “are demanding it. General counsels are being pushed internally to make sure they are delivering efficiencies,” he said.
Leaders of firms with big revenue increases attributed them to busy practices across the board.
“It was the way good years usually are: no group was down. A lot of deals closed, litigation was active and the health care group was busy,” said Arnall Golden Gregory’s managing partner, Glenn Hendrix, of his firm’s 8.8 percent revenue increase. “People were reasonably busy and collected on fees.”
Morris Manning’s managing partner, Louise Wells, said her firm’s 9.4 percent revenue increase was because business was more consistent. “It was not as concentrated in a few partners,” she said.
The real estate and real estate finance practices “continued to show a robust recovery” in 2013, after a comeback in 2012, she added.
Seven of the Atlanta-based firms reported increases in net income, ranging from 4.2 percent at King & Spalding to a whopping 15.7 percent at Smith Gambrell, where big lateral hires in 2012 paid off in 2013.
While King & Spalding’s percentage gains in revenue and profit were some of the lowest for the group, that is a function of its size. The firm is the highest-grossing and most profitable of the dozen, raking in $861.5 million in revenue in 2013.
King & Spalding’s 4.2 percent gain in net income pushed profit per equity partner over the $2 million mark to $2,140,000—the first Atlanta-based Am Law 100 firm to pass that mark.
Net income was flat at Alston & Bird (-0.8 percent) and Sutherland (-0.5 percent). Even so, PPEP at both firms was more than $1 million: $1,665,000 at Alston & Bird and $1,040,000 at Sutherland—the highest for the 12 Atlanta firms, after King & Spalding.
Profit fell 20.4 percent at Kilpatrick in comparison with the contingency fee-fattened previous year. The fee was for a decade­long plaintiffs’ suit against the government over mismanagement of tribal lands’ income for American Indians, Cobel v. U.S. Department of the Interior. In 2012, the Cobel fee caused the firm’s PPEP to spike by $230,000. Although Kilpatrick’s PPEP fell by $160,000 last year, it was still a healthy $700,000.
Net income fell 12.2 percent at McKenna Long and 2.7 percent at Ford & Harrison.
The reports of Big Law’s death are greatly exaggerated, at least locally, but it’s far harder for lawyers to join the club. In the five years since the recession, Atlanta’s six highest-grossing general practice firms collectively increased profit by 54.6 percent, double the rate of revenue, which increased 24.6 percent. Head count, however, grew by only 6.4 percent.
Those six general-practice firms—King & Spalding, Alston & Bird, Troutman Sanders, Kilpatrick Townsend, Mc­Kenna Long and Sutherland—collectively netted profit of more than $1 billion in 2013, compared with $664 million in 2008. That was on revenue of nearly $3 billion in 2013, compared with $2.4 billion in 2008. They employed 3,700 lawyers in 2013, inching up from 3,465 lawyers in 2008—even though all six acquired other firms and added offices.
The aggregate ratio of equity partners to total lawyers at the six firms was the same in 2013—22.7 percent—as in 2008—22.6 percent. This is interesting given the trend toward deleveraging, the shrinkage of large firms’ entry-level associate classes and growing reliance on laterals for growth.
The ratio of equity to nonequity partners declined slightly in the five-year period, from 52.6 percent in 2008 to 48.8 percent in 2013.
Half of all Am Law 100 and 200 firms employed fewer lawyers in 2013 than in 2008, according to The American Lawyer—but that was the case for only two of the nine Atlanta-based Am Law 100 and 200 firms.
At Troutman Sanders, head count dropped from 620 in 2008 to 567 lawyers last year, and at Morris Manning it went from 154 to 148 lawyers.
Troutman Sander’s managing partner, Stephen Lewis, said the shrinkage in head count was because his firm, like others, is relying more heavily on contract and staff attorneys to perform discovery, due diligence and the like on large engagements—work that used to be done by first and second-year associates.
Even so, the “vast majority” of the firm’s nonpartner lawyers are still partnership-track associates, Lewis said. Staffing continues to evolve as the firm adapts to client demands for value, he said. “Like most firms, we are still figuring out what makes sense.”
Sutherland’s head count was flat—391 lawyers in 2013, compared with 390 lawyers in 2008—and Alston & Bird’s head count increased by only 12 lawyers, to 789 lawyers.
Sutherland is using more contract lawyers and paralegals to keep costs down. “The firms that do the best are going to be the ones that look hard at staffing,” Wasserman said.
The greatest rates of head count increases were at the two labor and employment firms among the nine, Ogletree (up by 62.5 percent to 668 lawyers) and Fisher & Phillips (up 39 percent to 267 lawyers). Both expanded their geographic footprint by acquiring numerous local labor and employment boutiques during that time.
Success for large law firms comes in part from sharpening the practice mix, pruning low-demand areas and anticipating areas that are becoming active.
“I don’t see a generalized uptick in the legal industry, but there are pockets where you can make some very significant strides with the right people and the right clients,” said Smith Gambrell’s managing partner, Stephen Forte. At his firm, intellectual property, litigation and aviation were busy areas. Transactional work has increased, he said, “but it’s still not where we’d like it to be.”
“So much of running a big firm comes down to the practice mix—anticipating where demand will be and making sure we have the talent in the right place,” said Richard Hays, the managing partner of Alston & Bird.
The finance, intellectual property litigation and tax-related practices showed good growth at Alston & Bird, he said, along with newer areas such as electronic payments, privacy and data security and unclaimed property law.
“We’re seeing a lot of good gains in some of the areas we’ve focused on. There are still headwinds. There are still a lot of challenges out there,” Hays said.