Bay Area Backslide

Hammered by the sour stock market and dismal economy, California's elite technology firms continued their slide among the nation's top grossing firms. The annual rankings of the 100 highest-grossing U.S. firms, published Monday in Recorder affiliate The American Lawyer magazine, shows that firms like Wilson Sonsini Goodrich & Rosati, Gray Cary Ware & Freidenrich and -- of course -- the now-defunct Brobeck, Phleger & Harrison sank in both revenue and profitability last year.

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Hammered by the sour stock market and dismal economy, California’s elite technology firms continued their slide among the nation’s top grossing firms. The annual rankings of the 100 highest-grossing U.S. firms, published Monday in Recorder affiliate The American Lawyer magazine, shows that firms like Wilson Sonsini Goodrich & Rosati, Gray Cary Ware & Freidenrich and — of course — the now-defunct Brobeck, Phleger & Harrison sank in both revenue and profitability last year. The 13 California firms that made the list had average profits per partner of $790,000 in 2002, up from $770,000 the previous year. But it was the four Los Angeles firms on the list that drove up the statewide performance. The nine San Francisco Bay Area players averaged $655,000 in 2002, compared with $670,000 in 2001 — a 2 percent decline. For the second year in a row, Brobeck had the biggest drop in profits of any firm, down 38 percent. Gray Cary was down 10.7 percent, while Thelen Reid & Priest was down by 8.9 percent. Wilson Sonsini dropped 5.8 percent. Wilson Sonsini and Cooley were the only Bay Area firms to see a decline in revenue per lawyer, by 6.5 percent and 2.7 percent, respectively. Latham & Watkins also saw a 1.5 percent dip in revenue per lawyer. Brobeck was unable to recover from its downward spiral. Faced with heavy debt, a failed merger attempt and an avalanche of partner defections, the firm disbanded in February. However, Brobeck’s massive loss of partners — more than two dozen in the first eight months of the year — apparently boosted the firm’s revenue per lawyer, which shot up 26 percent in 2002, to $715,000. “I think [the loss of lawyers] is probably the explanation,” said former Brobeck partner Stephen Snyder, head of the firm’s liquidation committee. “Usually you get a kick in the pants when someone leaves.” While tech firms were buffeted by the economic downturn, firms with diversified practices, particularly those with strong litigation departments and an international presence, were able to boost their revenues and profits. Orrick, Herrington & Sutcliffe stood out among local firms as its profits per partner jumped 14 percent, to $875,000 — the highest in the Bay Area. Orrick’s revenue per lawyer also climbed 8.5 percent, to $700,000, placing it No. 4 behind Gibson, Dunn & Crutcher, O’Melveny & Myers and Brobeck. Orrick Chairman Ralph Baxter Jr. attributed the firm’s success to its high-stakes work and its diversity. “We focus on high-value engagements, so the work we are doing is important,” Baxter said. “Another element to our success is balance. We have a balanced set of practices, balanced geography and a balanced sector penetration, so we are less vulnerable to a downturn in any sector, practice or region.” Other old-line San Francisco firms that boosted their profits last year were Heller Ehrman White & McAuliffe, which had a 10 percent increase in profits per partner; Pillsbury Winthrop, up 6.8 percent; and Morrison & Foerster, up 3.7 percent. While Cooley Godward’s revenues dropped 15 percent in 2002, unlike other tech firms, it nudged up its profits by 2.8 percent. Nationwide, many firms on the AmLaw list that had a drop in profits per partner in 2001 saw their fortunes brighten last year. While in 2001 nearly one-third of the AmLaw 100 firms had a decline in profits, in 2002 only 15 firms did so — the same number as in 2000. However, profits continued to decline for the two most profitable firms — Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore — which respectively had profits per partner of $2.9 million and $1.96 million. Wachtell logged a 7.7 percent decline, while Cravath’s profits were down 8.2 percent from the previous year. In terms of gross revenue, the top five firms remained the same as last year. Skadden, Arps, Slate, Meagher & Flom, the nation’s highest-grossing law firm, posted revenue of $1.3 billion. Baker & McKenzie ranked second with $1 billion; Jones Day rang in at third place with $908 million; Latham held onto fourth place with $906 million; and Sidley Austin Brown & Wood continued in the No. 5 spot with $831 million. MAKING THE LIST Regionally, New York and Washington, D.C., area firms had the largest presence on the AmLaw list. The top-grossing firm in D.C. was Hogan & Hartson, which had gross revenue of $480 million. Two D.C. firms moved onto the AmLaw 100 list this year: Dickstein Shapiro Morin & Oshinsky and Patton Boggs. American Lawyer credited Dickstein Shapiro’s improved finances to contingency fees from a big antitrust suit and Patton Boggs’ success to lobbying and regulatory work. Philadelphia’s Drinker Biddle & Reath and New York’s Kelley Drye & Warren also joined the top 100 list this year. Among the regional firms with a significant Bay Area presence, Boston’s former Bingham Dana reaped the rewards of its merger last July with San Francisco’s McCutchen, Doyle, Brown & Enersen. Ranked No. 29, Bingham McCutchen posted gross revenue of $433 million and profits per partner of $920,000. McCutchen did not make the AmLaw top 100 list in 2001, while Bingham came in at No. 64 with gross revenue of $251 million and profits per partner of $870,000. Bingham Chairman Jay Zimmerman said the firm’s finances reflect the success of the merger. “What McCutchen brought to us was a wonderful West Coast geographic presence and a phenomenal litigation practice,” he said. Meanwhile, Bingham has continued to benefit from its diverse practices, including its financial restructuring insolvency practice. Pittsburgh’s Reed Smith also had a strong performance with gross revenue up 17 percent, to $314 million, and profits per partner jumping 23.8 percent, to $495,000. The figures do not reflect Reed Smith’s merger with Oakland’s Crosby, Heafey, Roach & May in January, which gave Reed Smith a presence in the Bay Area. Reed Smith firmwide Managing Partner Gregory Jordan said the figures reflect the firm’s growth in London — Reed Smith merged with London’s Warner Cranston in January 2001 — and New York. In addition, Jordan said the firm has benefited from its diversity and efforts to obtain more high-end work. “We tend to be working on more significant matters,” which can cost more and result in quicker payment, Jordan said. “You get time turned into dollars more quickly.” Meanwhile, Morgan, Lewis & Bockius, which obtained a significant Bay Area presence with the acquisition of dozens of Brobeck lawyers, saw a dip in its revenues and profits last year. Gross revenue was down 3 percent, to $557 million, and profits per partner dipped 2.7 percent, to $720,000. Related Charts: California’s AmLaw 100 Firms Out-of-State Players Profit Leaders

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