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Chart: Holland & Knight’s Growth Curve Holland & Knight is in the hunt again. Though scarred by its last growth campaign, the Tampa, Fla.-based firm is looking to pick up another 100 lawyers for its 30-lawyer San Francisco office, part of a larger West Coast expansion effort. “We’ve got to grow breadth and depth on the West Coast to be able to sell to our clients that we are a truly national law firm,” firmwide Managing Partner Howell Melton Jr. said during a swing through town last week. The firm hopes to acquire one or more regional firms or cart off a local branch from a national firm. All told, Melton said he wants to bring the firm’s West Coast offices from their present 125 lawyers to 500 lawyers before his term expires in 2008. But consultants say finding suitable partners in California’s cutthroat market may be tough. And Holland & Knight’s comparatively low profits per partner could make it even harder. “There aren’t many 100-lawyer firms left in San Francisco, and those who are left wouldn’t want to merge with Holland & Knight,” said legal consultant Peter Zeughauser. “They’re not profitable enough.” With 1,263 lawyers spread through 36 offices from Rio de Janeiro to Helsinki, the firm reports per-partner profits consistently toward the bottom of The American Lawyer magazine’s top 100 law firms. In 2003, the firm ranked 24th in gross revenue, with $532 million, but its $545,000 in profits per partner placed it 83rd. By comparison, 775-lawyer Paul, Hastings, Janofsky & Walker grossed $537 million, but netted $1 million in profits per partner. Melton said those numbers don’t reflect the firm’s ability to pay top compensation in some of its markets. “We are able to guarantee compensation in virtually all cases which match or increase current compensation with additional upside,” Melton said, adding that some partners in key U.S. markets were paid seven figures last year. Still, he conceded, “We’re never going to be No. 1 in terms of profitability.” He said some of the firm’s offices, while competitive in their markets, act as a drag on the firm’s overall PPP figures. Even so, he said, “our prospects [for a merger] are good. We aren’t in the planning phase; we’re in the execution phase.” The firm is “talking nationally with groups of lawyers who have part of their team in California,” he said. But carving off a piece of a national firm is rare, Zeughauser said. “It’s a hard thing to do because if the office is any good, the firm will probably be taking care of them. And the fiduciary duties become much more complicated when a group is intertwined.” Smaller shops such as Farella Braun & Martel and Nossaman Guthner Knox & Elliott wouldn’t consider a merger with Holland & Knight “in a million years,” Zeughauser said. Legal consultant Bobbie McMorrow said smaller firms that have survived either want to stay independent or are talking to other small firms about a merger of equals. “There are very few firms left in California,” she said. “There is a war for talent like we’ve never seen.” But Thomas Zimmer, managing partner of Holland’s S.F. office, said he is already looking for more office space. The local office currently focuses on aviation and maritime law. “We’re looking to fill niches in corporate securities, securities litigation and construction,” Zimmer said. Holland’s return to growth mode comes despite internal criticism of the strategy that had taken the firm from 275 lawyers in 1992 to more than 1,200 by 2000. A 2002 memo by a dissatisfied partner to firm management argued that the firm had put growth above profitability. Holland & Knight had too many offices and spent too much billable time on pro bono work, the memo concluded. Melton said the memo, which was leaked to the media and widely publicized, was written in the middle of a “perfect storm” — a confluence of unsettling events that included a souring economy, the firm shutting its profitable New York office in the months following Sept. 11 and the abrupt departure of the firm’s longtime managing partner, William McBride, who stepped down to run for governor of Florida. The firm’s revenue in 2001 was flat compared to the prior year, and profits per partner dipped from $395,000 in 2000 to $355,000 in 2001. “That’s something we haven’t had in my memory as a partner,” said Melton, who has worked for the firm since 1975. In response, the firm cut 70 lawyers, restructured its compensation system and pared back overhead and administrative expenses. “The real issue was �let’s get our ducks in a row on the expense side,’” Melton said. “As a result, we renewed our commitment to the expansion of the firm.” The firm is opening a four-lawyer office in Sacramento next week to support its energy and tribal law practices. And in January, it acquired Cowley & Chidester, a seven-attorney trusts and estates boutique in Rancho Santa Fe, in San Diego County. In San Francisco, Zimmer pointed to the recent arrival of Stephen Taber, a public finance partner from Hanson, Bridgett, Marcus, Vlahos & Rudy. And while the firm’s emphasis on pro bono lowers overall profits — it counts 100 pro bono hours toward billables and allows for unlimited credit in some cases — Melton said pro bono is a cornerstone of the firm’s culture. So is growth. “Some firms are going to keep on growing,” said McMorrow, the legal consultant. “They’re not making a whole lot more money,” she said, but “they’re so scared not to grow, they keep on growing.”

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