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Legal Times ‘ legal business reporters Jason McLure, Anna Palmer, and Emma Schwartz took your questions on all things concerning the Revenues & Profits Special Report.
Emma Schwartz: Hi. We’re here and we are looking forward to taking your questions aboutthis year’s D.C. 20 Revenue Survey.
David, New York: Though your coverage has made it clear that Washington, D.C. firms have grown significantly larger, why hasn’t the D.C. market produced a Skadden or a Latham � a colossus with excellent profits, a good reputation, and global reach? Emma Schwartz: Good question. D.C. Hasn’t produced a giant like Skadden or Latham � not yet at least � for one major reason: Washington firms haven’t fully cracked the transactional market. Because they are based in the nation’s capital, Washington firms have historically centered on regulatory work, with litigation as a secondary driver of revenues. It is only recently, perhaps with the exception of Hogan, that D.C. firms have made a real effort to get into transaction work and in particular the NY market. They still have a way to go and without that it’s unlikely we’ll see a D.C. Firm hit that scale. But they are trying.
Kate, D.C.: I’m interested in what you think is a better indicator of growth � the number of lawyers a firm has or how profitable it is for its partners? Thanks. Anna Palmer: The number of lawyers is a better indicator because it suggests that the firm is doing more work and has the revenue streams to support more lawyers. As we pointed out in the D.C. 20 revenue package, profits per partner is a number that can be finagled based on the two-tier partnership system that many law firms have moved to.
Hans, D.C.: Do firms tend to focus more on Realization Rate or some other profitability indicator when trying to make sense of their financial picture, beyond revenue figures? Emma Schwartz: I think firms look a lot of factors when assessing their overall financial figures and realization rate is certainly among them. Others include the average billable hours or the type of work a firm focuses in. But I believe that some firms have made more of a push to increase realization in order to boost their profits.
Jarrett, D.C.: Is there any evidence to support the idea that a firm needs to be international to perform well? I was struck by the differences in approach among the leaders in your survey? Or is this just a matter of “everyone is doing it.” Emma Schwartz: Most firms believe that with the increasing globalization of the business market, law firms will have to follow suit. And it’s hard to argue with the fact that nearly al of the biggest firms AmLAw 100 firms have expanded abroad. Take the approach of some D.C. Firms that have expanded to places like Brussels. Many argue that they wouldn’t get a hand as regulatory counsel in some deals if they couldn’t handle the work on both sides of the Atlantic (in both Washington and the EU.) But there are vocal critics of this approach, firms that believe that there is a limit to the top-tier client base and believe that can remain profitable — and even grow — by focusing on regional matters. Even supporters of internationalism would likely concur that there is an element of faith in some of the expansion and great risk that certain markets could fail, as happened when a number of firms catapulted into Eastern Europe after the fall of the Soviet Union.
Rob, Virginia: What is the most surprising thing you found in compiling the report? Anna Palmer: One of the most interesting things driving revenue growth in the D.C. Legal market is not scoring new clients. Rather, firms are upping rates in order to continue to pad the bottom line. Any of the firms in the bottom ranks like Patton Boggs, Wiley Rein & Fielding, & Venable could be in danger of falling off the chart. Venable, for instance, was one firm that had fallen off the chart for a couple of years, but made a come back in 2005. Jones Day is one of the firms that I’d watch because it just missed making the chart.
Dave, D.C.: Not one D.C.-based firm is among the top 20 on the Am Law 100 in profits per partner, revenue per lawyer, compensation for all partners, or value per lawyer, and only one — Wilmer — appears among the top 20 in gross revenue. Does this say anything about the financial strategy of the D.C. 20 firms — are they doing something wrong? Jason McLure: Good question Dave. Again, the key here is the relative weakness of Washington firms in big-ticket corporate transactional work — which is mostly a New York practice. Firms are able to charge a much higher premium for this sort of work, because the dollar figures for the deals they work on is so much higher. It’s not just Washington firms that have had a tough time breaking into the top tier of the New York market, firms from Boston, Houston, San Francisco and other places are struggling to gain a foothold as well. But that said, money isn’t everything. And lots of Washington lawyers would tell you that the job they do day in and day out — interacting with regulatory agencies, lobbying policymakers, and battling the government’s investigative arms — is much more fun than lawyering a private equity deal. And if your profits per partner are only $800,000, hey, a lot of people can live on that.
Bill, D.C.: Who do you think is a real “comer” in your rankings? Which firm should we keep our eye on? Anna Palmer: I think there are a couple of firms that have had really strong showings the past couple of years. Latham & Watkins certainly continues to grow in the Washington market posting double digit gains for the second year in a row. Also, the firm has upped its headcount to over 220 and continues to hire. Steptoe & Johnson, while it has lagged behind the other old line Washington firms reported healthy growth again which could either suggest its looking to merge or regain some of its market share. And, I’d also watch Bingham as a possible newcomer to the chart next year depending on how the merger with Swidler plays out.
Jorge, Silver Spring: What’s the process Legal Times uses to collect the data? Do firms just give it to you? Anna Palmer: We use a variety of methods in compiling statistics for the chart. The numbers are culled from firms and reporting from a variety of sources.
Molly, Boston: Jake, Anna, Emma: It’s likely that you came across interesting findings outside of what you were able to or had the space to report. Can you share any of those findings with us today? Emma Schwartz: Let’s see. I’d say one of the interesting things we came across in our research was the disparity in pay among partners. PPP is only an average of all equity partners, and for some firms the difference between equity partners can be startling. At Patton Boggs, for instance, the ratio between the highest and lowest paid equity partner is 20:1. It’s an interesting measure of a law firm because it raises questions about the equity of a firm, the culture of a firm, and, for firms that have a small spread, whether they can compete to keep some of the biggest revenue generators from being bought out by a higher bidder.
Emma Schwartz: A correction: the ratio at Patton Boggs is for all partners, not just equity partners.
Michelle, Virginia: Is breaking out revenues by office — as the D.C. 20 does — a fair measure? Isn’t a better gauge the contribution of a particular practice group than an office? When discussing a global law firm with pratice groups sharing clients around the world, isn’t revenue generated by a particular location beside the point? Emma Schwartz: I don’t think looking at revenues by office is an unfair measure. It’s just a different measure than looking at practice group. Looking at an office breakdown tells us how big the overall market for legal services in Washington is and who is doing it. It’s like looking at any other industry sector in the region, which would include work from companies that do business all over the world. Looking at practice groups would tell us which areas of the law are growing or contributing most, which is certainly an interesting measure itself.
Henry, D.C.: How much do partners in these firms know about how much each of them is making and how profitable the business is? Anna Palmer: It’s absolutely dependent upon the firm. Some firms keep financial information 100 percent in the open. Others keep financials literally under lock and key and partners who want to look at the materials do so under supervision.
Anthony, Columbia: Do you see any firm(s) that has the potential of challenging the “Big Four” firms mentioned in your special report? Emma Schwartz: Skadden already has, in some sense. The firm pushed passed Covington in 2004 and though it was beat out of fourth place in 2005, the office grew by nearly 40 attorneys last year.
Amy, D.C.: How do you think these figures are reliable? Do you think firms inflate their numbers for marketing purposes? Anna Palmer: I think that the revenue figures are reliable because we make every effort to crosscheck our information with multiple sources in order to verify as best as possible.
LegalTimes.com That will conclude our chat today. Our thanks to Anna, Emma and Jake on providing their expertise and for taking your questions. Any other questions about the D.C. 20 Special Report can be emailed to them.
Editor’s Note: Legal Times retains editorial control over online chats and will choose questions relevant to the discussion topic.

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