X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
In legal circles, Washington’s law firms don’t exactly enjoy a flashy reputation. Compared to the juiced-up M&A outfits in New York or the tech-savvy shops of Silicon Valley, D.C. firms are the sensible shoes of the legal world: reliable and not very stylish. But during the past decade there has been a distinct fashion upgrade. The District’s firms have merged, built national practices, wooed global clients, gotten past the velvet rope in New York, and opened offices all over the world. And, of course, competition from both in and out of town has grown much more fierce. The transition to a more competitive environment has not been easy. Like any teenager with growing pains, D.C. firms have had to make awkward decisions. How much do we expand? In what areas? How do we balance firm culture with the need to compete for everything from talent to clients? Some D.C. firms have navigated these crosscurrents with aplomb, but two old-line institutions � Arnold & Porter and Covington & Burling � seem to be having trouble adjusting to the District’s new paradigm. Though both remain profitable and, by most accounts, are relatively happy places to work, both have also come face to face with the harsh realities of the modern legal market, where hustling for business and constant growth are seen as the price of continued survival.
By the Numbers
Gross Revenue: 2000-2006
Firmwide Headcount: 2000-2006
Profits Per Partner

The changing legal market “has required law firms to adapt or not survive, and we’ve seen many successful, highly prestigious law firms implode when they didn’t pay attention to economics,” says Bill Brennan, a consultant with Altman Weil. “The open market system is brutal and unforgiving.” In the past four years, Arnold & Porter has seen its revenue stall as its financial mainstay of mass tort litigation dwindled. Covington & Burling, once the standard-bearer for white-shoe Washington firms, increasingly feels the hot breath of out-of-towners on the back of its neck. And, as other home-grown firms have expanded, both have slipped further down Legal Times‘ annual ranking of the top 20 firms in D.C. As one managing partner at a competing firm puts it, “Both have been punched hard in the stomach by the modern competitive law firm.” TRYING TO KEEP PACE In the downtown office of Arnold & Porter, a copy of Clarence Gideon’s petition to the Supreme Court hangs on the wall, a testament to the roots of a firm born from activism and public service. Further down the wall, a photo shows firm elder Abe Fortas getting the stare-down from President Lyndon Johnson � the so-called Johnson treatment. But despite the firm’s rarefied reputation, Arnold & Porter admits it’s had some problems in recent years. Mass torts that once fueled the firm’s growth, such as the fen-phen litigation on behalf of diet drug manufacturer Wyeth and defending Big Tobacco, have concluded or slowed substantially. “It’s been a time of some transition in our firm as we moved from a time of big litigation to a more diverse practice,” says Thomas Milch, the chairman of Arnold & Porter. The firm has lagged behind the other big D.C. firms in terms of profits per partner. In 2000, Arnold & Porter was slightly ahead of the pack at $670,000, but in the past six years it has been surpassed in profitability by WilmerHale, Hogan & Hartson, and Covington. And the firm’s head count has declined by 100 attorneys since 2003, to 554. In fact, Arnold & Porter faces the questions that have bedeviled many D.C. firms in the past 10 years: how to make up for the lack of a strong corporate practice, how to respond to increased competition from out-of-town firms, and how to elevate profits per partner that struggle to keep pace with those of fast-growing firms in its peer group. These issues have forced the firm to contemplate the fundamental dilemma between maintaining firm culture and enhancing financial performance. The firm has also seen some key partners decamp. Just last month, the head of the firm’s tax practice, Blake Rubin, left for McDermott Will & Emery, with partner Andrea Whiteway and associate Jon Finkelstein in tow. The firm has also been hampered by its relatively narrow associate-to-partner-ratio, about 1.4-to-1, as compared to the 2.5-to-1 or 3-to-1 enjoyed by some of its larger competitors. “I think it’s fair to say that one of our biggest challenges when I came in as chair was that we didn’t have the kind of leverage that other firms did,” says Milch, who replaced Michael Sohn in 2006. Firm management is taking steps to rectify some of these issues, however. “It’s not as though all of a sudden Rip van Winkle woke up and the world had changed,” says one former partner. To diversify, the firm says it’s strengthening established practice areas such as antitrust, financial services, and healthcare, while buttressing its private equity and sovereign debt groups. Also, the firm has strong revenue-per-lawyer numbers when compared to its D.C. counterparts, topping off at $855,000, just behind WilmerHale. On one hand, Milch and managing partner Richard Alexander talk of their desire to transform the firm into a more profitable and dynamic enterprise, fostering an entrepreneurial culture and stepping up lateral hiring. On the other, they also talk of preserving the firm’s existing culture, including its commitment to pro bono work and employee satisfaction. Can both of these objectives really be realized? “There’s no single magic bullet because there are a lot of competing considerations,” says Milch. “But I think we are working to move forward and to do so in a marketplace that’s extremely competitive and changing quickly.” COVINGTON FALLS OFF THE LIST In contrast, Covington & Burling, while not discounting greater competition in the marketplace, is confident � some might say overconfident � that it’s on the right track. The firm points to its profits per partner, just over $1 million in 2006, and its high partner retention rate as two of many reasons why Covington has not felt as keen a need to transform itself in response to market forces. Covington’s head count growth has lagged behind that of its competitors, however, and the firm has seen only modest revenue gains over the past several years, creating a widening gap between itself and other top firms, such as Hogan and WilmerHale. And, horror of horrors, for the first time in five years Covington did not make it on The American Lawyer‘s “A-List,” the magazine’s annual ranking of the 20 firms with the best stats in pro bono, revenue per lawyer, diversity, and associate satisfaction (declining associate satisfaction was, in fact, the reason the firm dropped out). For years, Covington skimmed the cream of appellate and regulatory work, and Supreme Court clerks vied for coveted positions within the firm. Covington also has a reputation for being civilized, collegiate � and staid. Some might even say stodgy. “The law is about more than making money,” says Michael Schlanger, a partner at the firm who recently returned from a long hiatus in the government and several other firms around town. “The law is about being happy when you go to work, having professional satisfaction.” But while the practice of law might be all of those things, it is also increasingly a global business. Stuart Stock, the chairman of the firm’s management committee, and partner Tim Hester believe that the firm has been successful in meeting the demands of the legal marketplace. “We haven’t sat still by any means; rather, we have undertaken a whole program of changes,” says Hester. The firm did merge with the 60-lawyer Howard, Smith & Levin in 1999, giving it a foothold in New York. With that capability, Covington is able to hone in on the intersection of transactional and regulatory work, something that both Hester and Stock say is a goal of the firm. Covington is also trying to grow its footprint. After hiring only eight or nine lateral partners in its first 80 years, it started acquiring them with gusto in 2000. Since then, it’s picked up around six partners a year in practice areas such as intellectual property, and, according to Stock, it has generally accelerated hiring firmwide. The firm is considering opening an office in Asia and beefing up its European practices. But despite the management’s rosy projections, Covington faces some disadvantages. For one thing, it is, at bottom, a general practice firm. And though Stock says, “We are not trying to be everything to everybody,” the firm doesn’t dominate any top-end practices in the manner of New York’s Cravath, Swaine & Moore or D.C.’s Williams & Connolly. In addition, the firm hasn’t grown substantially, at least as compared to other D.C.-based firms like Hogan and WilmerHale, which have become truly international law firms. Obviously, growing to grow isn’t a strategy, but when competing against powerhouses like Skadden, Arps, Slate, Meagher & Flom and Latham & Watkins, both of which have established strong outposts in the District, having sufficient mass matters. Former Covington partners also suggest that lawyers there aren’t encouraged to be entrepreneurs who hustle up business, an assertion that Stock flatly denies. THE ROADS NOT TAKEN Facing the same changing business environment, two of Arnold & Porter’s and Covington’s longtime D.C. peers chose a different approach. Hogan & Hartson took its substantial corporate practice and leveraged it into a global presence. “Today, that’s a huge advantage that we have,” says J. Warren Gorrell, the firm’s managing partner. WilmerHale (then known as Wilmer, Cutler & Pickering) put aside concerns about firm “culture” long enough to merge with Boston’s Hale and Dorr in 2004. “We felt we were not sufficiently diversified,” says firm co-managing partner William Perlstein of Wilmer’s pre-merger days. “We had three strong offices in Europe, but the vast, vast bulk of the firm was centered around the Washington practices.” Arnold & Porter and Covington & Burling have tremendous brand names in Washington as well, but in an ever-more-globalized world, is that really enough for them to continue as top-tier firms in the coming years? A merger might solve some of the issues, giving the firms the size and breadth needed to compete on a larger scale. The most obvious choice of a mate for each would be a top-tier New York shop, but that might be a hard sell given that the firms’ profits per partner don’t match what New York expects partners to generate. “We’re not foreclosed from merging,” says Stock. He adds, though, that “it would have to be the right strategic fit, first of all, and the quality would have to be right.” Perhaps, as one Washington recruiter suggested, both firms should just merge with each other. “But that,” he says, “still won’t solve their problems.”


Attila Berry can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.