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Dechert’s strongest year ever in its international offices and the right mix of practice areas helped garner a 14.7 percent increase in gross revenue for 2007 — a year firm Chairman Barton J. Winokur said was “difficult” for the industry.

The firm’s revenue increased from $729 million in 2006 to $836 million in 2007, he said.

“Last year was a difficult year for the industry, and I don’t think we’ve seen how difficult through the numbers,” Winokur said.

The “fiercely competitive” legal industry, he said, saw the largest cost increases he has ever seen, due in large part to salary and bonus increases. Dechert is currently at $145,000 for starting salaries in the Philadelphia market, and that would go up if other firms went higher, he said. Salary increases were even more expensive in other markets like New York and California. New York saw “very big increases” in year-end bonuses, Winokur said.

Although he said Dechert was fortunate enough not to be affected by the economic downturn that hit in the summer of 2007, other firms may not be as willing as in years past to tout their results.

The legal industry has “been in a boom” time for the past five to six years, but the financial boom doesn’t look like it will remain where it has been, he said. That will inevitably affect the business activity of law firms, he said.

“In general, law firms didn’t do as well last year as they thought they were going to do,” Winokur said.

He said the industry would start to see a “meaningfully smaller percentage” in profit increases.

Despite a general economic downturn, however, Winokur did say that firms would vary vastly in how they fared last year. He said Dechert had a “good year in context” with the national economic picture and did well because of a strong focus on its seven core practice areas and a balanced reach geographically.

Consultant Bill Brennan of Altman Weil said 2007 was a “banner year” for many law firms. He said firms, like Dechert, that are the largest and at the top of certain practice areas in their markets are going to have a strong financial performance for 2007.

“2008 is promising to be quite less dramatic,” Brennan said, in terms of increases in revenues and profits.

Firms are being much more conservative in their budget projections for the year, he said.

While firms that aren’t near the top of the AmLaw 100 are struggling a bit with profitability, Brennan said the rich are getting richer.

The increase in revenue per lawyer for the largest firms is still outpacing the increase in expenses, he said. The expense increase hasn’t had a dramatic effect on revenues and profits yet because firms have been able to pass through rate increases fairly easily, he said.

When asked whether that would become more difficult in 2008, Brennan said “absolutely.” He said firms would start to see increasing resistance to rate hikes.

Winokur said continuing to do more high-end work for sophisticated clients helps defray some of that resistance to rate increases.

He said there would always be a firm willing to compete aggressively for the work Dechert is doing. The more firms like that there are, the more the work gets pushed into the “commodity” category, he said.

As in any business, Winokur said, if a company is offering the same product as it did three years ago, they will still have business but it will be at a much lower margin.

While some firms very successfully focus on doing large volumes of relatively lower-rate work, Winokur said Dechert “by and large focuses on matters that are more complex.”

The higher-end the work, the less competition, he said. If the firm can do the work well and persuade people to buy the service, then people will pay for it, he said.

More sophisticated work means more sophisticated clients, who in turn may be wary of rate increases, Winokur said.

Some of the practice areas that Dechert has focused on include mass tort and class action defense and antitrust work, including the representation of Whole Foods in its acquisition of Wild Oats.

The firm was fortunate, Winokur said, to maintain a strong financial practice because of its very limited involvement in the subprime-lending arena. Instead, Dechert represented more of the principals who were buying distressed companies.

The firm’s London office and the rest of its European contingent had “by far the best year ever,” he said. The balance in locations helped Dechert weather a slower economy domestically, Winokur said.

Dechert did do some housekeeping as well. The firm was able to avoid layoffs, he said, but it did get rid of some practice areas.

Winokur said the 13-attorney state tax litigation group — which left for Reed Smith in 2007 — and the media group led by longtime Dechert partner Amy Ginensky, who went to Pepper Hamilton, were not part of the firm’s strategy. The departure of the state tax group also essentially closed Dechert’s Harrisburg office.

Dechert’s strategy for growth has differed from many of the large firms that have been focused on mergers over the past few years. The firm had 898 full-time equivalent lawyers including 169 equity partners in 2006. Winokur estimated that the firm closed out 2007 with 930 full-time equivalent lawyers with the number of equity partners in the “low 160s.”

When asked about why the firm hasn’t taken the merger route, Winokur asked, “Why would you do that?”

He said mergers are “very difficult” because a firm has to find the right culture match and the right match of practices. He said it is hard to find practices where attorneys are not only doing the same thing, but also doing it at the same level.

In PaLAW 2007, a sister publication of The Legal, Dechert was listed among the fastest-shrinking firms in terms of the number of attorneys in Pennsylvania. The firm went from 323 attorneys in the state in 2006 to 277 in 2007.

“It’s definitely not because we decided to make the office smaller,” Winokur said.

He attributed part of the decline to the state tax and media groups that left. He said the rest might be due to the fluctuation in the number of contract attorneys the firm hires for certain matters.

Winokur said Dechert hires more first-year associates for the Philadelphia office than possibly all of the other U.S. offices combined.

“Philadelphia is a very, very important city,” he said.

Regardless of geography, Brennan said 2008 would most likely see firms juggling attorneys between practice areas. He said layoffs have been concentrated in firms most affected by the subprime crisis.

Law firms are much better managed than they were in previous economic downturns, and Brennan said he doesn’t expect to see many more layoffs in 2008. He said firms would instead slow down new-associate hiring and shift attorneys into different practice areas, such as bankruptcy.

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