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Silicon Valley law firms saw profits plummet in 2001, and the biggest of them took the hardest hit of all. San Francisco-based Brobeck, Phleger & Harrison said Thursday its profits per equity partner dropped from a Bay Area-leading $1.17 million to $660,000 — a dizzying decline of 43.5 percent. Gross revenue also slid 6 percent from $476 million in 2000 to $447 million, according to an annual survey of law firm finances conducted by The Recorder. Brobeck’s firmwide managing partner, Richard Parker, said the firm simply had too many corporate attorneys and not enough work to keep income rising. “We grew very dramatically on the corporate side through the [Internet] bubble so we built up a substantial cost structure,” Parker said. “And we did not want to let people go so we kept the cost structure in place.” But Brobeck wasn’t the only Silicon Valley law firm hard hit last year. Firms that reaped the technology zeitgeist reported flat revenues and, in most cases, declining profits — though none were as sharp as Brobeck’s. Each blamed the dismal economy and too much overhead for the poor returns. Though 2001 was already a bad year, the events of Sept. 11 only added to the firms’ financial woes. While most firms were putting a positive spin on the outlook for 2002 and predicting an economic rebound, Thursday brought more bad news for Valley lawyers. Palo Alto, Calif.-based Gray Cary Ware & Freidenrich announced it was laying off 46 associates and 68 staff. Law firm consultant Peter Zeughauser said the sliding year-end revenues and profits illustrate how the law firms that invested most heavily in emerging growth companies bore the brunt of the downturn. “Where they’ll make that up in the future remains to be seen,” said Zeughauser, a principal of law firm consultant ClientFocus in Corona del Mar, Calif. “What we’ve seen is really only the beginning for Silicon Valley. They’ve got another very tough year ahead and maybe even longer.” Few firms rose as fast as Brobeck, and the picture painted in its returns Thursday was particularly bleak when compared to last year’s rosy results. Brobeck in 2000 became the first large San Francisco Bay Area firm to report more than $1 million in partner profits — a number usually reserved for firms based in New York. The accomplishment was touted loudly by former Brobeck Chairman Tower Snow Jr., who helped shape the firm as a go-to technology outfit. But the sliding economy helped usher Snow from his job as firm chairman in November. Associates and former partners said that Snow’s pledge not to lay off lawyers undermined his support among other partners. Parker acknowledged that it was expensive to keep associates, but he said, “We’re pleased we stuck with our people as long as we did.” Last month, 82 associates in the business and technology group took the firm’s offer of severance pay to leave the firm. A Brobeck partner said the firm took a big hit for two reasons: the $7 million cost of the buyout and internal turmoil over the last three months. “The firm was consumed with politics during the last quarter,” the partner said, which had an impact on billable work, billings and collections. Among other Silicon Valley firms, Palo Alto-based Wilson Sonsini Goodrich & Rosati’s gross revenue dropped 6 percent to $425 million and its profits per partner slid 11 percent to $832,000. Partners said Palo Alto-based Cooley Godward’s gross is up a sallow 3 percent and profits declined 12 percent. Gray Cary’s revenues were up by 18 percent, but the firm said its profits dipped 2.5 percent. Per partner profits at Gray Cary are now $516,000. Nevertheless, Jeffrey Saper, managing director of strategic planning at Wilson Sonsini, was upbeat about the Valley’s revival. “Most of us are guardedly optimistic that the worst is behind us,” Saper said. “It’s clearly been a tough year and if there’s any upturn in business, it’s likely that [firms] will show improvements in operating results.” Senior Recorder writer Renee Deger contributed to this story.

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