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Through the late 1990s, driven by double-digit growth at Silicon Valley tech firms, San Francisco Bay Area law firms led the nation in terms of profit growth. In 2001, the region’s fortunes took an abrupt turn. The annual list of the nation’s 100 biggest firms, ranked by revenue, published July 1 in Recorder affiliate The American Lawyer, shows that for the first time in at least a decade, the region saw a decline in profits. It was the only region to do so. (See related charts: California’s Top 10 and California’s Am Law 100 Firms.) With eight San Francisco and Silicon Valley firms making the list, the region’s average profits per partner dropped by 5.5 percent. In contrast, Los Angeles swelled its profits by 16.7 percent, Chicago by 8.9 percent, and New York by a squeaky 3.5 percent. San Francisco-based Brobeck, Phleger & Harrison doesn’t get all the blame, even if the firm logged the largest decline in profits — a whopping 43.6 percent — of any other firm. Without Brobeck in the mix, the region’s profits still shrank, if only by a fraction of one percent. All four of the Bay Area’s largest tech-centric Silicon Valley firms saw profits drop: Cooley Godward by 21 percent; Wilson Sonsini Goodrich & Rosati by 8.1 percent; and Gray Cary Ware & Freidenrich by 1.9 percent. It could have been much worse for the Bay Area. Shoring up the profits plunge were the handful of old-line San Francisco firms that just two years ago looked like dinosaurs. Morrison & Foerster grew its profits by 1.5 percent; Orrick, Herrington & Sutcliffe by 2 percent; Heller Ehrman White & McAuliffe by 15.2 percent; and Thelen Reid and Priest by 12 percent. For Heller Ehrman Chairman Barry Levin, it’s OK to be a little smug. “There was a time when one could question whether our strategy to have a broader focus was the right one,” Levin said. “We thought it was right, and it’s paying off.” The tech firms weren’t alone in watching profits inch backward. Nearly one-third of the Am Law 100 firms saw a drop in profits in 2001 compared with the 15 firms that saw drops in 2000. New York-based Wachtell, Lipton, Rosen & Katz, still the nation’s most profitable firm with profits per partner of $3.16 million in 2001, logged a 3.7 percent decline from the prior year. Thirty other firms saw profits decline as well, and the average drop was 9.3 percent. REVENUE GROWTH While firm profits nationally were flat, with an average 2 percent increase in profits per partner, revenues were up 13 percent. The survey shows the nation’s top-grossing firms pulled down $35 billion, compared with the $31 billion logged in 2000. The biggest firms were largely unshaken by the sluggish economy, and the top four remained in place for yet another year. New York-based Skadden, Arps, Slate, Meagher & Flom is still the nation’s highest-grossing law firm, with $1.23 billion in revenue. In the previous year, Skadden Arps became the first law firm to break the $1 billion mark. Chicago-based Baker & McKenzie held onto second place, but joined Skadden Arps in crossing the $1 billion revenue threshold. Cleveland-based Jones, Day, Reavis & Pogue held steady in third place with $790 million in revenues, and Los Angeles’ Latham & Watkins rang in at fourth with $769.5 million in revenue. When it came to regional growth, it helped to be in Los Angeles, where firms pulled down revenues as if no slowdown existed; L.A. firms swelled gross intake by 18.5 percent. San Francisco firms, meanwhile, managed to boost revenues by a relatively anemic 9.6 percent, while the six Chicago firms to make the survey saw a 9.4 percent bump. New York firms fared the worst, growing revenues by just 8.9 percent. Pillsbury Winthrop, which also made the Am Law 100, isn’t included in the regional calculations. Because the firm is a product of a January 2001 merger, there were no figures available for comparing year-to-year changes with the $440 million in revenues and $665,000 in profits per partner the firm logged in 2001. Prior to the merger, Pillsbury, Madison & Sutro ranked 45th on the Am Law 100 in 2000 and its merger partner, Winthrop, Stimson, Putnam & Roberts, didn’t make the cut at all, landing in 124th place in the Am Law 200. But as a combined firm in 2001, it landed in 26th place, one step ahead of Wilson Sonsini and one slot behind Brobeck. Pillsbury managing partner Marina Park said the firm is toasting its performance despite closing the merger just as capital markets work plummeted. The firm’s New York contingent from the former Winthrop pulled off a solid financial performance despite the drop in capital markets work and the Sept. 11 terrorist attacks, Park said. “The significant point for Pillsbury is what it positions us to do in the future when the capital markets pick up,” she said. THE MILLION-DOLLAR CLUB The million-dollar profits club got smaller. Last year, just 18 law firms bested the $1 million mark in profits per partner, and none of them were from the San Francisco Bay Area, while 20 firms scored the distinction in 2000, when Brobeck scored a seat in the exclusive club. Latham and Gibson both joined the club, Latham for a second time after a one-year hiatus. But Gibson arrived with a splash, unseating Latham as the state’s most profitable law firm. Gibson logged $1.1 million in profits per partner to Latham’s $1 million. Dropping below $1 million in per-partner profits were Brobeck ($660,000), New York’s Fried, Frank, Harris, Shriver & Jacobson ($875,000), the Minneapolis-based Robins, Kaplan, Miller & Ciresi (which dropped off the Am Law 100 altogether) and New York’s Shearman & Sterling ($950,000). Seven firms dropped off the Am Law altogether, including Palo Alto, Calif.’s Fenwick & West. The others were Arter & Hadden; Kelley Drye & Warren; Pepper Hamilton; Preston Gates & Ellis; Wilson, Elser, Moskowitz, Edelman & Dicker; and Robins, Kaplan, which The American Lawyer said was riding high in recent years on a big tobacco litigation payout that ran out. One more firm dropped off the list, but it was due to a merger. Sidley & Austin, which ranked 15th in the Am Law 100 in 2000, merged in 2001 with the 76th-ranked Brown & Wood. The combined firm landed in fifth place with $715 million in revenues. The eight newcomers to the Am Law 100 were Andrews & Kurth; Cozen O’Connor; Finnegan, Henderson, Farabow, Garrett & Dunner; Haynes and Boone; Quarles & Brady; Steptoe & Johnson; Troutman Sanders; and Venable. Fenwick Chairman Gordon Davidson was blas� about his firm’s slippage from the ranks. “Whether we’re 97th or 129th isn’t a big difference for us,” Davidson said, recalling Fenwick positioning for the past two years. “We’ve never thought that size was determinant of our success.”

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