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Diversify, diversify, diversify. That’s the lesson from the California 40, The Recorder‘s rundown of the 40 top-grossing California firms in 2001. Law firms whose practices were spread across a variety of practice areas — particularly if they included a healthy amount of litigation — had much better years than their corporate-focused counterparts. Firms with diverse client bases survived and in some cases thrived while their technology-heavy competitors saw revenues flatten or even drop. And the big global players that boast offices spread over three continents did best of all. Firms heavily concentrated on California or, worse, the San Francisco Bay Area, generally had it toughest. Some Silicon Valley firms “had all their eggs in one basket,” said Gibson, Dunn & Crutcher managing partner Wesley Howell Jr., whose firm saw revenues increase 14.5 percent last year. “Maybe we were smart, or lucky. Diversity is a good thing.” Three other national powerhouses with roots in Los Angeles — Latham & Watkins (20 percent), O’Melveny & Myers (22 percent) and Paul, Hastings, Janofsky & Walker (17 percent) — saw big revenue upticks as well. The news was not as positive in the Bay Area, where tech-focused Brobeck, Phleger & Harrison and Wilson Sonsini Goodrich & Rosati endured slight revenue declines, while Cooley Godward and Fenwick & West recorded only modest, single-digit percentage increases. The Bay Area firms with a heavier mix of litigation in their practices had better years. Heller Ehrman White & McAuliffe saw revenues balloon 26 percent, while Orrick, Herrington & Sutcliffe enjoyed a 14 percent increase. “The emerging growth practice was slow and impacted by the economy, but it didn’t have the same kind of impact at Heller Ehrman as at other firms,” said firm Chairman Barry Levin. “We have not limited ourselves to technology.” “Our balanced portfolio of practice areas enabled us to do well in a very challenging year,” said Orrick Chairman Ralph Baxter Jr. The same pattern held true at mid-sized firms. The hardest hit was Menlo Park’s corporate boutique Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, where revenues declined 12 percent. By contrast, L.A.-based Allen, Matkins, Leck, Gamble & Mallory, with more emphasis on litigation, real estate and land use, grew revenues 23 percent. THE TOP 10 With $769.5 million in revenues, Latham & Watkins was once again California’s top-grossing firm. Latham Chairman Robert Dell said strong practice areas — including litigation, global project finance, securitization, health care, bankruptcy and restructuring — and aggressive growth in Europe helped boost the firm’s finances. Latham acquired two offices in Germany and one in Paris, which together added 130 lawyers to the firm. “It’s clearly been part of our strategy to diversify in good, solid practices,” Dell said. “We were able to survive the downturn in the economy in a healthy way with aggressive growth in Europe.” Latham, which disavows any notion of firm headquarters, began focusing on global expansion about two years ago. While its L.A. office still has the largest number of lawyers among its 20 offices, it is only 20 percent of the total. L.A.’s Gibson, Dunn & Crutcher reclaimed the second spot by bumping revenues from $469 million last year to $537 million. Tied for third was O’Melveny & Myers, another L.A.-based firm that saw a huge jump in revenue, from $400 million to $490 million. Daniel Bookin, head of O’Melveny’s San Francisco office, said the improved financials were due to the firm’s “focus on areas of long-term stable growth over the last couple of years” and its investment in talented attorneys. Like Latham and Gibson, O’Melveny also avoided putting too much emphasis on the tech sector. One area O’Melveny has focused on is the Asian market, particularly China. The firm has some 30 lawyers in its Shanghai office and has spoken of opening an office in Beijing. Hildebrandt International law firm consultant Blane Prescott said the success of the big Los Angeles firms has little to do with L.A. itself. “The dominant L.A. firms do well because they have a huge capital practice and are international,” he said. Paul Hastings Chairman Seth Zachary concurred. “Our year doesn’t have anything in particular to do with Los Angeles because our clients and our lawyers are diversified around the country and around the globe, and L.A. is one component of that,” Zachary said. Paul Hastings grew revenues 17 percent to $455 million, good enough for fifth place on the California 40. Meanwhile, Morrison & Foerster recaptured the title of the Bay Area’s highest-grossing law firm, by upping revenue 12 percent to $490 million. That tied MoFo with O’Melveny for the third spot in California. MoFo Chairman Keith Wetmore said practices in Southern California and Japan remained strong: “The Southern California market does not appear to be affected by the downturn and our practice there is busy across the board.” And while the firm saw a severe drop in startup technology work, as well as licensing and corporate work, Wetmore said litigation, bankruptcy and environmental/land use remained busy, and the real estate practice held up quite well. M&A transactions were also “surprisingly strong for us,” he said. The firm handled 37 M&A deals valued at $56.5 billion in 2001, including its representation of JDS Uniphase Corp. in that company’s deal to acquire SDL Inc. for $41 billion. During the year MoFo rejuvenated its London office by hiring several laterals and bringing the attorney head count up to 13. MoFo also formed a joint venture with Tokyo’s Mitomi & Ito, increasing the type of work the firm can do in Japan. And MoFo closed its eight-attorney outpost in Buenos Aires, instead forming a strategic alliance with a local firm. Brobeck, Phleger & Harrison’s performance rocked the Bay Area for the second year in a row. But this time its tumble from the top is the big news. Brobeck’s gross revenue slid 6 percent, from $476 million to $447 million. Brobeck’s phenomenal growth in 2000 — it added 308 lawyers for a total of 950, bringing corporate to 40 percent of the firm’s practice — became a financial drain when the economy tanked. Brobeck initially shed associates through stricter performance reviews. Then in December, 82 associates in the business and technology group agreed to take a buyout to leave the firm. Two months later the firm laid off 54 associates and 85 staff. While the business and technology group took a beating, managing partner Richard Parker said all of the other practice groups did well in 2001, with securities litigation and IP leading the way. Pillsbury Winthrop nanaging partner Marina Park described 2001 as a year of highs, lows and many surprises. The January merger between Pillsbury Madison & Sutro and New York’s Winthrop, Stimson, Putnam & Roberts instantly created a 733-lawyer powerhouse. The firm took in $445 million in revenues, roughly 8 percent higher than each of the separate firm’s combined 2000 revenues. Pillsbury also laid off about 20 associates in its New York and Silicon Valley offices. The layoffs came in the wake of the Sept. 11 terrorist attacks. Despite that setback, Pillsbury relied on its institutional contacts to get a piece of a few of the year’s bigger mergers and acquisitions. The biggest deal of the year came from longtime Pillsbury client Chevron, in its $43 billion merger with Texaco. With the market for initial public offerings virtually nonexistent, Wilson Sonsini simply couldn’t pull off another year of dramatic revenue growth as it did when the stock market was soaring. The firm collected $438 million in revenue, a 2.7 percent decline from the $450 million collected in fiscal year 2000. That placed Wilson eighth on the California 40. Meanwhile, headcount at the firm shrunk. Wilson had 104 fewer lawyers in January 2002 than the same time the previous year. The firm managed to skirt an outright layoff in 2001, primarily with more aggressive performance reviews and through attrition. Donna Petkanics, Wilson’s managing director of operations, said a cache of more than 300 publicly traded clients needing general corporate and intellectual property work helped generate some 75 percent of the firm’s revenues. The remainder came from litigation. Wilson did manage to bag several significant mergers and acquisitions, including representing Hewlett-Packard Co. in its merger with Compaq Computer Corp. It even managed to score a handful of IPOs. Orrick, Herrington & Sutcliffe’s steady performance helped push gross revenues 14 percent to $365 million. The firm’s finance practices — structured finance, global energy and communication, and public and private finance — as well as its IP practice and high stakes litigation, were particularly strong in 2001, firm Chairman Baxter said. Lawyers and staff from less busy areas pitched in. Orrick invested millions of dollars in technology and expanded its office space in New York, Silicon Valley and Seattle. Baxter said the firm also spent a substantial amount of time organizing its so-called Global Operations Center, which opened this year in Wheeling, W. Va. Rounding out the top 10 was Cooley Godward, whose rocket ride up the revenue charts hit a wall last year as gross revenue inched up a mere 3 percent. But Mark Pitchford, Cooley’s chief operating officer, said, “We’re pretty pleased by [the revenue growth] given all the factors going on. It’s a year that will nicely exceed 1999,” when revenue jumped 24 percent from the previous year, to $213 million. In 2000, the firm saw a 62 percent hike in revenue, fueled by the booming technology market. The firm suffered from a fall-off in corporate transactions and public offerings, and it laid off 86 associates in August. It was the first Bay Area firm to cut lawyers en masse. Pitchford said Cooley’s litigation practice did well, handling a steady flow of IP cases, as did its life sciences and immigration practices. The firm has represented underwriters charged with stock market manipulation during the boom in high-tech initial public offerings. Cooley created a new management structure early in 2001. In place of a firmwide managing partner, the firm split the leadership between the new posts of chairman and CEO — held by Stephen Neal — and chief operating officer. The major event of the year, however, was the reduction in associate ranks. Pitchford said the firm spent much of the last third of the year executing the layoff and dealing with the aftermath. “If there was any silver lining in 2001 in the management of the organization,” Pitchford said, “it was getting a handle on expenses.” Related chart: The Top 10 Contributors to this special report are:The Recorder ‘s Scott Graham, Renee Deger, Brenda Sandburg and Alexei Oreskovic;The American Lawyer ‘s Susan Beck and Laura Pearlman; formerRecorder reporter Lauren Gard, now a San Francisco free-lance writer; David Brown,The Recorder ‘s assistant managing editor;American Lawyer ‘s director of editorial research, Margaret Daisley, and Senior Editor Jim Schroeder.

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