Reed Smith Photo: Diego M. Radzinschi/ALM

Reed Smith saw revenue and profit growth accelerate slightly in a strong 2018 market, as it  invested in diversifying its business model.

The international firm, which was founded in Pittsburgh, saw revenue increase by 5 percent, to $1.175 billion, in 2018. Revenue per lawyer increased roughly in proportion, growing 5.4 percent to $761,000.

Global managing partner Alexander Thomas said Reed Smith benefited from strong demand in 2018. “We had a very high level of sophisticated work coming into the law firm, and our lawyers were working very hard,” he said.

Net income was up 2.6 percent, reaching $359.7 million. And the firm saw profits per equity partner (PEP) increase on lower equity partner head count, rising 7 percent to $1.26 million.

The number of equity partners at the firm decreased by 4.4 percent, to 285, but it wasn’t just the equity partner tier that contracted. The firm had 3.2 percent fewer nonequity partners as well, at 361.

The firm’s rates increased in line with the market, Thomas said. On the expense side, the firm didn’t make any noteworthy cuts to its expenses, he said, noting that generally “we run a tight ship from a cost perspective.”

But one expense that grew was associate salaries. Reed Smith initially said in June that it was not planning to give associates raises, citing “the interests of clients.” But, Thomas said, when the wave of associate raises began over the summer, the firm was already in the middle of an “associate life initiative,” in which it evaluated compensation among other aspects of associate life.

As part of that process, he said, the firm announced increased compensation and an enhanced bonus system for associates in August. U.S. associate starting salaries are now $150,000 in Pittsburgh, Richmond, Virginia, and Miami; $160,000 in Philadelphia, Princeton, New Jersey, and Wilmington, Delaware; and $180,000 in the firm’s New York, Chicago, Washington, D.C., Virginia, Texas and California offices.

Overall lawyer head count at Reed Smith was nearly flat from 2017 to 2018, at 1,544.

“We made some really important hires. And on the other side of the coin we had some lawyers leave the firm,” Thomas said. “The ins and outs of the industry aren’t unique to any one firm.”

The “outs” included a group of lawyers, largely from Philadelphia, who left Reed Smith for Holland & Knight last year, beginning in July. Thomas said that group’s departure did not negatively impact the firm’s financial performance, and that productivity was up in the second half of the year.

Reed Smith also opened an office in Austin, bringing on a health care-focused group from Norton Rose Fulbright. Thomas said the recent additions to the life sciences and health practice have been “tremendously successful.”

With regard to its geographic footprint, Thomas said Reed Smith has focused strategically on five industry sectors: life sciences and health, financial services, energy and natural resources, transportation, and media and entertainment.

“Our geographic strategy is synced up with our plan to be the global relationship law firm of choice in those five sectors,” he said. “We make decisions about where we want to be on the back of that strategy.”

To that end, he said, the firm added lawyers last year in Washington, D.C., Los Angeles, London and Singapore, in addition to opening its Austin location.

Thomas also noted the 2017 addition of a group of lawyers in Europe from King & Wood Mallesons, and said that resulted in increased productivity in Europe and, specifically, in London.

London accounts for just under 20 percent of the firm’s total revenue, Thomas said, but he declined to give exact numbers, saying the firm no longer breaks out financial performance by geographic location. In 2017, the firm reported London revenue of $189.7 million, which was 16.9 percent of total gross revenue.

Also in the U.K. last year, Reed Smith launched a legal and business services function based in Leeds, about two hours outside of London. Thomas said the firm opened the new location “with the objective of creating even better and more efficiencies,” drawing on its experience of creating a Global Customer Centre in Pittsburgh 15 years before.

This initiative, called “Reed Smith Global Solutions,” will continue to be an area of focus in 2019, Thomas said. The firm will also be investing it its legal technology subsidiary, GravityStack, he said, which launched last year.

He said the firm will also continue to devote attention to its client value team, which consists of around 16 professionals, and improved pricing options.

“You’ve seen the natural growth in law departments of people who are answering the question, ‘How do we assess efficiency and value?’” Thomas said, so Reed Smith has aimed “to have that corresponding set of talent in the law firm.”

With that in mind, the firm is taking note of the client relationships in which its client value team is most involved, he said, and tracking financial performance on those engagements. “We analyze the heck out of that,” he said. The firm’s realization rate improved from 2017 to 2018, he said, and that is “tied directly” to the client value team.

As for other expectations in the coming year, Thomas said, the firm’s investment choices were intended to help it withstand any economic turmoil that may come. “We feel diversified and well-hedged if the economy takes a turn for the worse,” he said.

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