Baker & Hostetler saw modest revenue growth of 3 percent in 2018, with a slightly smaller partnership splitting a pie that remained largely unchanged from the prior year.
Net income was flat, but profits per equity partner rose 3.5 percent to $1.035 million in what recently named chairman Paul Schmidt called a “year of growth and investment” for the Cleveland-based firm.
“Having 3 percent growth was very, very strong and indicates stability, but it only tells part of the story,” Schmidt said.
Head count at the firm, which brands itself as BakerHostetler, climbed by nearly 4 percent to a total of 941 attorneys, and the firm added 27 laterals, with a significant proportion coming in the latter part of 2018. That overall growth pushed revenue per lawyer down 0.8 percent.
“We really took advantage of some opportunities from a growth perspective without a major combination or a merger of any kind,” Schmidt said.
In spite of the additions, the firm’s partnership tiers both shrank slightly, for a combined decrease of 2.8 percent. The firm had a total of 131 equity partners in 2018, down 3.7 percent from the prior year.
Schmidt attributed the slight decline to a growing number of partners retiring or taking on senior status in the firm. “That’s just part of the demographic mix,” he said.
One of the firm’s most notable new faces, new Los Angeles managing partner Eric Sagerman, negotiated his arrival from Winston & Strawn in late 2018, but did not join the firm until the beginning of 2019.
“It’s a little unusual for us to go outside, but he’s a very, very strong lawyer, and part of the purpose of bringing him on is to focus on the West Coast in general,” Schmidt said.
In addition to California, the firm is interested in expanding its presence in Texas, where it’s currently in Houston but not yet in Dallas. Schmidt said he would also welcome opportunities to boost the corporate practice in any of the firm’s 14 locations in the U.S.
Other significant new arrivals in 2018 included New York commercial and securities litigator Joe Sacca, who joined from Skadden in September, private wealth partners Jonathan Forster and Rebecca Manicone, who joined from Greenberg Traurig in Washington, D.C., in May, and new securities and governance litigation leader Doug Greene, who joined in Seattle last January from Lane Powell.
Schmidt noted that while transactional opportunities were solid over 2018, the firm’s growth was led by the litigation side. Privacy and data protection, which now has 60 lawyers, was a standout area.
“It’s our fastest growing group,” he said.
Patent litigation, conversely, slowed in 2018, a trend that Schmidt attributed to new case law and U.S. Supreme Court precedents, as well as changes at the U.S. Patent and Trademark Office.
“There are real, meaningful reasons why that was down, and we expect that trend to be reversed,” he said.
In addition to Sagerman’s arrival, BakerHostetler has seen some substantial changes in leadership. Schmidt, formerly the Washington, D.C.-based chairman of the firm’s national tax practice, took the reins in January. He was elected in March to replace Steven Kestner, who stepped down from the position after 15 years. Along with Los Angeles, the firm named new managing partners in Houston, Columbus and Denver. And it has five new faces on its 15-member policy committee, along with two new group chairs.
The firm raised rates 6 percent on average over 2018, Schmidt said, but an increasing number of clients are also asking about alternative financial arrangements. Over the past year and a half, the firm has made substantial investments in its pricing team.
With offices in a wide range of U.S. cities, the firm has one of the wider spreads in partner compensation, a figure Schmidt pegged at 21-to-1. That gap has grown slightly in recent years, he said, driven by performance at the top end.
“We just have some folks who are performing at such a great level and getting compensated appropriately,” he explained.