(Photo: Diego M. Radzinschi/NLJ)

Covington & Burling chairman Timothy Hester said last year that a 2015 dip in partner profits shouldn’t be taken too seriously, since the firm was “building for the future.” The latest numbers seem to prove him right.

Revenue per lawyer hit $1 million for the first time in Covington’s most recent fiscal year, which ended Sept. 30. Gross revenue was $838.5 million, up $96 million, or about 13 percent, from the year before. In head count, the firm grew by 45 lawyers to 838.

Profits per partner leaped 16 percent, reaching $1.475 million, even with the addition of six equity partner positions in the 263-lawyer single-tier partnership.

“We’ve been focused on a very clear strategy over a number of years to make ourselves sharper and stronger and more competitive,” Hester said this week. The numbers are not an “aberrational result,” he added.

“Almost all of the practices of the firm were up,” he said. The firm grew in California, where it shifted lawyers from a now-closed office in San Diego to Los Angeles and made new hires, and in China, a market that proved difficult for other U.S. firms last year. Hester said the firm’s China practice largely represents Western companies in need of regulatory and transaction advice for doing business in Asia.

Last year the firm increased its billing rates about 4 percent, after learning its rates may have been lower than at what Hester called “peer firms.” He declined to name competitors, but said rate increases implemented over a few years are meant to catch Covington up with the pricing at large national firms in California, Chicago, Washington and other cities.

A $180,000 associate starting pay increase in July and an associate bonus increase weren’t funded through billing increases. The raises for associates, which Covington adopted last year, were “borne by the partners,” Hester said.

Major Matters

Former Attorney General Eric Holder may be Covington’s highest-profile partner, and the matters he has signed onto recently are some of the firm’s most visible.

Late last year, Covington’s inroads into California deepened when the state legislature hired Holder and the firm as legal counsel to oppose the Trump administration.

The Wall Street Journal suggested that clients could push back against Covington’s political position in the matter. But Hester said that’s not happening.

“We haven’t gotten blowback from clients at all,” he said. “[Covington's work is] quite conventional, to respond to and plan for action by the federal government,” he said. “I think one cannot conflate the lawyer with the client in that setting.”

Holder also worked on an internal investigation on discrimination for the vacation rental site Airbnb Inc., and was hired this week by Uber to investigate allegations of sexual harassment at the ride-sharing company. Uber was a previously established client of the firm, Hester said. 

Covington tends to rely on institutionalized clients that engage the firm in multiple practice areas. For instance, Monster Beverage Corp. has relied on the firm for years for regulatory and litigation challenges, as well as for federal lobbying. Another client is the National Football League, which the firm has counseled in collective bargaining arbitration, antitrust matters, litigation and broadcasting deals, including one it closed last February with TV networks for “Thursday Night Football.” The firm is typically among the league’s largest outside contractors, with $7 million or more paid to the firm in recent years for legal services.

Expansion Plans

The firm added 12 lateral partners during the 2016 fiscal year, including Wade Ackerman, a food and drug lawyer in Los Angeles, and Arlo Devlin-Brown, a former prosecutor with the Southern District of New York. Other lateral partners were Tom DeFilipps, who was Sidley Austin’s Palo Alto, California, managing partner and now chairs Covington’s West Coast corporate practice; Denise Esposito, who was chief of staff to the U.S. Food and Drug Administration commissioner; Richard Rainey, formerly head of IP litigation at GE; and Eric Mogilnicki, a former chief of staff to the late Sen. Edward Kennedy and a Consumer Financial Protection Bureau specialist. Mogilnicki moved from Wilmer Cutler Pickering Hale and Dorr to help launch a consumer finance group at Covington in January. 

The firm promoted nine lawyers in total into the partnership. Seven partners left the firm last year, including Robert Nichols, a former co-chair of Covington’s government contracts group. Nichols had joined the firm from Crowell & Moring in 2012 and stayed through the firm’s addition of 19 government contract lawyers from McKenna Long & Aldridge in 2015. He now runs his own small firm.

Hester said the firm will be looking to expand in California and New York and in its corporate practice in the coming year. It has already made several partner additions since January, such as Beth Brinkmann, a top Justice Department appellate litigator, and Matthew DelNero, a Federal Communications Commission bureau chief.

Still, the firm isn’t interested in large mergers or acquisitions of whole firms, Hester said — despite the wave of tie-ups between competitors including D.C. peer Arnold & Porter and Kaye Scholer last year.

“We’re not looking for a merger and we’re not on a path of a merger,” Hester said. “We’re focused on a go-it-alone” strategy.

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