In one of the few times in its history, global powerhouse Greenberg Traurig posted an annual financial report that reflected declines in nearly every category.
The law firm, which started business in Miami nearly five decades ago, had grown meteorically to become the 10th-largest firm on the Am Law 200 scale last year. It is a $1.24 billion concern with 35 offices and 1,700 lawyers around the world.
But expansion into three international markets helped drive up expenses and cut into profit margins, top management said. In addition, many regions the firm serves have yet to fully recover from the economic downturn.
Greenberg reported a dip in gross revenue of 0.4 percent of a percent, a drop in profits per partner of 3.9 percent to $1.36 million, a drop in average lawyer compensation of 4.7 percent and a drop in net income of 7.5 percent to $408 million. Revenue per lawyer was unchanged at $730,000, and the number of attorneys remained steady at 1,699.
The firm lost 12 equity partners, declining 4 percent to 300. All told, its profit margin fell 3 percentage points to 33 percent.
The lackluster numbers for 2012 cap a difficult year for Richard Rosenbaum, who took over as CEO of the firm in 2010, replacing longtime CEO Cesar Alvarez. The firm issued a rare capital call for all partners and is fighting a $200 million sexual harassment lawsuit. It was fired by TD Bank after a defeat in a major Miami federal court case was compounded by discovery violations.
Rosenbaum downplayed the decline in revenue.
"The decrease of 0.4 percent is minor, especially taking into account our steady lawyer count and reasonably strong performance throughout the downturn to which this year is being compared," he said.
Rosenbaum attributed the drop to the fact that some of Greenberg’s markets have not rebounded from the recession.
"Over the long run, our footprint is a major benefit, but in a year like this it created mixed results," he said.
Greenberg incurred an additional $33 million in expenses in 2012. One big reason was the firm’s addition of three international offices last year, including one in Warsaw acquired from the defunct Dewey LeBoeuf of New York. Other new offices in Mexico City and Tel Aviv "were in their first year of operations and experiencing the usual ramp-up periods," he said. "We view these offices as investments that will provide our clients with real value over time."
The boost in expenses also was fed by one-time costs including technology upgrades, a state-of-the-art intake and conflict checks system and the implementation of a 24-hour document review department, he said. Those contributed to the drop in profits, net income and compensation.
"Most of these expenses, and particularly those relating to technology and new office buildouts in existing markets, were specifically intended to reduce our long-term costs and make the firm more efficient to better serve our clients although they cost us money in the short term," he added.
When asked whether he was disappointed with the 2012 results, Rosenbaum said, "While our continued stability in the number of lawyers and revenues is impressive, we know the economy and legal industry continue to be challenging and unpredictable. While short-term thinking might inflate certain of these numbers this year, it would prevent us from maintaining our competitive edge moving forward."
Bill Brennan, a law firm consultant with Philadelphia-based Brennan Strategy, said he wouldn’t make too much of the declines because revenue per lawyer, a key indicator of a law firm’s health, held steady.
"That’s normal in this marketplace where demand is so low and so feeble," Brennan said. "It’s also common for law firm expenses to up in 2012 because they were so depressed in 2010 and 2011, so they are playing catch up … with all the deferred expenses."
However, Brennan noted Rosenbaum is under pressure to keep expenses down to return to higher profitability. Otherwise, he said, key partners will leave the firm.
"The best and the brightest of any law firm that does not remain competitive will be targeted by headhunters," he said. "It’s a threat if they don’t keep expenses under control."
Rosenbaum recently named a new management team, promoting longtime Miami litigator Hilarie Bass to co-president, Cesar Alvarez and Matt Gorson to co-chairs and four vice presidents from around the country.