Fisher & Phillips reported solid gains in revenue last year, but profits remained flat after big increases in both metrics in 2016.
Revenue at the Atlanta-based labor and employment powerhouse increased 3.8 percent to $183.2 million in 2017, following an 11.7 percent revenue increase and a 6.4 percent increase in net income the prior year.
Net income decreased 0.7 percent to $67 million last year, in part because Fisher & Phillips invested heavily in technology. That pushed down average profits per partner (PPP) by $6,000 to $554,000.
“We were disappointed,” said the firm’s chairman, Roger Quillen, adding that the slower revenue growth and flat profits were “not what we expected to see.”
He explained that Fisher & Phillips made major investments in technology and operational improvements, which it expected would dent profits but that those expenses were within budget.
Quillen said the firm also saw a 1.4 percent drop in average billable hours per attorney, as well as “an unusual degree of attrition” among associates last year, which dampened revenue growth.
Fisher & Phillips added a net of 11 lawyers—significantly fewer than the net of 29 it gained in 2016—for average annual head count of 330 lawyers. Revenue per lawyer (RPL) stayed flat at $555,000.
The firm slightly expanded its partnership by a net of six lawyers to 175, with two additional equity partners (for 121) and four additional income partners (for 54).
Quillen said the firm determined that associate attrition last year stemmed from pay scales that were no longer competitive in some cities. He said they made mid-year adjustments in some cities and ended up increasing the pay scale in most of the firm’s 32 offices by the end of 2017.
Attorney head count growth has picked up this year, he said, and the firm has not seen any salary-related associate attrition since increasing the pay scale. Fisher & Phillips has hired 24 lawyers since the start of 2018, while losing 11.
The firm also expects to add “a significant number” of lateral partners this year, with conversations in the works, he said.
Quillen said that, in addition to higher-than-usual nonpartner turnover, the slight decrease in time billed per attorney could have two drivers: lower levels of federal enforcement activity due to policy shifts in the Trump administration and the continued trend of employment litigation moving from federal to state courts.
Meanwhile, many plaintiffs have backed off on filing employment discrimination, harassment and retaliation cases in federal court, perceiving the Supreme Court as overly pro-management and their chances of winning as slim.
“Our lawyers continue to be extremely busy in the states with local laws governing the workplace. This has not been true in states, like Georgia, where there is little to no such state law,” Quillen said.
“We don’t see signs of this changing anytime soon,” he added.
As a result, Fisher & Phillips is shifting its practice focus in Georgia and other states from employment litigation to other areas, such as noncompete litigation, safety and health matters, employee benefits and business immigration.
The billable hours per attorney rate so far this year is rising, Quillen said, forecasting a conservative 2 percent increase.
On the operational front, Fisher & Phillips recruited a new CFO, Jim Nations, in March 2017 from Sedgwick, which closed at the beginning of the year, for a reorganization of its finance department, including upgrades in personnel, procedures and software, Quillen said. The firm’s lawyer head count has increased by almost 50 percent over the last six years, he said, making the modernization necessary.
The firm then recruited a new chief operating officer in October, Dave Lentz, from Milwaukee-based Michael Best & Friedrich, with the mandate of reviewing its support operations, especially the IT and marketing departments.
Fisher & Phillips invested heavily in improvements to its internet security and data privacy, Quillen said, “all absolutely necessary in the risky and changing information security environment.” It also invested in data analytics and knowledge management—both of which can make pricing and outcomes more predictable for clients.
“These initiatives have continued into 2018 and will continue to have outsized costs in the short run,” Quillen said, “but we consider all of this to be essential to support our clients and our practicing lawyers in the ways they deserve.”
“We will continue to see increased spending, in IT in particular, with expected large payoffs,” he said.
“We are optimistic about 2018,” Quillen concluded. “But everyone on our team knows we have to execute at a high level to return to the kind of growth and success we consider to be normal for Fisher & Phillips.”