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The top Washington law firms remained clustered far behind the nation’s richest firms last year, according to a financial survey released by NLJ affiliate The American Lawyer. None of the 12 Washington-centered firms qualified as “Super Rich” — the magazine’s term for firms that pulled in average profits per partner of more than $2 million and revenue per lawyer at more than $1 million in 2013.
Most such firms were based in New York and posted profits per partner closer to $3 million. All but one of the D.C.-centered firms’ profits per partner ranged between $900,000 and $1.5 million. (In this analysis, New York-centered and Washington-centered firms are designated according to the city hosting their largest U.S. office.)
So why aren’t the Washington firms feasting in riches like their New York competitors yet? The conventional wisdom has held that New York firms boast the highest-paying legacy clients, largely in the financial services industry, and have dominated deal work. Washington lagged behind because its main source of business remained in the less-lucrative regulatory sector.
But that’s not the full story, according to Scott Flicker, Washington office chairman for Paul Hastings. He said the New York firms enjoyed a first-mover advantage, having built global practices earlier than did their competitors. For instance, Paul Hastings and Skadden, Arps, Slate, Meagher & Flom opened their first Asian offices in Tokyo during the 1980s. Covington & Burling opened its Asian office in Beijing in 2008 and Steptoe & Johnson LLP opened theirs in 2010.
“We might penetrate the client at a deeper level and get a larger portion of their legal spend across a whole bunch of different practice areas,” Flicker said. “We’re really in a relatively mature market. Client spends are relatively flat. So it’s really a question of who’s capturing a larger share.”Kim Koopersmith, chairwoman of Akin Gump Strauss Hauer & Feld, conceded the New York firms’ strategy of following clients into growing global business centers early may have paid off. But Akin Gump and other Washington-centered firms with offices abroad can grow with their clients as business expands, she added. Akin Gump opened an office in Moscow two decades ago and in London in 1997.
“I certainly believe it is within reach for us to get over $2 million for profits per partner,” she said. “I would like to see that in the next couple of years.”
Akin Gump was Washington’s biggest success story last year, posting $1.8 million in profits per equity partner and revenue per lawyer just over $1 million. Koopersmith said the firm curtailed expansion while integrating a mass of lateral players brought in during 2012.
Another reason for New York law firms’ dominance may be that they have been more efficient than Washington firms since 2008. Using data collected by The American Lawyer and other surveys, Stephen Nelson, managing principal of recruitment firm The McCormick Group Inc., noted that some New York firms have seen revenues decline since the recession but have become leaner. Washington firms have not cut overhead at the same pace, he said.
All but two of The American Lawyer’s 100 most profitable firms that cut their head counts by more than 1 percent each year are in New York. Kaye Scholer and Fried, Frank, Harris, Shriver & Jacobson cut at the greatest annual rate — almost a 5 percent reduction each year since 2008. The two Washington-centered firms that most aggressively downsized were Pillsbury Winthrop Shaw Pittman, losing almost 4 percent of its lawyers each year, and Holland & Knight, shedding 1.5 percent each year.
EXPANSION INTO D.C.
At the same time, New York firms expanded their D.C.-related work, especially after the Dodd-Frank Act and other measures brought a windfall of regulatory action. For instance, “Super Rich” New York firms Sullivan & Cromwell and Debevoise & Plimpton worked on JP Morgan Chase & Co.’s $13 billion settlement with federal prosecutors over dicey mortgages.
The New York firms’ sky-high profitability allows them to entice the most valuable talent, Nelson said. That means they can recruit the biggest players leaving government, especially those who worked with the financial industry. “The New York firms have competed extremely well for the top talent out of government. They can pay more, but it’s also the fact that they’ve got the access to the clients,” he said. “There’s no doubt that the New York firms can outbid virtually anyone.”
Cravath, Swaine & Moore, for instance, landed Christine Varney as she exited the Obama administration in 2011 after leading the Antitrust Division of the U.S. Department of Justice.
Still, Koopersmith insisted: “I think Washington is very rich in talent and very rich in client issues that require high-level talent. Our firm and other firms in D.C. have very high levels of talent.”
Just this year, Washington firms nabbed top talent exiting federal roles. In April, Covington signed former U.S. Justice Department criminal division head Mythili Raman, and Arnold & Porter added longtime DOJ lawyer Amy Jeffress. Wilmer Cutler Pickering Hale and Dorr — which signed former Federal Bureau of Investigation director Robert Mueller III in March — was next in line behind Akin Gump in profits per partner for Washington firms; Wilmer reported $1.5 million in profits per partner.
Of the 12 D.C. firms ranked among the nation’s 100 most profitable, only one, Hogan Lovells, was structured as a verein — an international organization governed more loosely than a traditional partnership. Hogan’s profitability ranked in the top half among six vereins nationally in 2013. Although vereins Baker & McKenzie and DLA Piper were more profitable (and topped The American Lawyer’s ranking by revenue), Hogan’s profits per partner came to $1.21 million.
One firm among Washington’s largest fell off the magazine’s list of 100 by revenue. Patton Boggs held the No. 95 spot last year but dropped into the second 100-firm tier because of a 12 percent decrease in revenue and continued downsizing. Revenue per lawyer was $640,000 and profits per partner $720,000 in 2013, the firm said. Those numbers, when taken together, placed Patton Boggs at nearly the same level of profitability as two of its recent merger suitors, the Squire Sanders and Dentons vereins.
Contact Katelyn Polantz at firstname.lastname@example.org.