With so much uncertainty gripping Washington these days, the city’s law firms have provided a few constants.
The revolving door between government and private practice hums reassuringly. Client inboxes bulge with regulatory lawyers’ memos. And the same handful of plugged-in firms, packed with policy and litigation specialists, still mostly defines the legal scene in the capital.
Four of those — Arnold & Porter Kaye Scholer, Covington & Burling, Hogan Lovells, and Wilmer Cutler Pickering Hale and Dorr — stand out partly for the very different strategies they embraced over the last 10 years. Whether they doubled down on government expertise, courted Manhattan or went global, they’ve prospered — or at least survived — amid intense competition from beyond the beltway.
Each capitalized on what Richard Alexander, chairman of Arnold & Porter Kaye Scholer, called “an incredible resurgence of regulation” in recent years. But they each also recognized a need to evolve.
“We’ve all tried to respond to marketplace conditions. We’ve decided to do it in different ways,” Alexander said of D.C.’s major firms.
A decade ago, all four looked relatively similar from a financial perspective.
Covington & Burling and Arnold & Porter both had gross revenues between $400 million and $500 million in 2006, matching what New York fat cat Wachtell, Lipton, Rosen & Katz brought in at the time, $474 million.
Wilmer was larger, at almost $900 million, and Hogan Lovells — then Hogan & Hartson — was pulling in around $750 million.
Profits per equity partner at the firms in 2006 ranged between $850,000 at Arnold & Porter and $1.085 million at Covington & Burling.
Then came the recession. “It was volatile. Demand in a particular practice would surge forward or it would drop,” said Ralph Savarese, a Washington-based law firm consultant who was managing partner of Howrey until 2002. Legal issues related to the financial services industry provided an in-town opening for New York’s historic firms, while some of D.C.’s longtime law firms found themselves with practice mixes that couldn’t withstand ups and downs.
“In these much more difficult times, the last 10 years, those four firms had the stability that other firms in D.C. didn’t have,” he added.
Arnold & Porter Kaye Scholer
Strategy: D.C. history, New York ambition.
Major Merger Year: 2017
Compounded Annual Profit Growth Since 2006: 3.1%
Arnold & Porter, a D.C. institution since its founding by New Deal icons in 1946, seized an opportunity last year to combine with New York’s Kaye Scholer, adding an established Manhattan presence and a stable of transactional lawyers.
“There are incredibly strong firms in New York that have been there for a long time that have tremendous relationships with the client base. It’s a very daunting competitive environment,” said Alexander, a legacy Arnold & Porter partner who assumed leadership of the combined firm. Merging with a New York firm provided a solution. Alexander predicted this year the combined firm will outperform the two legacy firms in revenue growth.
The firm was running out of time to make its New York play, Savarese said. “Their model was heavily concentrated in litigation with a D.C. emphasis, so that model might be more vulnerable over time,” he said. “They needed to do something about it.”
The firm has expanded before. It acquired the 80-lawyer Howard Rice Nemerovski Canady Falk & Rabkin in 2012 to build out its San Francisco office.
“We all look at the landscape and see these macro changes going on,” Alexander said. “We needed to expand our geographic reach.”
Arnold & Porter and Kaye Scholer both experienced declines in their financial results in 2016. Arnold & Porter’s revenue per lawyer was $950,000 last year, just behind Covington’s. Profits per partner reached $1.155 million at Arnold & Porter, below the three other firms examined here. But along with Covington and Wilmer, Arnold & Porter posted a net positive change in profit margin since 2006, outperforming other D.C.-native regulatory firms. Some of that edge may come from the three firms’ adherence to the single-tiered partnership model, where all partners hold firm equity.
Covington & Burling
Strategy: The quintessential Washington law firm.
Major Merger Year: None (and don’t expect one anytime soon)
Compounded Annual Profit Growth Since 2006: 3.1%
Covington & Burling, with almost 60 percent of its 838 attorneys still based in the district, stands out in part by how well it fits in, especially for clients seeking an edge with regulators.
“I can’t remember in all my years a time when Covington didn’t have a reputation and brand — and I equate the two with superiority in a number of fields,” Savarese said.
Timothy Hester, the firm’s chair since 2008, hasn’t wavered on whether the firm is looking for a transformative merger. It’s not part of Covington’s strategy.
“It’s sort of the same bet Cravath is making in New York, and that Slaughter and May made in London,” said Jim Jones, a consultant and former Arnold & Porter managing partner. “The Covington bet may be an OK bet if you’re Covington, but I wouldn’t think the market would tolerate too many firms” with the same strategy.
Recent laterals have been key in sustaining the firm’s government-facing model. Several members of the Obama-era Justice Department joined the firm in recent years, including former attorney general Eric Holder Jr., former Criminal Division heads Lanny Breuer and Mythili Raman and, most recently, Beth Brinkmann, a top appellate lawyer. Former Rep. Howard Berman and other federal government alumni have moved into the firm’s growing Los Angeles office, while a large group of government contracts partners joined the firm from McKenna, Long & Aldridge in 2015.
“We said to ourselves, one of the things we wanted to do is achieve more scale,” Hester said this year. “We had grown from 2008 to now quite substantially, but it’s been our own path. We like to control our own destiny.”
The strategy helped Covington achieve revenue per lawyer of $1 million this year for the first time, while profits per partner reached $1.475 million.
Strategy: Global reach.
Major Merger Year: 2010
Compounded Annual Profit Growth Since 2006: 2.2%
In 2008, as Lehman Brothers collapsed, leaders of D.C.-based Hogan & Hartson flew to London to discuss a potential combination with their British counterparts at Lovells.
Warren Gorrell Jr., reflecting on his tenure as Hogan & Hartson’s former leader, once called the merger “about the best idea I had” at the firm. Hogan had already developed a corporate transactions practice out of Washington, and the tie-up has allowed it to do more international and corporate business. It doubled its attorney head count, and launched the firm into the top reaches of the global legal food chain. Revenue fell just short of $2 billion in 2016.
“I’ve always believed that when you think about strategy and what may happen, one of the things that’s dangerous is to think you can keep doing what you’re doing,” Stephen Immelt, Hogan Lovells’ current CEO, said this year. In looking at the health of his firm, he added, “The real question is, how are you progressing?”
Now with more than 2,600 lawyers on six continents, Hogan Lovells competes with different firms depending on geography and practice area. The firm’s revenue and billing totals are almost evenly split between the U.S. and Europe. As exchange rate volatility and other global financial pressures have buffeted international firms in recent years, the firm’s breadth of U.S. practices has provided a hedge.
Jones, the consultant, called Hogan Lovells “one of a dozen or so firms that are really playing for international stakes.” But it still retains its Washington bona fides, with active Supreme Court, appellate and federal lobbying groups, and one of the largest regulatory departments in the country.
As for high-placed alums in government, look no further than Chief Justice John Roberts Jr. and former Attorney General Loretta Lynch.
Wilmer Cutler Pickering Hale and Dorr
Strategy: National, lean and focused.
Major Merger Year: 2004
Compounded Annual Profit Growth Since 2006: 6.6%
Robert Novick, Wilmer’s co-managing partner since 2012, said the firm now competes just as directly with top firms in New York and elsewhere as with its historic D.C. counterparts.
The list of firms “that I think of as our competitors has definitely expanded,” he said. “Gibson Dunn, Latham, Paul Weiss, Sullivan & Cromwell, Kirkland & Ellis — these are all competitors for the work we’re going after.”
Wilmer’s Washington-based rainmakers include Jamie Gorelick, former DOJ deputy attorney general, and former head of the FBI Robert Mueller III. Among national firms, none may be as reliant as Wilmer on the government-to-law-firm revolving door. It’s somewhat different from Covington’s model, which has seen less total lateral partner movement.
Wilmer Cutler Pickering’s 2004 merger with Boston-based Hale and Dorr, a like-minded and similarly sized firm with more emphasis on intellectual property and Boston-based private equity legal work, “opened up range of potential client relationships” for Wilmer, said Bruce McLean, a D.C.-based consultant with Zeughauser Group who led Akin Gump Strauss Hauer & Feld until 2013. The merger also solidified the firm as a national presence with a large Washington base.
Still, “what Wilmer does in Washington isn’t much different from what it did before the merger,” McLean said.
Certainly, the firm would welcome more transactional work. “It’s just a matter of sometimes you just have to wait until things align,” Novick said about any potential expansion.
In the past 10 years, Wilmer’s head count and equity partnership has decreased. The total number of full-time lawyers dropped by more than 100, or about 12 percent, since 2006. The single-tier partnership has 55 fewer lawyers.
As other firms banked on growth, “Wilmer was able to execute a downsizing, but they felt that was necessary,” Savarese said. “Their aspirations for profitability were probably higher.”
The strategy is similar to how an ice skater pulls in her arms to spin faster.
The firm’s profitability is now the highest among the four highlighted here, at $1.86 million profits per partner in 2016. That’s twice what the firm posted in 2006. Revenue increased as well, but not as fast as profitability, or at the same rate as Covington, Arnold & Porter and Hogan Lovells. Wilmer’s income in 2016 was about 44 percent of gross revenue, a margin slightly lower than Covington’s and slightly higher than Arnold & Porter’s.
“I look at profits per partner as the most important indicator of the financial and economic health of the place because it means you’re doing certain things right,” Novick said recently.
“We’re in a flat world. In fact, we’re in a probably slightly declining world,” Novick said. “Don’t get me wrong, I’m not going to turn away revenue. At the same time, I could increase our revenue by 30 percent overnight if I decided to go offer our services at 50 cents on the dollar.”
Big Spenders From the Big Apple
For a group of highly profitable New York firms looking to expand their offerings to financial services clients, growing in Washington was an obvious choice.
Davis Polk & Wardwell, the venerable Wall Street firm, revived its D.C. presence with a series of big-name hires from the federal government starting in 2009.
“It became clear right after the financial crisis, we were going to be looking at a prolonged era of a more active federal government,” especially in banking regulation and related to corporate mergers, said Thomas Reid, managing partner of Davis Polk. “Everything we were doing in D.C., we were doing before, but the gravitational pull in D.C. from 2008 onwards became a lot more powerful.”
Paul, Weiss, Rifkind, Wharton & Garrison, another firm that has collected major Washington talent, is focused on its “marquee corporate and financial services clients,” said chairman Brad Karp. The firm’s focus on securities, antitrust and banking regulatory and enforcement work for those clients has helped it achieve profits per partner of roughly $4 million.
“I don’t see that strategy changing in the years ahead, though we obviously are prepared to react to shifting regulatory and enforcement priorities,” Karp said. “I expect the leading Washington law firms to maintain their market share.” The D.C. firms certainly hope so, even as they chase broader ambitions.
For anyone hoping to succeed in D.C., said Mike Nannes, a Justice Department lawyer who once ran Dickstein Shapiro, the key is to think several steps ahead and be realistic. “In the old days, it was, ‘Let’s just grow,’” he said.
“You have to decide,” Nannes said. “Make your choice and recognize there will be some broken glass for it.”
In the Capital, a Crowded Field
How easy it would be if D.C.’s BIg Four firms had just each other to worry about.
Latham & Watkins, which was founded in Los Angeles, opened in D.C. nearly 40 years ago and is the reigning largest U.S. firm by revenue. The firm, with 300 lawyers in Washington last year, considers itself as much a part of the city as competitors like Wilmer and Covington. But with firmwide RPL at $1.238 million in 2016 and profits per equity partner exceeding $3 million, Latham is in a different league financially.
“I think it’s fair to say that our brothers and sisters at other firms in D.C. think of us as a Washington law firm,” said Ora Fisher, one of Latham’s two vice chairs. Other big, diffuse firms can also fairly tout D.C. expertise. Morgan, Lewis & Bockius, the Philadelphia-founded firm that acquired Bingham McCutchen’s partnership, now counts more D.C.-based lawyers than Wilmer.
Akin Gump, founded in Texas, has its largest office in D.C. Its lobbying practice is the biggest in the city, and the firm broke the $2 million PPP barrier last year.
Williams & Connolly, with about 300 lawyers, all based in Washington, remains a magnet for elite litigators. Other firms, including Steptoe & Johnson LLP, Wiley Rein, Crowell & Moring and Arent Fox, maintain their snug fit within the capital’s regulatory fabric.
The competition makes for an unforgiving market.
The graveyard of once-independent firms includes lobbying giant Patton Boggs, which combined with Squire Sanders to become Squire Patton Boggs in 2014; Dickstein Shapiro, whose remaining lawyers joined Blank Rome last February; McKenna, Long & Aldridge, which saw its banner government relations practice break up before its 2015 merger with Dentons; and Howrey, which failed in 2011. “The ones that don’t do well are the ones that make more strategic errors,” said Ralph Savarese, a consultant and former Howrey leader.”Your strategy has got to be right.”