Susan Murley of Wilmer Cutler Pickering Hale and Dorr ()
Note: This article has been changed to reflect the accurate percentage drop in attorney headcount in 2009.
The nation’s 350 largest law firms showed the biggest headcount growth during 2013 since the nosedive of the recession years, with a respectable 3.9 percent increase.
But the gain was not quite the testament to a rebounding U.S. legal market it might seem. Almost all of the boost came from a flood of foreign lawyers to big U.S.-based firms through international mergers.
Last year, Fulbright & Jaworski completed its combination with London-based Norton Rose to create Norton Rose Fulbright, ranked No. 3 on this year’s list. SNR Denton merged with European firm Salans and Canada’s Fraser Milner Casgrain to form Dentons, ranked No. 4. And K&L Gates continued its march around the globe by combining with Australia’s Middletons.
Take out of the equation the foreign mergers, which added 4,412 lawyers to the NLJ 350 mix in 2013, and the year-over-year uptick was just 0.8 percent.
Still, on the whole, the nearly 4 percent gain in the number of attorneys at the 350 firms last year, to 146,618, was a big improvement over 2012′s puny 1.1 percent growth and was a reason to celebrate compared with the 4 percent decline in 2009. The last time law firms experienced anything like 2013′s upswing was in 2007, before the near-collapse of the U.S. economy.
Resuming its spot at the top of the list was Baker & McKenzie. With 4,087 lawyers, it beat DLA Piper, which had 3,962 lawyers. Those firms have moved in and out of the top two spots in recent years. Last on the list at No. 350 was Farella Braun + Martel, with 115 lawyers.
Among leaders of the bigger firms, an international game plan is the focus, said Harvard Law School professor David Wilkins. “It is so clear that all the growth is going to come from outside the U.S.,” said Wilkins, whose scholarship focuses on law firms. “Everyone is trying to figure out what their strategy is.”
Whether it’s through all-out ­mergers, referral alliances or organic growth, big law firms have spread their brands around the world, with established outposts in China and Europe. Of particular interest now are emerging economies in Africa. Baker & McKenzie, Hogan Lovells, Norton Rose Fulbright and Dentons have all expanded practices in Africa during the past two years. Latin America, South Korea and Singapore also are attracting attention. No. 22 Morrison & Foerster opened an office last year in Singapore. Sidley Austin, Jones Day, and Gibson, Dunn & Crutcher all received licenses last year to practice in Singapore.
“The imperative is so great to figure out what your global strategy is going to be — where you’re going to be when the U.S. market is going to be a smaller and smaller part of the market,” Wilkins said.
And smaller it soon will be. The International Monetary Fund has declared that by 2016, China’s economy would eclipse the U.S. economy by some $200 billion.
So where does that leave firms with operations focused closer to home? In the oil patch and in Silicon Valley. As our NLJ 350 Regional Report on June 16 will show, the areas within the United States with the biggest gains in attorneys occurred in oil-rich Colorado and western Pennsylvania, where the Marcellus Shale natural gas pool sits. Headcount in Texas leveled off in 2013 following notable gains during 2012.
The move in the United States toward energy self-reliance is driving the growth — and is likely to push that growth beyond U.S. borders. Without identifying specific plans for expansion, Peter Kalis, chairman of K&L Gates, said his firm is looking north and south. “With the emergence of an energy-independent North America, future expansion into Canada and Mexico could well be desirable,” he said.
The technology sector also spurred some of the increase. In San Fran­cisco, headcount grew by 2.8 percent, to 7,140 lawyers, during 2013 — a larger percentage gain than in New York, Washington, Chicago or Los Angeles. About 5 percent of lawyers working at NLJ 350 firms practice in the Bay Area.
Although the 3.9 percent increase in overall headcount was the best news for law firms coming from the NLJ 350 since 2008, much of that increase occurred in the nonequity partner category and in the catch-all category of “other” attorneys — not partners, not associates and not contract lawyers. Partner tallies were up by 3.1 percent, to 63,247, while nonequity partners, a subset, rose by 6.4 percent. “Other” attorneys surged by 8.8 percent, for a total of 15,984 lawyers.
A big reason for that increase is that law firms are moving their lackluster practitioners into the “other” category — counsel, of counsel, staff attorneys and the like — said Peter Zeughauser, chair­man of Zeughauser Group. “Underper­forming partners in transition or those having their compensation reduced is still quite a bit of it,” he said. At the same time, some of the increase in that category was fueled by the influx of foreign lawyers who didn’t necessarily fall into traditional partner or associate categories. But as our companion story explains, those attorneys provide flexibility for firm managers, clients and the individual lawyers. They are cheaper but have work experience, and they are more expendable than partners, should business start to slide.
The “other” route also is a preference for attorneys who want to practice law — albeit some rather unsexy, routinized law at times — without the pressure to make rain or rack up billable hours. The use of “other” lawyers will continue as firms increasingly customize services for clients, said Susan Murley, co-managing partner of Wilmer Cutler Pickering Hale and Dorr. The 988-attorney firm had 36 “other” attorneys in 2013, up from 33 the year before. “It is part of a continuing dialogue with clients about what will work for them,” Murley said. “I don’t think it’s going to be the pre-’08, pre-’09 traditional law firm.”
And then there are the associates — the numbers that set the mood for the nearly 46,000 young hopefuls graduating from the nation’s law schools each year. The total for associates at NLJ 350 firms rose by 3.6 percent, last year — a much better showing than the 1 percent nudge upward in 2012. But, as our story on Page S8 shows, the addition of foreign attorneys to that pool also accounted for much of the gains.
The upshot, then, beyond 2013, is this, according to Wilkins at Harvard: “We’re going to see many more international mergers, many led from outside U.S. and U.K.,” he said “Everybody is nervous about how it will turn out.”
Contact senior editor Leigh Jones at firstname.lastname@example.org.