With few exceptions, McCarter & English’s firmwide and per-lawyer financial metrics were essentially unchanged last year from fiscal year 2016. Firm leaders, meanwhile, say an ongoing emphasis on efficiency and profit margins have set up the firm well in the competitive market for legal services.
The Newark-based firm’s $237.2 million gross revenue figure for 2017 was roughly the same as the year before. The stasis follows two consecutive years of record-setting revenue at the firm, said chairman Michael Kelly and managing partner Joseph Boccassini in an interview.
Over a five-year period, McCarter & English’s gross revenue has increased a little less than 12 percent, from $212 million in fiscal year 2012, according to historical data.
“We’re in a state of transition, moving away from the old McCarter, so we’re still working out the kinks,” Kelly said. “The old McCarter way is, ‘If it ain’t broke, don’t fix it,’ and that doesn’t work in this environment.”
Boccassini characterized the transition as “changing a lawyer’s view of ‘a dollar is a dollar,’ to ‘what the cost is for us to bring in that dollar.’”
Kelly added: “The old McCarter never looked at that.”
“We’re no longer taking in cases where we’re going to lose money and not have an appropriate profit margin,” Kelly said. They noted some work on behalf of government entities and closely held businesses, as well as some employment matters, as work that might be passed up based on margins—or, Kelly said, any matter “where the client demands a very low billing rate and our best people at the same time.”
Making that change requires dealing with some resistance on the part of attorneys who are inclined to take on what might be less lucrative client work—in hopes that it will lead to more lucrative work, or because of a long-standing client relationship, or both, Kelly and Boccassini said.
“I’ve told clients, ‘I can’t work on this file, my rate’s too high,’” Kelly said.
Aside from gross revenue, minuscule year-over-year changes also came in revenue per lawyer (RPL)—which decreased 0.3 percent, to $645,000 from $647,000—and profit per equity partner (PPP)—which increased 0.1 percent, to $750,000 from $749,000.
There were some financial metrics that saw a little more change, but still nothing dramatic. Average compensation to all partners, equity and nonequity, was down 1 percent, to $493,000 from $498,000. Net income decreased 1.2 percent, to $63.2 million from $64 million. Total nonequity compensation increased 2.6 percent, to $39.1 million from $38.1 million.
As for census metrics, those were largely steady, too. In firmwide attorney head count, there was a net gain of one lawyer (to 368, a change of 0.3 percent). Somewhat more noticeable were a 2.3 percent decrease in equity partners (to 84 from 86) and a 3.3 percent increase in nonequity partners (to 124 from 120).
McCarter & English’s leadership pays particular attention to PPP, as other firms do. “About $800,000 is the goal,” Kelly said. It’s a focus because attorneys, who might join McCarter or be tempted to leave it, look at earning potential at different firms, the lawyers said. At $800,000, according to Kelly, the compensation is attractive but still allows the firm to operate with an attractive lifestyle compared to some larger firms—namely in terms of practice group autonomy and work-life balance.
Boccassini noted, “the definition of lifestyle is relative.”
The firm’s ongoing focus on its intellectual property practice continues. The practice boasts a high win percentage in IP litigation, and patent prosecution, though typically lower-margin work than litigation, is “not commodity work by any means,” Kelly said.
The lawyers tabbed corporate practice and business litigation as foundational practices for the firm. In 2017, the former practice included McCarter & English’s representation of Elizabeth-based Hayward Industries, a maker of swimming pool equipment, in its acquisition by private equity investors. The latter included the firm’s representation of HP Inc. in Delaware shareholder litigation stemming from the company’s acquisition of Aruba Networks Inc.
Pushing for higher-margin work, staffing matters correctly and otherwise emphasizing efficiency, while also maintaining the sorts of autonomy Kelly and Boccassini highlight, appears to be a balancing act. Practice group leaders, the chief operating officer, the comptroller, and the Accounts Receivable Committee all have a role in evaluating the profitability of potential engagements, among others, they said.
Since the market for legal services isn’t growing, success means a larger market share, Kelly said.
“The market has changed so much,” he said. “Complacency is anathema to us.”