It was inevitable that New Jersey’s legal industry would take a punch from the worst recession of the young century, and that happened in 2009. For the first time since the Law Journal began tracking the finances of the state’s largest firms, revenues and profits suffered declines.
But the drop wasn’t precipitous, and all things considered, it wasn’t a bad year, as the Top 20 bellwether firms continued on a path of smart growth and expense reduction evident in the two years prior.
The firms kept equity partnership ranks virtually flat and increased their proportions of lower-earning, high-billing nonequity partners.
More significantly, they reduced their hiring of new lawyers and let attrition take its course, which resulted in a nearly 3 percent drop in total lawyers.
Though revenue and profitability growth had slowed in 2008, the 2009 drop in both was unprecedented in the 24 years of the Law Journal survey.
Together, the Top 20 grossed $1.56 billion, down 2.65 percent from $1.59 billion in 2008.
Net profits also slid. They were $528.6 million, down 0.6 percent from $531.9 million in 2008.
The same four firms led the Top 20, with McCarter & English, Lowenstein Sandler, Gibbons and Sills Cummis & Gross again placing first through fourth. McElroy, Deutsch, Mulvaney & Carpenter jumped to fifth place over Riker, Danzig, Scherer, Hyland & Perretti.
But McCarter & English was also one of 12 Top 20 firms that saw a drop in revenue, and it was the most extreme: $15 million. Of the eight firms with more revenue than in 2008, Archer & Greiner led with a $10 million increase, followed by McElroy Deutsch, with $4.4 million.
While the 2009 falloffs in gross and net revenue were mild, they were a denouement from the steady growth of the late 2000s. For gross revenue, the rate of increase had been around 8 percent until it tapered off in 2008 to 3.9 percent. Profits had grown even more robustly — at 10 percent to 12 percent a year — until the rate slowed to 5.6 percent in 2007 and 2.4 percent in 2008.
Now, the slowdown has become a downturn, with the result that firms have had to ratchet up two measures they instituted when the recession hit in 2008: holding the line on new additions and making the attorneys already on board work more productively.
Whereas total lawyers at the Top 20 rose by only 16 in 2008, they dropped by 81 in 2009. That’s even starker when viewed against net gains of 75 in 2007 and 212 in 2006.
What’s more, the losses in lawyers were pretty much across the board, led by the state’s largest firm, McCarter & English, whose body count was 27 fewer, and Riker Danzig, which was down by 26 lawyers. The only firms with net gains in lawyers were Archer & Greiner (19), McElroy Deutsch (10), Norris, McLaughlin & Marcus (7) and Porzio, Bromberg & Newman (3).
The head-count-reduction trends comport with the Law Journal ‘s Fall 2009 report on new associates, which showed a 38.4 percent drop in new hires at all surveyed New Jersey firms (not just the Top 20), which was more than double the 18.5 percent dip in 2007.
And the fewer lawyers weren’t better earners. Revenue per lawyer (RPL) stayed flat, inching just 0.13 percent to $535,900 from $535,200.
Equity partnerships, which have been in retrenchment for two or three years, didn’t really improve. There was a net gain of three, or 0.36 percent, but that followed net losses of 1.3 percent in 2008 and 1 percent in 2007.
Eight firms increased their partners by single digits, eight had single-digit decreases and four stayed flat. The biggest gain, five, was at Norris McLaughlin and the biggest loss at Lowenstein Sandler, four.
The Law Journal ‘s survey in March of new partnerships statewide (not just the Top 20) showed a bleaker landscape. New partnerhips, which had averaged 150 for the years 2007 to 2009, dropped to 106 in 2010 — a 27 percent decline.
And unlike last year’s Top 20 survey, there weren’t enough profits to avoid a cut in the draw. Profits per partner (PPP) were down by $6,000, or 1 percent, to $610,300. That compares with a 3.74 percent rise in 2008 and a 6.62 percent boost in 2007.
As predicted last year, and it wasn’t hard, growth of nonequity partners continued to outpace that of equity partners. There were 47 more NEPs in 2009, an 8.9 percent hike — better than the 6.2 percent increase of 2008 — continuing an upward trend that began mid-decade and shows no sign of abating.
It makes perfect sense in tight times, since NEPs bill higher than associates but get paid less than partners. Offering tier partnerships help firms retain valuable lawyers until such a time that the books can be opened to them.
As in the prior two years, there were no mergers involving the Top 20: only decampments of small practice groups. The firms concentrated on promoting from within and bringing in lateral partners with portable practices to fill out valued or needed niches.
The Top 20 survey findings closely parallel those of the Am Law 100 survey of the nation’s top-grossing firms, just published by The American Lawyer . Two key indicators fell: gross revenue by 3.4 percent and RPL by 2 percent, while PPP barely increased, rising 0.3 percent.
There was also a falloff in head count at the Am Law 100 firms, the first since 1993, but it was only 1 percent, which is why national RPL went down.
As in New Jersey, the number of equity partners in the Am Law 100 dropped — by 139 or 0.73 percent — while the number of nonequity partners increased by 640. NEPs now constitute a record 37.9 percent of all Am Law 100 partners, the magazine reported.