Despite a net loss in attorney population, McCarter & English saw year-over-year revenue improvement while the firm’s profitability metrics increased more dramatically.
The $237 million in gross revenue posted in fiscal 2016 by the Newark-based firm was a 1.7 percent increase from the previous year’s $233 million, according to data compiled by the ALM Legal Intelligence group, a Law Journal affiliate.
The increase came despite a 2 percent decrease in attorney head count, to 367 from 374.
“We’re growing revenue and we’re becoming more efficient as we do so,” said Michael Kelly, McCarter’s chairman. “We want to look at everything to see where we can improve.”
Improvements have come. Over a five-year period, the firm’s gross revenue has increased by about 12 percent, from $211.5 million in fiscal 2011. Back then, McCarter had a handful more attorneys: 378.
Last year, improved revenue per lawyer (RPL) more than made up for the net loss in attorneys: McCarter’s $645,000 RPL represented a 3.2 percent increase over the previous year’s ($625,000). (By comparison, the firm’s RPL was $560,000 in 2011).
The more attention-grabbing growth came in profits per equity partner (PPP), which last year increased to $750,000 from $670,000, an 11.9 percent rise.
Using fiscal 2015 numbers as a reference: $670,000 PPP put McCarter on par with Riker Danzig Scherer Hyland & Perretti of Morristown, which had a PPP figure of $680,000 for fiscal 2015; while $750,000 PPP puts McCarter closer to fellow Newark-based firm Gibbons, which had a PPP figure of $780,000 for fiscal 2015.
The gain in PPP is partly attributable to a general improvement in profitability. Profit margin rose three points, to 27 from 24 percent (which Kelly said is still not high enough).
Thanks to the profit margin and RPL increases, net income jumped to $64 million from $56.5 million, a 13.3 percent increase.
PPP, according to managing partner Joseph Boccassini, is “important when you’re looking to attract lateral talent.”
Or retaining talent, Kelly said: “It’s an important metric. When I’m looking at other firms, I’m looking at that.”
“It’s important because, what I can’t allow to happen is, a partner in this firm come to me and say, ‘I can make a lot of money at the firm across the street for the same amount of work.’ You can’t allow that conversation to happen,” Kelly said.
The attorneys offered no clear single reason for the uptick in profitability; Boccassini pointed to increased adoption of technology and better staffing. Neither he nor Kelly acknowledged making any attorney or staff cuts over the course of the year.
Firm billing rates also have come under the microscope—although to limited effect, it appears. Kelly quipped, “It’s tough to raise rates when clients are laying people off. … It sometimes irritates me when I’m in court and the people we’re beating are getting higher rates.”
Total partners was down 2.7 percent, to 205 from 211; Equity partners increased by 1.8 percent, to 86 from 84.
Kelly said increasing leverage could improve PPP further—and leadership is in fact working on ways to increase leverage—but “we’re not going to destroy our culture through de-equitization.”
“We are not a firm that brings in a whole bunch of associates, makes a bunch of money on them, and spits them out,” but, “we want to give more work to associates,” Kelly added.