What a difference a few years can make.

Fewer than half of the leaders at Texas firms of all sizes report an increase in revenues or profits for the two most recent fiscal years.

That’s a change from five years ago. In 2005, 85.1 percent of firm leaders reported revenue growth, and 73.5 percent reported profit increases for their two most recent fiscal years. Comparing the results of this year’s Texas Lawyer Managing Partners Survey with those of 2005 provides a perspective on how the industry has changed during the recent economic downturn.

But despite an ailing economy that drove some firms to downsize during 2009, a majority of Texas firm leaders are optimistic about growth in 2010. In fact, 59 percent of firm leaders participating in the survey say they expect the number of attorneys at their firms to grow between September 2009 and September 2010. In contrast, 32 percent predict their firms will stay the same size, replacing only those attorneys who leave the firm, and 9 percent say their firms will decrease in size.

Dallas’ SettlePou is among the firms forecasting slight growth during the coming year. The firm offered permanent jobs to begin in the summer or fall of 2010 to three of its four 2009 summer associates, says firm president J. Allen Smith. The firm, which added two new associates in the fall of 2009, now has 32 lawyers, he says.

“We’ve always been conservative in our business model, adding just a couple of lawyers a year,” Smith says. “When times are tough, and [other] firms are having tough times, we seem to be steady in the tortoise-and-hare race; we are the tortoise,” he says.

While the majority of this year’s survey respondents — 59 percent — predict growth in firm size during the coming year, this number is a smaller percentage than the 71.4 percent of firm leaders who predicted coming-year growth in the 2005 survey. Additionally in the 2005 survey, 25.7 percent of the respondents expected their firms to stay the same size, and just 2.9 percent expected to see a decrease in attorney head count.

The survey respondents are managing partners, presidents, chairpersons and chief executive officers of Texas-based firms and partners-in-charge of the Texas offices of out-of-state firms. Sixty-six firm leaders from firms ranging in size from fewer than 25 attorneys to more than 125 attorneys participated in the 2009 Managing Partners Survey, which Texas Lawyer conducted during October and November. Fifteen percent of the 66 survey respondents are from firms with more than 125 attorneys; 35 percent are from firms with 26 to 125 attorneys; and 50 percent are from firms with 25 or fewer attorneys.

The largest percentage of 2009 survey participants’ firms are headquartered in Houston (47 percent) or Dallas (23 percent), with 12 percent in Austin, 9 percent in San Antonio and 6 percent in other Texas cities. Thirty-five percent of the respondents work at full-service firms, 28 percent at boutiques and 37 percent at firms with limited practice areas. [See related charts in the Dec. 14, 2009, digital issue of Texas Lawyer.]

The firm leaders see growth opportunities in commercial litigation, bankruptcy and energy. In 2005, firm leaders saw growth opportunities in commercial litigation, intellectual property, and mergers and acquisitions. The respondents also say that clients are more likely than they were five years ago to request billing reductions.

Beaumont-based Germer Gertz, which increased some of its billing rates during 2009, expects to end the year with a slight revenue increase compared to 2008, says Karen R. Bennett, managing partner of the 55-attorney firm.

“We’re still a profitable entity, despite the economy,” she says. The firm added three associates, one lateral hire and two 2009 law school graduates to its roster of lawyers this year. It is too early to predict how many lawyers the firm may add in 2010, Bennett says. “We are always looking for good prospects,” she says.

Bennett says her most important role as managing partner is to handle day-to-day operations: “Just in general handling attorney and staff issues and firm policy issues and keeping up with technology — which is just a tremendous responsibility,” she says.

Compared to five years ago, more firm leaders are focusing on such day-to-day issues. In this year’s survey, a larger percentage of firm leaders cited daily administrative matters as their most important role compared to what firm leaders said in 2005. Forty-seven percent say keeping a focus on long-term strategic issues is their most important responsibility, with 26 percent citing marketing and client relations as their primary role, and 18 percent listing day-to-day administration.

In 2005, 5.1 percent of firm leaders considered day-to-day administration their primary responsibility; 56.4 percent listed long-term strategic issues as their most important role, and 20.5 percent cited marketing and client relations. [See "Firm Leaders Are Optimistic, But Realistic, About the Future," Texas Lawyer, The 2005 Legal Almanac, Dec. 12, 2005, page 4.]

Marketing and Billing

When it comes to marketing tools, seminars have become the No. 1 choice of Texas firm leaders, with 53 percent of survey respondents saying seminars are the most effective marketing tool. Forty-four percent say entertaining at social or sporting events is the most effective marketing tool, and 38 percent point to their firm Web sites.

In 2005, firm leaders selected the same three marketing tools as the most effective but ranked them differently: firm Web site 66.7 percent; entertainment 40 percent; and seminars 36.7 percent.

At Dallas-based Munsch Hardt Kopf & Harr, seminars are one way for the firm to maintain contact with clients, says Glenn B. Callison, chairman and chief executive officer.

For example, Dallas shareholder Robert H. Voelker helped organize a series of breakfast meetings for clients in the firm’s Dallas office during 2009 with guest speakers discussing issues related to the distressed real estate markets, Callison says.

Several firm attorneys also write newsletters that are sent via e-mail to clients, Callison says.

“It’s really just finding a way to reach out and touch clients with information that hopefully they will find useful,” he says.

Client preferences regarding billing also have changed since 2005. Fifty-three percent of the firm leaders report that clients prefer hourly billing, a decrease from 61.8 percent in 2005.

Firm leaders also indicate that clients have become more demanding when it comes to bills and billing practices. In 2005, 51.4 percent of survey respondents said clients paid their bills without a hassle; this year only 27 percent of firm leaders said that was the case.

Sixty-seven percent of respondents say that during the past year clients sometimes asked for reductions, and 6 percent report that during the past year clients always demanded reductions. Five years ago 48.6 percent of the firm leaders said clients sometimes asked for reductions, while none of the firm leaders said clients always demanded reductions.

“I think we saw a little bit longer processing period with some clients, but they were still paying,” says SettlePou’s Smith. “Rather than a 30-day turnaround, it was 45.”

Although clients did not request that the firm reduce its bills during 2009, Smith says clients asked the firm at the beginning of 2009 to hold rates steady.

“We did freeze rates,” Smith says. The firm’s top rate is $345 per hour with much of the firm’s work billed at $200 per hour, he says.

Munsch Hardt also did not increase its billing rates in 2009, says Callison. Hourly billing rates for first-year associates are $225 and for senior partners are $675, he says.

Callison forecasts that the firm, which has about 100 attorneys, will maintain its headcount in 2010. He says Munsch Hardt’s 2009 year-end profit will be similar to 2008′s.

“It’s effectively flat, but somebody told me that ‘flat is the new up,’ ” he says.

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