The transactions practice area picked up at Dallas’ Glast, Phillips & Murray in 2011, but managing partner Troy Phillips is not willing to bet that the improved business climate is a long-term trend.
“We’ve had false starts before,” says Phillips. “We don’t know if it’s real or not.”
Like many Texas managing partners, Phillips expects some improvement in revenue and profits for 2011. According to Texas Lawyer ‘s annual Managing Partners Survey, of 68 firm leaders who responded, 55 (74 percent) expect increased revenue, and 48 (71 percent) expect increased net profits this year.
Despite the expected positive financial results, firm leaders are less optimistic about hiring lawyers. This is significant because, for most firms, a bump in headcount means they have or expect to have more business. Forty-six of the survey respondents (67 percent) say their firms will only slightly increase the number of lawyers; 15 firms (22 percent) say headcount will grow significantly; five firms (8 percent) say the number of lawyers will stay the same; and two firms (3 percent) predict lawyer count will shrink slightly.
Economic and political uncertainty is lowering law firms’ growth expectations, says firm management consultant William C. Cobb of Houston. Whether Congress extends unemployment benefits or rolls back health-care reform and other regulations are issues that directly affect the economy and companies’ bottom lines, he says.
“I’m sure the clients are telling firms, ‘I’m not sure what is going to happen next year, not sure we will need you as much, we may do a merger, we may not, we may do litigation, we may not, we just don’t know,” he says. “Managing partners and client-relations lawyers are saying, ‘Let’s not jump to the conclusion that in 2012 we will have a better year than last year.’ “
Since the financial crisis began in 2008, firms have reduced costs by downsizing administrative staffs, eliminating or slashing summer associate programs, and reducing the number of non-equity partners, Cobb says. With a continuing weak economy, firms are less likely to increase their costs by hiring additional permanent lawyers, he says. “They can just go contract and, instead of paying an associate $180,000, can maybe pay [a contract lawyer] $80,000,” he says.
Phillips says his firm currently has the same number of lawyers, 58, as it did at the beginning of this year. At this point, Phillips says he does not anticipate the firm increasing its lawyer count in 2012. All of the lawyers with the firm are members, and Glast, Phillips does not hire recent law school graduates or recruit associates, he says. “We only want people who can bring business with them.”
Dee J. Kelly Jr., managing partner of Fort Worth-based Kelly Hart & Hallman, says his firm’s revenue and profits will increase in 2011 compared to 2010, but he is concerned about the worldwide economy. “Fort Worth has been stronger than other regions in the state, and the state has been stronger than other regions of the country, but the economy is still not healthy,” Kelly says.
He says the 127-lawyer firm currently has two more lawyers than it did at the beginning of the year. With normal attrition and the addition of five first-year associates in the fall of 2012, Kelly Hart’s lawyer count will probably be the same at the end of 2012 as it is now, he says. If there is an increase in the number of firm lawyers, it will be less than 10 percent. “Until we get a better economy, every managing partner is going to be nervous,” Kelly notes.
Litigation boutique Figari & Davenport has not felt the same negative impact the recession has had on firms with transactions practices, says Bill Davidoff, managing partner of the 25-lawyer Dallas firm. “We’ve had a fairly modest but steady increase in the last few years in both revenue and profits,” Davidoff says.
He says, since late 2008, the firm has focused even more on the expense side of its business and cut back on capital expenditures and nonlawyer staff. Davidoff says he expects the firm’s size to remain between 24 to 26 lawyers in the coming year — a good number for a boutique firm. “We have the work to support that number,” he says.
Comparing 2011 revenue and profits with 2010, Joe Dilg, managing partner of Houston-based Vinson & Elkins, says that depending on which clients pay by year-end, “I think we will be pretty close, a little bit above or below on revenue. And probably pretty close on profits per partner as well.”
He says V&E, which has 524 lawyers in Texas and 781 firmwide, will see some lawyer count increases in 2012 in its California and Asia offices, as well as in Austin and Dallas. But that growth will be less than 10 percent, he says. “I don’t think we are going to be a firm that is going to increase by 30 [percent] or 40 percent in any one year,” he says.
Gary Gurwitz, managing partner of 31-lawyer Atlas & Hall in McAllen, says revenue and profits for 2011 will be about even with 2010. The firm, which Gurwitz says is the largest in the Rio Grande Valley, is replacing three lawyers it lost to normal attrition during the year but does not plan to expand its lawyer ranks beyond 35 lawyers.
He says Atlas & Hall’s transactions practices will pick up in the coming year if the credit market loosens a bit. “People can’t borrow money,” he says. “People who need to borrow to do deals cannot borrow money.”
Phillips says any real recovery will be predicated on a lower unemployment rate, increased new housing starts and banks getting rid of their real estate-owned property acquired through foreclosures, “so that everyone knows that we have truly hit bottom and can begin the climb back.”