For Ballard Spahr, there was never much of a distinction between its equity and non-equity partner tiers, as both groups had the same voting rights and put capital into the firm. The only difference was that non-equity partners were paid a set income.
When that resulted in the non-equity tier doing better financially during the recession than the equity group, the firm decided to put all partners in the same situation of sharing in profit gains or losses.
Last year marked the first full year that all of Ballard Spahr’s partners were equity partners. And with a total headcount reduction of about 8.6 percent from 488 lawyers in 2009 to 446 in 2010, that resulted in 49.5 percent of the firm having an equity stake.
That nearly 1-1 leverage model is not a common one, with most Pennsylvania firms keeping between 20 and 30 percent of their lawyers in the equity tier.
But for Chairman Arthur Makadon, nothing has changed. A non-equity partner who made a fixed income of $250,000 in 2008 makes the same now. But they now get paid like equity partners do, with some money held back until the end of the year. Makadon said a number of the non-equity partners made about $40,000 more in 2010 than they expected to because the firm saw a near 22 percent rise in profits per equity partner (PPP) from $430,000 in 2009 to $525,000 in 2010, according to numbers provided by the firm.
While having 221 of your 446-lawyer firm have an equity stake means more partners sharing in the same profit pie, not all equity partners are created equal. Makadon said the firm manages leverage through its allocation committee in terms of how many shares each partner gets.
While Makadon said the old model of two-tiers was the “worst of all worlds” because the non-equity tier had voting rights and paid capital but was guaranteed a certain income, the new model isn’t perfect either. Makadon said that, like many other firms, Ballard Spahr has too many partners. He said the firm certainly needs to and will let go of partners, but that isn’t something that is done quickly or en masse.
“You don’t just send someone who has been a partner for 25 years a pink slip and say you’re out of here,” he said.
Firms can also adjust compensation to the point where other jobs, such as in the government, become more attractive, Makadon said.
The average compensation for Ballard Spahr partners went in the opposite direction, growing 21.7 percent, or nearly $100,000 last year. It also makes sense to compare the firm’s 2010 PPP to its 2009 average profits per all partners (equity and non-equity), since each of those figures included the whole of the firm’s partnership now that all partners are equity. When comparing 2010 PPP to 2009 average compensation for all partners, the firm grew profits from $427,000 in 2009 to $525,000 last year, or 22.9 percent.
No matter how you look at it, the firm’s more than 20 percent rise in PPP is a big switch from the 25 percent cut it took in PPP in 2008. Makadon said the firm was early into the downturn and now is earlier to come out of it.
Ballard Spahr was able to grow its gross revenue by about 1 percent from $270 million in 2009 to $273.6 million in 2010 thanks to a smaller reduction in billable hours than there was in headcount. While the headcount fell 8.6 percent, billable hours dropped 6.7 percent to nearly 828,500 hours. Ballard Spahr’s revenue per lawyer (RPL) grew 10.5 percent from $555,000 to $615,000.
Makadon said that though the firm had fewer lawyers, they were all busier, helping bump up revenue and RPL. The average full-time equivalent lawyer was two tenths of an hour busier each day. Makadon said it was far and away the firm’s litigation practice that helped bump up revenue. That included intellectual property litigation. He said the firm had to hire litigation attorneys throughout 2010 to help keep up with the demand.
Though Ballard Spahr’s headcount fell, it wasn’t because of layoffs last year, Makadon said. He said the firm more fully realized the cost savings of layoffs it conducted in 2009 and also saw some people leave in early 2010 who were given six months at the firm in 2009 before they had to go, he said.
That, coupled with holding costs steady throughout the year, allowed the firm’s profits to jump, he said. Ballard Spahr went from having a profit margin of 32.3 percent in 2009 to 42.5 percent in 2010. Having fewer lawyers means that much less in expenses, Makadon said, though he admitted that also means fewer fee earners. But Makadon said the revenue those former Ballard Spahr attorneys generated wasn’t lost, it was just being done by fewer people in a more efficient manner.
It wasn’t all about cutting or maintaining expenses in 2010. Makadon said the firm increased the base pay for its associate tiers and gave out more in bonuses to associates than the prior year.
Makadon was quick to point out that none of the firm’s gross revenue was generated from non-recurring matters. There were no big deals or contingency fees that came in that would skew any of the numbers, he said. The firm did, however, work on two notable deals in 2010, both out of its Baltimore office.
The lawyers helped the New York City Housing Authority close a $400 million public-private partnership deal that helped renovate 20,000 low-income housing units in the city. The P3 and infrastructure practice is something Makadon said he expects will be busier in 2011 as states look for ways to sell off assets to private companies to help pay for infrastructure improvements. That is one of the draws, he said, of the firm’s hiring former Pennsylvania Gov. Edward G. Rendell, who counts among his many jobs serving as a co-founder of Building America’s Future, a group dedicated to generating investment into the country’s infrastructure.
Ballard Spahr also helped in a $4.7 billion deal to build a nuclear facility in Kansas City, Mo.
On the West Coast, the firm continued to build out its offices and added a new one in San Diego in November with the acquisition of all but one of the attorneys from litigation and white-collar defense boutique La Bella & McNamara.
Makadon said the firm could potentially have another “big transaction” in 2011 that could bring it into a new market. He said the firm’s focus will continue to be on litigation, intellectual property, its distressed real estate practice and its public-private partnership work. •