Stevens & Lee saw revenue dip by $1 million in 2011 and expenses rise more than 8 percent, but the firm was able to increase partner profits marginally through a reduction in equity partners and small rate increases.
Revenue dropped just less than 1 percent from $114 million in 2010 to $113 million in 2011. Revenue per lawyer (RPL) fell 0.7 percent from $685,000 to $680,000, and its profits per equity partner (PPP) rose 1 percent from $1.005 million to $1.015 million. Average compensation for all partners dipped 0.7 percent to $690,000.
Stevens & Lee President Ernie Choquette said his firm, like the rest of the industry and its clients, was faced with a “persistently difficult economic environment” that was compounded for Stevens & Lee by the fact that 30 percent of the firm’s revenue is transaction based.
Not only were mergers and acquisitions down, but the resulting spin-off work from handling those deals for clients was also down, he said.
Choquette said the firm always looks to have “revenue initiatives” in the works to help clients and increase the firm’s top line. Three of those initiatives proved fruitful in 2011 and helped combat the falloff of the firm’s corporate work. Choquette said the firm increased revenues in its state and local government initiative, its insurance initiative and its energy initiative. That combined with an increased focus on cross-selling, which he said makes up nearly 30 percent of the firm’s revenues, held gross revenue in 2011 at what he called essentially flat.
In terms of other practices areas in 2011, Choquette said health law, litigation, tax-exempt finance and employee benefits were all up while corporate, real estate, bankruptcy, and labor and employment volume was down somewhat.
Stevens & Lee is known for running a tight ship when it comes to expense management, averaging significantly lower attorney overhead than most Am Law 200 firms. That figure increased by about $5,000 to $6,000 per attorney, however, in 2011. The firm’s net profits decreased 8.1 percent between 2010 and 2011, moving from $62 million to $57 million despite having a flat headcount and fewer equity partners.
The firm’s profit margin fell from 54 percent in 2010 to 50 percent in 2011, still coming in as the highest of any Pennsylvania-based Am Law 200 firm.
While Choquette said it may seem counterintuitive, he said the firm was happy with where its expenses ended up. The expenses had fallen more significantly than normal between 2009 and 2010 because the firm was being extra cautious in a tough economic environment and experienced other nonrecurring events such as rent holidays in 2010.
“We were managing the expense number harder [in 2010], so what really happened in 2011 was we reverted to more of our normal level of overhead,” Choquette said.
Stevens & Lee also paid its nonequity partners slightly more last year than the year before. That was part of the firm’s nearly completed move away from lockstep compensation. Choquette said paying nonequity partners more, even though there were fewer of them, was a good thing because it meant they were earning that increased pay through increased productivity.
Productivity on the whole was down a bit. Choquette said the hours charged per attorney were down about 1 percent while rates increased around 2 percent. Choquette said the firm has embraced alternative fee arrangements more and more over the past three years, making hourly rates less and less relevant.
Stevens & Lee’s headcount dropped by one lawyer to 166 in 2011. Over the years the firm has moved away from a 1:1 leverage model to closer to a 2:1 leverage model of lawyers who are not equity partners compared to those who are. The equity partner tier fell 9.7 percent in 2011 from 62 equity partners to 56. The nonequity tier lost one lawyer, falling to 53.
In 2012, Choquette said the overhead per attorney may vary by 1 to 2 percent while the pay to professionals other than equity partners would probably stay flat.
Choquette said the firm’s clients are increasingly looking to deal with more senior lawyers who provide more value. He said the firm looks to only hire equity shareholders who are accretive to the bottom line and that, he said, becomes more difficult to do as the firm’s bottom line grows.
Stevens & Lee had been hiring more junior level people than it historically has and will continue to do so as demand increases, but it has also built out its more senior ranks since the start of 2012. The firm hired Buchanan Ingersoll & Rooney attorneys William DeStefano and Terri Pawelski to the white-collar defense practice, Thomas Tammany in the health care group and Francis X. Taney Jr. to its litigation team. It also hired Elliott Greenleaf Harrisburg-office leader William Balaban, adding an insurance component as well as state and local tax practice.
The market is difficult to judge looking ahead in 2012, Choquette said. He said he would predict litigation would be up again and labor and employment work would increase. It remains to be seen where health care law will go, he said. Corporate work is off to a relatively slow start, but Choquette said he is seeing an increase in activity both generally and on the transactional side.
“We’re cautiously optimistic,” he said. “If we’re able to increase the revenue, we will increase the bottom line proportionally.”
This report is part of The Legal Intelligencer’s coverage of the 2011 financial results of local firms as part of the Am Law 100 and Second Hundred reports. Full results for The Am Law 100 were published in The American Lawyer and online in May. The Am Law Second Hundred will be published in June. View our interactive chart, which will be updated as additional law firm financial data is reported.