Phones were ringing across the country with former law school classmates wondering if their friends’ new associate positions at white-shoe firms were in jeopardy, too. After all, entire classes of associates were let go at some firms. The recession had reared its ugly head in a place it never really went before. Not only did it find its way into the white-collar world, but it pierced the sanctity of the legal profession — a profession that began transforming into a business like (almost) any other.
It was around 1991. The savings and loan crisis that affected many law firm clients proved just as tough to bear for the legal industry, which for the first time faced mass layoffs across a spectrum of firms and organizations. Swap out savings and loan for commercial mortgage-backed securities and the storyline could have a 2008-09 dateline, recounting the even-larger-scale layoffs, salary cuts and overall business model shifts the profession encountered in the past five years.
While history often repeats itself, what happened in the intervening years between the early 1990s and the late 2000s was perhaps the most transformative period in the history of Pennsylvania’s law firms.
The recession gave firms a sense of the business world. A few years later, lateral moves started to happen in larger and larger numbers. As industry left the state, Pennsylvania lawyers were forced to find clients in other markets, large-scale law firm mergers came into vogue, firms grew at unprecedented clips and technology and the law firm website became a great equalizer for firms to handle matters for, and market themselves to, clients across the globe.
Aside from a brief slowdown during the recession following the attacks of September 11, 2001, hourly rates, attorney salaries and lawyer headcount all grew at an unprecedented pace. It was a good time to be a lawyer at a large law firm.
Then came late 2007, when the real estate market started to fall, and September 2008, when Lehman Brothers collapsed. All of a sudden, being a lawyer was difficult. Or, more specifically, running and keeping afloat a large law firm was difficult.
Clients tightened their purse strings, brought more work in-house, put an end to rate increases, stifled use of the billable hour and bristled at paying for work done by junior associates. In response, law firms laid off attorneys and staff, reduced or stopped hiring entry-level attorneys, decreased starting salaries, embraced alternative fee arrangements and project management, cut expenses to the bone, doled out cash to keep rainmakers and went on the hunt for increasingly elusive revenue.
The end result has been a business model that looks different than it did just five years ago. But the recession didn’t eat away at all of the success — or excess — firms made in the preceding 20 years. Many forged through, continuing expansion efforts.
The Globe Is the Limit
When it comes to lawyer population among Pennsylvania firms, the more dramatic story is not how the firms have grown within the state, but rather what they have done beyond the Keystone State’s borders.
In the past 30 years, Pennsylvania firms have gone from a club of similar-sized firms, differentiated perhaps by their culture or which law school they most frequently hired from, to a diversified group of firms that fall into tiers of either global, national, regional or boutique firms.
In 1994, when The Legal Intelligencer first began tracking the 100 largest law firms in the state as ranked by the number of full-time attorneys in Pennsylvania, Reed Smith was at the top of the list with 259 lawyers. In 2012, Reed Smith again topped the list, this time with 312 attorneys, a 20.5 percent increase.
In 1994, Reed Smith had 352 attorneys worldwide. In 2012, that number was at 1,628 — a 363 percent increase. Reed Smith’s growth, thanks to a number of mergers across the globe in the past 20 years, is a story shared by several of its Pennsylvania-based counterparts, such as K&L Gates, Dechert, Morgan Lewis & Bockius, Duane Morris, Drinker Biddle & Reath, Fox Rothschild, Buchanan Ingersoll & Rooney, Blank Rome, Eckert Seamans Cherin & Mellott and others that, either through merger or embracing the lateral market, saw significant growth over the past 20 years — and, more specifically, the last 10.
Morgan Lewis and Dechert were really the first Pennsylvania firms to reach well beyond Pennsylvania’s borders. Some of it was through mergers, some of it was through opening offices internationally and some was through grabbing large groups of attorneys from competing firms. Their international expansion meant higher salaries, larger profits and a big jump in revenue.
Many of Pennsylvania’s other firms have looked to catch up ever since. K&L Gates and Reed Smith have been very aggressive with mergers, expanding their footprints across the globe. Other firms have looked to open small offices in a smaller number of markets outside of the United States, such as Duane Morris’ narrower focus on Singapore, Vietnam and Oman.
And despite years of prognostications that the 200-lawyer regional firm would go the way of the dinosaur, many still exist, limiting their presence to the Mid-Atlantic region and keeping their expectations of profits and salaries tempered.
As Pennsylvania firms expanded around the globe, firms from across the country began to eye Pennsylvania.
In 1994, Jones Day was the only out-of-state firm to appear on our list of the 100 largest law firms in the state. In 2012, Jones Day was joined in Pennsylvania by Littler Mendelson, Greenberg Traurig, DLA Piper, Archer & Greiner, McGuireWoods, Gibbons P.C. and Mintzer Sarowitz Zeris Ledva & Meyers. More than a handful of other out-of-state firms that aren’t large enough in the state for our 100 largest law firms ranking have also entered the market.
While starting salaries at many firms took a hit in 2008 and 2009, many have bounced back and all have seen significant growth compared to what they were 20 years ago. In 1994, when The Legal first tracked such information, the highest starting salary for attorneys in Pennsylvania offices was $65,000. In 2012, that figure was $145,000 — a 123 percent increase.
Where Are They Now?
Not every firm was able to weather the market’s fluctuations over the years. Though many of the same firms top our rankings of the 100 largest firms in the state that did back in 1994, there are several notable names no longer on the Pennsylvania legal scene.
One of the largest stories to hit the Pennsylvania legal market’s law firm sector was the dissolution of Wolf Block in 2009.
It’s not often the local evening news picks up a business of law story, but Wolf Block’s history in Philadelphia was too much for even the general circulation press to ignore when the firm decided to close its doors and lay off more than 300 staff and as many attorneys.
The firm, founded in 1903, was a bastion of acceptance and eventually strength. It was created by Jewish lawyers who weren’t welcome at other white-shoe firms at the time and rose to become one of the most prominent firms in the city, with a particular strength in real estate.
It was the firm’s reliance on real estate — along with other factors, such as unfunded pension obligations — that kept Wolf Block from finding a merger partner and ultimately resulted in a partner vote for dissolution when the real estate market sank in 2008 and the firm’s bank came calling.
More than four years later, most of the attorneys have found new employment, but the firm is still winding up its affairs, filing lawsuits and battling some filed against it.
For venerable plaintiffs firm Litvin Blumberg Matusow & Young, it was less about the economy when the firm dissolved in 2004 and more about an aging leadership tier, the effects of tort reform and an unwillingness to join fellow PI firms in touting their successes in the press, partners said at the time.
Legendary trial lawyer S. Gerald Litvin started the firm in the 1970s and, under his leadership, some of Philadelphia’s most notable plaintiffs attorneys got their start. When the firm dissolved, those attorneys found homes across the city’s PI firms and are leaders among them today.
In looking at the top 50 Pennsylvania firms in 1994, five others have fallen out of existence. Two of those — Klett Lieber Rooney & Schorling and Mesirov Gelman Jaffe Cramer & Jamieson — were caused by mergers (more on that later), while the others fell victim to business pressures.
Insurance defense firm LaBrum & Doak had more than 120 attorneys in 1994, but after a series of partner defections and failed restructuring efforts, the firm ultimately dissolved in June 1997. The dissolution affected 75 attorneys and 110 staffers.
At nearly 90 lawyers, Cohen Shapiro Polisher Shiekman & Cohen dissolved in 1995 after failed merger talks with Pepper Hamilton. Clark Ladner Fortenbaugh & Young, with nearly 90 lawyers, dissolved in late 1996.
Though not in the top 50 in 1994, worth noting is the disappearance of Connolly Epstein Chicco Foxman Engelmyer & Ewing in 1994. The firm split into two in October of that year, forming what is now Hangley Aronchick Segal Pudlin & Schiller and Connolly Epstein Chicco Foxman Oxholm & Ewing. The Connolly Epstein group later merged into Eckert Seamans in 1999.
While some firms shrunk or disappeared altogether, a number of Pennsylvania firms saw significant expansion since 1994. Two examples of intrastate mergers — albeit with very different results — were the Buchanan-Klett and Schnader Harrison Segal & Lewis-Mesirov marriages.
Pittsburgh-based Klett Lieber was acquired in 2006 by Pittsburgh-based Buchanan Ingersoll, forming Buchanan Ingersoll & Rooney. At the time, it was the largest firm in the state by number of lawyers practicing in Pennsylvania. The merger propelled Buchanan Ingersoll — at least for a time — from the Am Law 200 to the Am Law 100. Integration of the merger has seemed largely to be a success, with former Klett Rooney president Jack Barbour now heading up the combined firms.
One merger that was not as much of a success was Schnader Harrison’s acquisition of Mesirov Gelman.
In June 2000, Schnader Harrison and Mesirov Gelman announced what was then the largest-ever merger between two Philadelphia firms. Mesirov Gelman’s 45 lawyers brought Schnader Harrison’s lawyer count to roughly 350, but trouble ensued shortly after the union was announced.
There were culture clashes between the Mesirov attorneys and those from Boston firm Goldstein & Manello, which had just a few months earlier merged into Schnader Harrison.
Goldstein & Manello came with its culture clashes and Mesirov Gelman came with significant lease and other liabilities that Schnader assumed. When the transactional market tanked in the recession following the attacks of September 11, 2001, the combination was more than the firm could bear.
By the end of 2002, Goldstein & Manello announced it would be breaking off from the firm it joined in January 2000. Then top Mesirov lawyers started leaving Schnader. It took the firm several years to bounce back, which it was able to do in large part because of the resolve and commitment of a contingent of core legacy Schnader Harrison partners.
The Death of the Lifer
You graduate. You clerk. You return to the firm where you summered and you spend the rest of your days (working days, at least) walking the halls of that firm. At least that was the typical career trajectory of a law school graduate. But in 1994 and 1995, that started to change.
Stephen Goodman, a well-known attorney representing entrepreneurs on startups, was a bit of an entrepreneur himself. In 2004, he left Wolf Block to join Morgan Lewis, where he still practices.
The following year, noted litigator Steven A. Arbittier and banking attorney Alan S. Kaplinsky left Wolf Block along with other prominent partners for Ballard Spahr. Soon after, groups of attorneys left Wolf Block for Cozen O’Connor and other firms.
In 1995, Wolf Block was successful in wooing back Mark Alderman as its vice chairman from Klehr Harrison Harvey Branzburg. He was the chairman of Wolf Block come 2009 when its partners voted to dissolve. Many have said it was those defections in 1994 and 1995 that were the start of the downfall of Wolf Block.
They were also the start of a wave of lateral movement the likes of which the Pennsylvania legal community had never seen. And there was no putting the toothpaste back in the tube on that one, as lateral recruiting has become a major industry in and of itself and a key tool in accomplishing law firm growth initiatives.
The early days of lateral movement weren’t limited to large law firms. Also in 1995, Thomas R. Kline and Shanin Specter left venerable personal injury firm the Beasley Firm to start their own shop, Kline & Specter, now one of the top plaintiffs firms in the state.
As they always have, client needs still reign supreme. And now, more than ever, clients are calling the shots. Legal excellence is a given. Stellar lawyering is expected — as it always was. But how firms go about getting those clients on the firm roster has changed. It’s a little less the clients coming their way and a little more of the chase.
Marketing, business development, cold-calling and, dare I say, sales were never phrases associated with the legal profession. Now, firms have marketing departments staffed in the double-digits. The highest-paid attorneys are those who are bringing in the clients and not necessarily handling the matters. Firms have branding campaigns, advertise and participate in "beauty contests."
An increasing array of legal work falls into the category of commodity rather than bet-the-company. As the legal industry grew into a dominating force in the United States with billions of dollars in revenue at stake and plenty of money and power to go around, the economy jumped in as a reminder that what goes up must come down — unless, of course, firms were willing to adjust their expectations and, at least to some degree, their business models. In other words, enter the chase.