Michael Heller, with Cozen O'Connor

For Cozen O’Connor, 2017 has been a busy year.

And it’s just one more year on the path toward creating a much larger firm with a powerful, national brand, said CEO Michael Heller. In the next five years, he said, he hopes to continue diversifying Cozen O’Connor’s revenue stream, and to grow head count to between 700 and 1,000 lawyers.

Cozen O’Connor ended 2016 with 563 lawyers. In the last nine months, it added a net 28 partners and nine associates, according to ALM Intelligence’s Rival Edge.

From 2011 to 2016, the firm grew annual revenue by 16 percent, from $294 million to $341.5 million, while profits per equity partner increased from $655,000 to $745,000. In 2016 alone, the firm grew revenue by 10 percent from the previous year.

In the past six months, the lateral hire announcements have come one after another, including individual lawyers and large groups.

The firm opened an office in Pittsburgh and grew it to 19 lawyers. It bolted on nearly two dozen lawyers from Buchanan Ingersoll & Rooney’s labor and employment practice, as well as other labor and employment lawyers from elsewhere. It also acquired a campus safety consulting firm that had previously collaborated with lawyers in the institutional response practice.

Heller said Cozen O’Connor’s strategy centers on three elements—developing unique practices, diversifying the revenue stream with nonlegal services and investing in technology.

Practice-Focused Growth

The firm has focused much of its energy recently on growing its institutional response group, which it formed in February, and its labor and employment group. Heller also noted the addition of a group of construction lawyers from Pepper Hamilton in January.

“We’re constantly looking for those unique practices,” he said.

Cozen O’Connor has aimed to become known as a full-service firm in all of its markets, Heller said. And he acknowledged that’s difficult in certain places, where its reputation as a Philadelphia insurance defense firm has been harder to shake—even though 65 percent of the firm’s revenue now comes from non-insurance work. In markets like that, and where the available practice areas are fewer, branding has been essential, Heller said.

Robert Nourian, of Philadelphia-area search firm Coleman Nourian, said Cozen O’Connor has been successful in rebranding itself, particularly with younger lawyers.

“Every year, they’ve put a little more distance between their current reputation and what their prior reputation was,” he said.

Other firms have been able to do that, said Mary K Young, of Zeughauser Group, naming Latham & Watkins, Gibson, Dunn & Crutcher and Kirkland & Ellis as examples. Doing so through lateral hiring has a “snowball effect,” she said. As firms add in particular practices or geographic markets, they become better known in those areas and attract more laterals.

Nourian said he has seen some other firms “more haphazardly trying to grow head count,” but that’s a mistake, which can lead to unintended conflicts. And taking such a wide variety of practice groups to market can be difficult, he said. “It’s critical, I think, to be laser-focused on why a particular practice group will make sense and why it will do well at the firm,” Nourian said.

Diversifying Business

Cozen O’Connor already has several subsidiaries beyond its core legal business. They include a subrogation business, e-discovery services, a government relations firm, a legal fee manager and the newly acquired campus safety consultancy. Heller said he looked to the accounting industry as a model for diversifying the firm’s revenue stream.

“Law firms are businesses, and need to find and create revenue sources that are tangentially related to the practice of law, but aren’t the practice of law,” Heller said.

Nonlegal services could account for 25 percent of the firm’s revenue in the next five years, Heller said, adding that those services generally have a better profit margin than law. He declined to say how much revenue comes from nonlegal businesses now.

Cozen O’Connor is currently exploring the idea of a family office business, building off the private client practice, he said.

Joe Altonji of LawVision Group said law firms that built up their ancillary business have had mixed results. But he’s not aware of any where the nonlegal services have become a dominant revenue source. And no firm seems to have found a “magic formula” yet, he said.

“You can see a future perhaps where there is a more diversified, non-purely legal entity in the future,” Altonji said. “That will require changes in certain practice roles.”
Nourian said firms with the most active ancillary businesses likely bring in about 10 to 15 percent of their revenue through those services. Diversifying the revenue stream is entrepreneurial, he said, but can be tricky.

“If you have them, you potentially risk referral relationships from nonconnected businesses that would be competitive to your ancillary businesses,” Nourian said. “And law firms do get a lot of referral work from a lot of entities.”

The Next Generation

On the technology front, Cozen O’Connor’s third strategic focus, Heller said the firm, like many others, is researching how artificial intelligence will affect the legal industry. It’s also testing some new methods for client interaction, he said.

Other tech investments have already been integrated into the firm’s day-to-day business. Three years ago, Cozen O’Connor rolled out its multiple-platform technology program, in which lawyers choose their device, including Apple, Dell and Microsoft products.

Heller said the program is more than a gimmick. It has helped the integration of new laterals, by allowing them to use the technology with which they’re most comfortable.

“It’s a big part of the plan,” he said.

For the next generation of law firm leaders, Heller predicted, investing in technology will be key. At 53, he said, he still sees himself as part of that generation. But for the generation after that, he said, technology will drive the practice of law.

Cozen O’Connor’s use of technology received top scores in The American Lawyer’s recent midlevel associate satisfaction survey, and the firm got the top average overall score among Am Law 200 firms. While its associate satisfaction scores for compensation and benefits were lower than at other top firms, Cozen O’Connor was boosted by a perfect score on management openness.

Heller said the firm’s approach to transparency has evolved over the years, and has been a more concerted focus in the last five years or so, as it added monthly partner meetings and associate meetings several times a year with leadership.

It’s all part of an “informal, entrepreneurial environment” the firm has created, Heller said, which drives its growth decisions. Getting to 700 or 1,000 lawyers, the firm could maintain that atmosphere, he said, but there’s a limit. Beyond that, he said, “there’s a size at which that’s just impossible to do.”