The 2014 AmLaw 100: Where Does Your Firm Rank?

The American Lawyer released the top 100 of its annual law firm rankings today, April 28. The rankings are based each year on gross revenues, however there are other metrics to consider as well, including: profits per partner, revenue per lawyer, ranking from the prior year, and how these metrics are changing on a year-to-year basis. Below is a snapshot of this year’s top 20 firms, along with various other notable firms with offices in Charlotte or elsewhere in the Carolinas:
Taken together, we see that the majority of firms gained in gross revenues, profits per partner, and revenue per lawyer—suggesting a positive overall year for firms at the top. As an example, 14 of the top 20 firms (and 18 of the 33 shown in the chart above) gained in all 3 areas. We also see that some firms had a mixed bag, while a number of others struggled—with 4 of the top 20 firms (and 8 of the 33 shown) experiencing a decline in 2 or more of key metric areas.

Below is a breakdown of further trends observed from the rankings:

Biggest Gains in Gross Revenue: Polsinelli (+17.8%), Williams & Connolly (+15.0%), Simpson Thacher (+14.9%), Quinn Emanuel (+14.1%), Barnes & Thornburg (+11.9%), Fragomen (+11.7%), Cahill (+10.9%), Ogletree (+10.2%), K&L Gates (+9.3%), Cooley (+9.2%), Shearman & Sterling (+9.1%), Venable (+8.9%)

Biggest Losses in Gross Revenue: Bingham McCutchen (-12.6%), O’Melveny (-10.4%), Fish (-9.6%), Edwards Wildman (-9.4%), Finnegan (-9.1%), Jenner & Block (-7.7%), Weil (-7.4%), Arnold & Porter (-6.2%), Nixon Peabody (-5.6%), Kaye Scholer (-5.0%), Kilpatrick Townsend (-4.4%), Locke Lord (-3.2%)

Biggest Gains in Profits Per Partner: Fried Frank (+24.3%), Davis Polk (+22.5%), Akin Gump (+19.2%), Simpson Thacher (+18.8%), Shearman & Sterling (+18.4%), Vinson & Elkins (+16.3%), Williams & Connolly (+15.1%), Hughes Hubbard (+12.7%), Polsinelli (+12.3%), Mayer Brown (+11.7%), Debevoise (+11.3%)

Biggest Losses in Profits Per Partner: Kilpatrick Townsend (-18.6%), Jenner & Block (-17.1%), O’Melveny (-16.0%), Finnegan (-14.7%), Bingham McCutchen (-12.7%), Locke Lord (-12.2%), Fish (-12.1%), Bracewell (-11.0%), Covington (-8.7%), Nixon Peabody (-8.4%), K&L Gates (-7.8%), Steptoe (-7.7%)

Overall Trends for the Industry:

  • Many firms saw little to no revenue growth, yet the top 20 separated themselves
  • Firms relied on nonequity partners to boost numbers, but it may not be sustainable
  • With the bankruptcy boom over, Bingham and Weil need to redefine themselves
  • 5 firms are over $2B in revenue, 23 over $1B, including “new” Norton Rose, Dentons
  • Profits per partner increased by 0.2% in 2013, leveling off after a 4.2% jump in 2012
  • Average revenue per lawyer fell in 2013, marking the first decline since 2009
  • Partner compensation fell 0.3%, mirroring flat growth in other metrics (PPP, RPL)
  • Wachtell leads all in profits per partner and for a 10th straight year in value per lawyer

Overall Trends for Individual Firms:

  • King & Spalding eclipsed $2M in profits per partner for the first time
  • Shook Hardy fell out of the rankings after 17 years as a mainstay of the top 100
  • Mayer Brown reported its highest profits, even after New Republic’s negative press
  • Akin Gump saw its key metrics rise following a firmwide focus on lateral integration
  • After a record year, O’Melveny saw a decline in metrics due to fewer success fees
  • Jenner & Block was hit hard by government spending cutbacks, driving down PPP
  • Davis Polk has a big year following major litigation and transactional successes
  • Fried Frank made their biggest jump in profits per partner following a tough year prior

The Current State of Legal Sector Employment

roller coaster 2Since this time last year, the legal sector has added a total of 4,000 jobs. Currently, the sector employs 1,137,000, which is up 2,300 in Q1 this year. At face value, this seems to suggest an overall positive trend. However, a closer look at the numbers over the last thirteen months (March to March) past year paints a picture not quite as optimistic.

A look at the graph below shows just how up and down employment has been in the sector over the past year. The one thing that has been consistent is that there has been no real consistency! Call it topsy-turvy, a roller-coaster ride, a mountainous landscape—all of those terms describe well the extent of uncertainty which now seems to be the reality for all industries, not just legal.

Other observations also come to light. For one, we see the makings of what appear to be seasonal trends. This, we would expect—hiring around the start of the year and toward the end of the summer, with layoffs sandwiched in between and at the end of the year. We also notice a discouraging overall trend. Despite strong actual gains in March (3,100), July (2,800), and August (2,700) 2013, as well as January (1,600) 2014, the numbers clearly show the overall trend as negative (shown by the chart’s black dash trendline).

What can we take away from this? We do need to remember this is a short-term view. However, it is not far off from what the sector has experienced dating back to the great recession in 2008. So while there are 4,000 more jobs than there were this time last year, we are growing at a slowed rate. Part of that is due to the reality that we have yet hit the summertime months, which may prove tough if they are at all like they were last year (6,500 lost in a two-month span).

In fact, should the sector follow a similar seasonality this year, employment will continue to decline—with a very real possibility the trendline dips down below 0, seeing as the start of Q1 in 2014 was not as strong as that of Q1 of 2013. At that point, the sector would not be forecasted to grow but to contract. Thus, what happens over the next few months will be critical in discerning how long the slump may continue.

AmLaw Second Hundred Gaining Market Share

In a previous article written at the end of last year, we reported that the AmLaw second hundred (meaning the firms ranked 101-200) had picked up 1% in corporate client market share from firms in the top 100. While, for the top hundred, hours billed declined by 6.4% and fees paid fell by 3.5%, firms in the AmLaw second hundred saw their hours billed increase by 6.2% and fees paid tick up by 3.3%. While 1% may not seem like a lot, it is certainly enough to grab the attention of top hundred firms. It also indicates that firms in the second hundred may be on to something that is resonating with their clients.

A recent article by Jay Fitzgerald of the Boston Globe highlights one trend in the Boston legal market that could help account for the change in other cities as well. Fitzgerald talks at length about how now some six years into the recession, the balance of power appears to be shifting from law firms to their clients. As companies are becoming more and more cost-conscious, they are demanding that their law firms do the same—by offering alternative fee agreements, more affordable rate structures, and greater flexibility in billing. There also seems to be a general sense that companies are no longer as concerned about a law firm’s size or brand name than they are about total cost and flexibility. Companies of course still want quality legal work, but what is changing is they are now more vocal about wanting it at lower prices.

In Fitzgerald’s own words: “As a result, many law firms are adopting new business models and doing what once seemed almost unthinkable in the industry: cutting hourly rates, bidding for corporate work against rival firms, capping prices, and keeping a sharp focus on the corporate client’s bottom line. In turn, the firms are cutting their own costs in a drive to become more efficient, using fewer attorneys on cases, and moving back-office operations to lower cost states — and even nations.” Many firms are finding this more than just competitive advantage, but as a must-have in order to survive amidst the new and capable competition that exists.

What is particularly interesting is that many of the changes have been proposed and driven by clients themselves. Fitzgerald quotes Elizabeth Murphy, Legal Operations Manager of Boston Scientific as saying: “I’m not sure how much longer we’ll continue to work with firms that won’t change”. And with Murphy responsible for doling out $10M in legal work each year in a tight economy, firms are listening.

Fitzgerald goes on to say that firms are also agreeing to alternative fee arrangements, which include “fixed fees for certain duties, such as filing patents, or flat rates for individual cases, rather than charging by hour”, with the result being that “smaller firms are starting to nab more corporate business—growing in both revenue and number of attorneys at their firms.” The change does not come as a total surprise, however. For many years before the recession, it was not uncommon for billing rates to rise much higher than the cost of inflation. Accordingly, many law firms are starting to move away from their traditional hourly fee structures and move towards a more client-centric approach. Other professional services firms (such as accounting and consulting firms) have been quicker to adapt. However, if the second hundred AmLaw firms continue winning a larger slice of the market share pie, the legal industry could begin to change much more quickly.

What is Your Law School Ranked? Go-To vs. ROI

The National Law Journal’s annual “Go-To” Rankings were released at the end of February, and the new list has Columbia Law School ranked as the top school, regaining its ranking from 2007-2008. The University of Pennsylvania fell from the top spot to #5, after holding the top spot for both 2011 and 2012. The full listings of the Top 20 are below, along with other regional schools of note listed below:

The rankings are based purely off of the percentage of last year’s graduates who were hired by an NLJ250 firm. This does make some sense, as this is the goal of many who enter highly-ranked law schools. However, it should also be noted that this is not always a student’s motivation when choosing to attend law school. Moreover, many law school graduates find great success in smaller law firms and other law-related jobs.

One factor which the rankings miss are how to account for differences in tuition. For example, does it make more financial sense for a student considering Vanderbilt (#16) at $47,000 per year with an NLJ placement rate of 32%, or UNC (#29) at $22,000 per year with half the NLJ placement rate at 16%. In calculating the expected value or ROI over 3 years’ time post-graduation, we find that choosing Vanderbilt yields an (approximate) expected gain of $69,000 whereas UNC yields an expected gain of $47,000, holding anticipated salary at an NLJ firm constant at an average of $120,000 per year. This helps to simplify the choice in that Vanderbilt on average will earn more bang for the buck. However, for some students it is possible that the latter option may be more appealing given the significantly lower initial outlay of tuition dollars (approximately $66,000 over 3 years at UNC versus $141,000 at Vanderbilt). In another example, take the decision process of choosing between Washington University in St. Louis (#25) at the same tuition of Vanderbilt at $47,000 per year, but with an NLJ placement rate of 18%. Again, let’s look at the comparison relative to UNC (#29). Using the same formula as above, we find that Wash. U. yields an expected 3-year ROI of $40,000 versus UNC at $47,000, in addition to the fact that Wash. U requires a 3-year outlay of $141,000 versus UNC’s $66,000.

The decision-making process of course differs for each student. However, factoring in tuition costs and expected NLJ placement rate (again, if NLJ firm placement is a student’s ultimate goal), this can be a helpful additional bit of analysis. Particularly so when law school requires such a large amount of tuition/debt in an uncertain economy. To assist in that process, we have calculated our own form of Go-To Rankings based on the below 3-Year expected ROI chart:

Go-To graph 1There are a few different ways to interpret the chart. One is it allows us to weigh the tradeoff for specific schools between tuition costs and expected ROI. It also allows us to see if a school is generally a “good” investment at that tuition level by judging whether the school is above or below the black trendline you see above. If a school is above the trendline, that indicates (as best we can guess) that you would be getting a better than average bang for your buck over a 3-year time period. On the other hand, if the school is below the line, you would be getting a lower than average bang for your buck. In that case, it may be advisable to consider other schools with a better expected ROI at or near the same tuition level.

Bonuses For Associates? Smaller Firms Saying Yes

In important news for young lawyers at small to midsized law firms, more associates are in line for bonuses. Christine Simmons of New York Law Journal wrote in a February 19 article highlighting how bonuses are more becoming more common for associates at smaller and midsize law firms. Typically, this has only been the case for the large top-tier firms, many of which follow, to some degree, the bonus structure set each year by Cravath Swaine & Moore. Currently, Cravath’s associate bonuses range from $10,000 for 2012 class-years to upwards of $60,000 for 2005 class-years (and above). In some cases, bonuses for top performing associates at smaller firms may align with the Cravath scale, but generally they are lower as Simmons says, to reflect “lower billing rates to more mid-market clients”.

The good news for associates in New York and elsewhere is that smaller firms seem to be catching on to the why. Smaller firms are starting to see the benefits of offering merit-based pay and compensation incentives in order to retain and motivate their young talent.

To confirm this view, in a recent interview Simmons had with Eric Wagner, head of the corporate group at Klienberg, Kaplan, Wolff & Cohen, Wagner gave this reason for the firm’s decision to now offer associate bonuses: “We’re smaller and we have to be in some ways more bottom line thoughtful and more creative.” To do so, Kleinberg offers their associates profit-sharing plans that fully vest in 5 years, “similar to an extra 401K.” They also incentivize associates by rewarding those who bring clients to the firm, and stand by the idea that most of the firm’s equity partners should come from their own associate classes.

Yet Klienberg isn’t the only smaller firm being more thoughtful and creative. Below is a sample list of 6 other firms now offering bonuses, and a look at their packages. One thing you notice…every firm has their own take:

  • BuckleySandler (AmLaw #194, 152 attorneys): Bonuses are not guaranteed. Based on the firm’s financial performance and associate performance, work ethic, teamwork, and an associate’s overall commitment to the firm.
  • Otterbourg (55 attorney NY firm): Bonuses are not guaranteed, but likely. Based on quality of work, responsiveness to client needs, billable hours and an associate’s class level/seniority.
  • Wolf Haldenstein (74 attorneys in 3 offices): Moved from a seniority system to a merit-based system based on quality of work, performance, billable hours, as well as client and partner feedback.
  • Hiscock & Barclay (NLJ #209, 194 attorneys): Bonuses are not tied to a firm’s financial performance, but based on quality of work, client service, teamwork, client feedback, billable hours, and fees collected.
  • Morrison Cohen (90 attorney NY firm): Based on associate and firm performance, with a target of 1,900-2, 2,100 hours (with no more than 2,100-200 to avoid burnout). Associates are also incentivized by receiving 20% of business they originate.
  • Phillips Nizer (74 attorney NY firm): Based on annual associate evaluations, billable hours, and nonbillable performance with a billable hour threshold of 1,850 hours.

Summer Associate Hiring Slightly Up

Summ AssocA recent article by Karen Sloan for The National Law Journal entitled, “Associate Hiring: Two Steps Forward, One Step Back” characterizes what the legal industry is seeing in terms of summer associate class sizes and entry-level associate hiring. Her general take is just as the title of her article suggests. There are certainly some positives as far as what the recent numbers are showing, yet, when considered in light of where hiring levels were in pre-recession times, it is clear that the industry is still undoubtedly recovering.

Some of the key points from the article are as follows. First, summer associate class sizes rose from an average of 9 to 11. However, the median class size stayed steady at 5, suggesting there were a few firms with very large classes potentially skewing the data. Additionally, 92% of summer associates were offered permanent placement after completion of their programs, which is certainly a positive development in that the proportion offered employment is nearly back to pre-recession levels. However, it is also important to remember that class sizes are still substantially smaller, meaning the industry is still lagging in terms of total summer associate-to-associate hires. Similarly, more summer associates who interviewed were offered jobs this year, up from 44% to 47%. In the same way though, this still remains well below the mark of 63% set back in 2006. Finally, another trend the industry is seeing is that competition for top entry-level candidates remains high—and the anticipation, according to Jim Leipold, executive director of NALP, is that “there will be further stratification in the market”, meaning some firms will increase class sizes, others will reduce them or leave them flat.

The bottom line? A number of firms are starting to hire more summer associates again, particularly some of the larger firms. More summer associates are also being offered full-time positions upon completion of the program. However, class sizes on the whole are still significantly smaller than they used to be, and it remains to be seen when, if ever, associate hiring will return to pre-recession levels.

The 6 C’s of Effective Leadership in Law

A recent article for Corporate Counsel by Larry Lohman, an Assistant GC and VP of Harris Corporation, and Andrew Shipley, A Government Contracts Partner with Perkins Coie, highlights what the authors believe to be the 6 essential leadership traits of law department and law firm managers. Each of the traits starts with the letter “C”, so we will affectionately refer to this list as “The 6 C’s of Law Leadership”. The traits are: (1) Character, (2) Commitment, (3) Competence, (4) Communication, (5) Courage, and (6) Compassion. Let’s briefly go through each:

Character: John Wooden, the late and great longtime UCLA men’s basketball coach, once said: “Be more concerned with your character than with your reputation, because your character is what you really are, while your reputation is merely what others think you are.” This is critical for leaders in any field, but particularly so in law. Leaders often face the choice between seeking to win at all costs and relentlessly representing clients, versus taking a step back and evaluating if their decisions come at the cost of doing the right thing. Similarly, the authors point out the importance of “trustworthiness” and recognizing that when you are a leader no conversations or interactions with your group are “off-duty”. Your character and integrity is always under scrutiny. It has the potential to draw others towards you or to propel them away.

Commitment: As a law firm or law department leader, commitment is what sets the tone for those that you lead. Similar to the battlefield analogy of a general who directs troops from the flank, versus a leader who will jump into the trenches beside you, the group’s commitment can hinge on a leader’s willingness to be present and alongside at the critical moment. Law leaders also have to learn how to balance dual responsibilities of commitment to the organization and their employees, which the authors suggest “may sometimes appear to conflict, but they shouldn’t…a leader can support the organization’s position while respecting the fact that some in her group may have reservations or doubts.”

Competence: There is an expectation that law leaders, or leaders in any field, know the right answers, make the right decisions, at the right times. In some ways this is understandable. In fact, rising up the ranks to a position of leadership generally indicates that you have demonstrated these qualities over time. Yet Lohman and Shipley take this one step further: “A truly competent leader, however, possesses self-sufficient awareness (and humility) to recognize when she needs help and has the confidence to ask for it.” This is not easy by any stretch. It takes the highest level of competence to admit that you need help.

Communication: We have heard this time and again. In every job description, at every leadership forum, you name it. And it’s true, good leaders do need to be effective communicators. However, communication can take many forms: verbal, written, non-verbal. And as Lohman and Shipley point out, “there is no magic formula that makes communication happen. It takes an investment of hard work and time.” Good communication is not easy. It can often be awkward and you may feel vulnerable, but setting the stage for communication will go a long way with your team. As Lohman and Shipley suggest, empower your group to ask even what they feel may be “dumb” questions, and take the time to provide “thoughtful responses”.

Courage: C.S. Lewis once said, “Courage is not simply one of the virtues, but the form of every virtue at the testing point.” What Lewis meant by this was that courage is a foundational virtue, and that if we lack courage in key moments, we will miss the opportunity to follow through on other virtues we may have. For example, it takes courage to be honest or be loyal when the time comes or your reputation is on the line.

Compassion: This last trait brought up by Lohman and Shipley helps to bring it all together. What really separates some of the most effective leaders is a mentality of seeing others as more than just colleagues. As Lohman and Shipley put it: “The practice of law can be quite stressful…One way for a leader to minimize stress is to remember that he works with people—and not just bodies bearing job titles and responsibilities…Sometimes our better natures can lost in the pressure and stress of everyday business.”