Am Law 100 firms all have high gross revenues, but when it comes to translating that money into payouts for equity partners, the similarities end. Average profits per partner among the firms vary widely, from a low of $410,000 (£210,000) at Littler Mendelson to a high of $4.95m (£2.53m) at Wachtell Lipton Rosen & Katz. Likewise, there was plenty of disparity in firms’ rates of profit growth, ranging from an increase of 42% at Cooley Godward Kronish to a decline of 17.6% at Howrey. (For The Am Law 100 as a whole, average profits per partner were $1.3m (£664,000), an 8.7% increase from 2006.)
Here are reasons for some of the biggest changes in profits per partner among Am Law 100 firms in 2007.
Windfalls
A contingency fee resulting from the $65m (£33.2m) settlement of a patent suit against ImClone Systems Incorporated contributed to a 30.4% increase in Fish & -
The contingency sword cuts both ways: in 2006 Akin Gump Strauss Hauer & Feld posted a 34.2% increase in profits per partner, thanks in part to a $62m (£31.7m) contingency fee. In 2007 came the hangover: a decline of 6.9% to $1.205m (£616,000). Firm chairman R Bruce McLean says that when the 2006 award is stripped from the numbers, the result is a year-to-year increase of about 8%.
New digs
When you trade up, you pay up. Relocation costs ate into Dickstein Shapiro’s bottom line: the firm moved into new offices in
Howrey spent $20m (£10.2m) to open new offices in New York and Munich — money that managing partner and CEO Robert Ruyak says came straight from the profit pool, since the partnership decided not to fund the expansion through borrowing. In addition, the firm suffered in comparison with a strong 2006, when it collected bonuses on work done under alternative billing arrangements. The firm’s profits per partner slid 17.6%, to $1.005m (£514,000).
Nice work
Debevoise & Plimpton’s transaction lawyers feasted on premium private equity work in the first half of 2007, while its litigators spent the year defending Siemens in a bet-the--company bribery case. The firm’s profits rose 26.9% to $2.29m (£1.17m); its revenue per lawyer increased 18.7% to $1.2m (£614,000).
Working overtime (or not)
Dorsey & Whitney’s profits rose 32.7%, to $670,000 (£343,000). Although the firm cut the size of its equity partnership by 4.5% and increased the size of its non-equity class by 17%, managing partner Marianne Short attributes the rise primarily to an increase in hours worked. “A lot of blood, sweat and tears went into that number,” she says. Short says that the firm increased billing rates by an average of only 3%; she also acknowledges that the firm aggressively managed expenses. Revenue per lawyer went up 6%, to $620,000 (£317,000).
Meanwhile, at Cadwalader Wickersham & Taft, profits dropped 6%, to $2.725m (£1.39m), while revenue per lawyer declined 9%, to $910,000 (£465,000). Gregory Markel, chairman of the firm’s litigation practice, says that after the mid-year credit crunch, work dried up in the firm’s structured and global finance practice. The firm has laid off associates and Robert Link left his post as chairman, although he continues as managing partner.
Tiering up — by Daphne Eviatar
Ever since associate starting salaries soared to $160,000 (£82,000) a year, firms have been scrambling to make their practices more cost-efficient. And with a downturn looming, clients are forcing them to be more cost-efficient. One solution: staff attorneys.
Although many won’t acknowledge it, an increasing number of Am Law 100 firms are hiring entry-level lawyers, who are paid about half the salary of traditional associates, to handle such tasks as document review, electronic discovery, and document management. These lawyers are seldom on a partnership track. But their credentials and skills, firms hope, are sufficient to handle much of the routine and labour-intensive work in big-money litigation.
Firms that are at least experimenting with this new tier of associates include Bryan Cave; Covington & Burling; Cravath Swaine & Moore; Dechert; Howrey; McDermott Will & Emery; Morgan Lewis & Bockius; and Paul Weiss Rifkind Wharton & Garrison. “Clients are looking to us to come up with responses to the increasing cost of litigation,” says McDermott partner Jeffrey Stone. “We are trying to create increasing options for them and for us.”
Morgan Lewis started hiring staff associates about five years ago, primarily for its litigation practice. Now, it has dozens working in the firm’s labour and employment and business and finance groups as well. “This enables us to deliver our services in a more cost-competitive way,” says J Gordon Cooney Jr, chair of Morgan’s legal personnel committee. “It enables us to focus [traditional associates] in areas that are important for their professional development. The idea that we should simply have a class of partners and a class of associates and no other categories doesn’t make a whole lot of sense.”
Others seem to agree. Dechert, for example, has about 100 staff attorneys. About half of them work on mass torts and product liability defence.
“We’re looking at the tip of the iceberg,” says consultant Deborah Weinstein. “There’s more of it out there than people outside the firms know. It is carefully guarded information.”
That may be because top firms have traditionally eschewed the creation of tiers of associates. “I think it would be counter to our culture to distinguish among associates in that way,” says H Rodgin Cohen, managing partner at Sullivan & Cromwell, which does not use staff attorneys. “Our culture is, [for] everyone that’s hired, it is with the possibility that they could become a partner at the firm,” he says. “We don’t want to say to clients or to ourselves that we have some associates who are superior to others.”
Late last summer, as Dewey Ballantine and LeBoeuf Lamb Greene & MacRae were finishing their merger agreement, LeBoeuf management told its partners to expect excess profit payouts of about 10% more than budgeted compensation in early 2008. The hope was that the money would further lift spirits after the merger.
By year-end there was almost no excess to distribute, says a partner who asked not to be identified. “We had hoped our excess [over] budget would be a little higher,” confesses Steven Davis, who led LeBoeuf and now chairs Dewey & LeBoeuf, the combined firm.
The culprit,
The firm made budget, posting modest revenue and profit growth, but the combination’s timing may yet prove unfortunate. Dewey Ballantine’s niche was M&A underwriters’ work, and the merger was completed on 1 October, just before the credit crisis hit investment banks. “There probably was a drop-off after August or September,” says former Dewey co-chair Morton Pierce, who heads the combined firm’s M&A group.
But
The firm has already told lawyers in
Despite the downturn in the
AmLaw100June2008
