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Firm
Leader Survey
Forecast: Mostly Sunny
Vivia Chen
Daily Business Review
December 28, 2006
 Count
on the leaders of America’s biggest law firms to lead the pep rally.
The heads of Am Law 200 firms have been bullish about the year ahead
since American Lawyer magazine began surveying them annually in
2003. This time, they are even more so: Ninety-one percent of
respondents say they are optimistic about their firms’ future. It’s
the first time more than 90 percent of those surveyed gave that
response. Firm leaders also say they expect growth in most of the
leading indicators firm revenues, profits per partner, billing rates
and head
count.
Enthusiasm about the economy as a whole was a little more muted. The
largest group of respondents about 77 percent predict that the
U.S. economy will grow only slightly in 2007, and 71 percent say
they expect deal flow to increase only moderately.
In fact, in interviews, firm leaders expressed an undercurrent of
doubt about how long the good times will last. "I’m bullish, but I’m
also worried," admitted one. Another said that the economy must be
good because "most experts are positive," but he hedged his bets by
adding that his firm is "also strong in restructuring, [so] we’ll be
fine" in a recession. A third passed the buck: "I’ll let you call
the guy at 1600 Pennsylvania Avenue."
The survey by American Lawyer magazine, an affiliate of the Daily
Business Review, was conducted in October, asking the heads of Am
Law 200 firms to complete a confidential online questionnaire. This
year the magazine received 143 responses.
Some highlights from the
Survey:
• Sixty-six percent of respondents predicted that profits will grow
by more than 5 percent; 31 percent said they will increase 5 percent
or less; and the remaining 3 percent said they will be flat.
• Fifty-three percent said rates will rise by more than 5 percent;
46 percent said they will increase by 5 percent or less. Only 2
percent said they’ll keep rates steady.
• Litigation is expected to see the greatest revenue growth,
according to 35 percent of the respondents. Corporate activity runs
a close second 32 percent said that will be their area of greatest
growth in 2007, followed by intellectual property, which was named
by 20 percent.
• Mass tort and securities litigation will stay in the picture.
Despite studies forecasting a decrease in these areas, 45 percent of
respondents said that the practices have remained stable this past
year, and 31 percent report an increase. Twenty-three percent report
a decrease.
• Firm leaders are not fretting about associate retention. More than
67 percent said that associate retention is a minor problem or no
problem at all.
• There is no collections slowdown. About 64 percent of respondents
reported clients are paying their bills at the same pace as the year
before. Twenty-two percent said clients are paying more promptly,
and 15 percent said they are taking longer to pay.
• Respondents’ top disappointments include the failure to attract
major lateral partners, a lack of collaboration among partners for
cross-selling and business development, insufficient growth in
revenue, and an inability to attract minority candidates.
Despite the mostly rosy outlook, firm leaders said that trying to
figure out what clients want has become a major preoccupation. "The
thing that haunts me the most is the future what clients need,
how we can anticipate those needs, how we get talent," said Hughes
Hubbard & Reed chair Candace Beinecke.
Morgan Lewis & Bockius chairman Francis Milone said that "more and
more clients are interviewing more firms. I worry all the time
whether clients are satisfied."
Adding to the uncertainty is clients’ increasing use of requests for
proposals, in which firms must bid for jobs, rather than rest on
their laurels (or perhaps a preexisting relationship). "We do more
RFPs these days that’s the world we’re in," said Covington &
Burling managing partner Stuart Stock. Another reason for worry:
convergence the increasingly popular practice among clients of
building short lists of approved outside counsel by winnowing down
the number of outside firms they use.
In such an atmosphere, some firms are being proactive about client
retention. Milone said Morgan Lewis now hires coaches to help
lawyers "enhance their interpersonal skills." White & Case managing
partner Duane Wall said his firm "ask[s] our clients all the time
what they think of us. ... We run statistics; we have a
client-calling program." Wall estimates that his partners and the
firm’s marketing team will have visited 50-60 clients by the end of
2006. "I’ve done six or seven myself," he said.
However, that kind of approach is still the exception, not the rule.
For all the griping about the competitive marketplace, most firms
seem passive about client satisfaction. About 46 percent of
respondents to the survey said they visited with five or fewer major
clients in 2006; 8 percent didn’t meet with any. (In 2005’s survey,
48 percent of respondents said they visited with five or fewer
clients, and 6 percent met with none.)
Nearly all of the Am Law 200 leaders surveyed insisted that their
firms are not threatened by the convergence movement. Marianne
Short, managing partner-elect of Dorsey & Whitney, said that
"convergence works for us, [because] we have very close
relationships with our clients," who include Wal-Mart Stores;
Supervalu and UnitedHealth Group.
"We welcome convergence," said Kaye Scholer’s Barry Willner, citing
demand for the firm’s intellectual property, product liability,
antitrust, commercial litigation and private equity practices.
Willner said his 500-lawyer firm has nothing to fear from
thousand-lawyer-plus shops: "We don’t see clients going to megafirms,"
he said. "They are not going to firms based on size."
Despite the view that convergence is the other guy’s problem, some
Am Law 200 firms are trying new strategies to stay competitive. One
method is to scrap the hourly fee structure. "Clients are looking
for discounts and want a little skin here and there," Short said.
"Flexibility is key."
White & Case’s Wall said his firm is more willing than some of its
clients on this issue: "Clients still believe in the hourly rate;
they feel [it gives them] more control." Rather than agreeing to a
fixed fee which Wall argues is more efficient and
cost-effective for all concerned clients prefer getting a
discount on the hourly billings, he said. So for now, Wall said,
discounts are "very common" from all firms.
Some firms peg their fees to the outcome of a litigation or
transaction. "There’s more risk-sharing between a law firm and the
client," said Matthew Larrabee, the managing partner of Heller
Ehrman. "Most Am Law 100 firms outside of Wall Street will do this
kind of partnership-building with clients. This can be a huge
advantage over the Wall Street firms."
Although firms may say they are on the cutting edge when it comes to
fee arrangements, they’re conservative about the bottom line. About
89 percent of respondents said that their firms will carry the same
or less debt as the year before; only 11 percent plan on borrowing
more.
Firms are also cautious about overseas expansion. Less than
one-quarter of respondents 22 percent said their firms
are considering opening new offices abroad. Heads of such global
firms as White & Case (36 offices) and Hogan & Hartson (23 offices)
said they’re maxed out on the international front.
Hogan’s managing partner, J. Warren Gorrell Jr., answered a
definitive "no" to the question of new offices, and wouldn’t say
whether the firm will close existing offices, although he
acknowledged that "Central Europe has been challenging for us."
White & Case’s Wall said, "We finished our geographic build-out."
The firm closed offices in San Francisco and Ho Chi Minh City in
2006.
But one firm that’s seriously looking into opening an office abroad
is Houston’s Bracewell & Giuliani, which competes against oil and
energy firms that already have a substantial overseas presence.
"There is so much capital" in the Persian Gulf, said managing
partner Patrick Oxford. "We are very optimistic [about business
there]." Despite what Oxford sees as exceptional opportunities in
that region, he’s not rushing in. "It’s difficult to read about the
strife [in the Middle East] and not be cautious about putting people
there," he said. "I’d be lying if I said we didn’t look at world
events."
So does Hughes Hubbard’s Beinecke. "I wonder about our economy, and
where the world is going," she said. "But maybe that’s just me."
Or maybe not.
Vivia Chen writes for American Lawyer magazine, an ALM Media
affiliate of the Daily Business Review.
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