Recession Is Not Hurting L.A.’s Top Law Firms

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Recession Is Not Hurting L.A.’s Top Law Firms

By AMANDA BRONSTAD

Staff Reporter

A slumping economy did nothing to squeeze the pocketbooks of partners at L.A.’s largest law firms, which saw both revenues and profits per partner climb in 2001.

In some cases the increases exceeded 10 percent over 2000, outpacing gains seen nationwide.

“I look at the results for 2001 and say we have been extremely fortunate,” said Charles Woodhouse, executive director of Gibson Dunn & Crutcher LLP, where profits per partner jumped 13.4 percent, to $1.1 million, from $975,000 last year. “Much of it is attributed to the services we provide. We perform legal services at the high end. Our managing partner has said when you need brain surgery, you don’t go out and find the low-cost provider.”

Revenues were $537 million in 2001, Woodhouse said, up 14.5 percent from the $469 million posted a year earlier.

Among the other big gainers was Latham & Watkins, where revenues increased by 20 percent, according to Martha Jordan, managing partner of the L.A. office.

Last year, the firm reported $642.5 million in revenues. She would not give a specific figure on profits per partner, but did say they were up by 5 or 6 percent over the $990,000 recorded in 2000.

The spike in Latham & Watkins’ revenues was due in large part to the addition of 200 associates and 50 to 60 partners through the acquisition of European firms in 2001, Jordan said.

Law firms’ total revenue is money generated from client work, while profits per partner is the compensation divvied up among partners after overhead expenses like associate salaries, administrative costs, rent and other general operational costs.

Last year’s big increases are not expected to continue. To prepare for what many partners are saying will be a tough 2002, many Los Angeles firms already have made cutbacks in expenses.

For instance, Latham & Watkins cancelled its annual holiday party, while Gibson Dunn is looking to re-negotiate some real estate leases and reassess contracts with vendors.

“We continue to be concerned about the economy,” Jordan said. “We are not unaware that the economy continues to be in a bit of a recession, and we are nervous about it. We have also, just as many competitors have, tried to cut expenses and be conservative in the long term because we’re not immune.”

Pete Peterson, chief operating officer of Hildebrandt International Inc., which consults with law firms on billing issues, said a number of firms are naming fewer partners or tightening up standards to become partner in an effort to keep profits per partner up.

Latham & Watkins named eight partners for 2002, down from 22 last year. Gibson Dunn named nine, versus 12 the year before. And Paul Hastings Janofsky & Walker LLP named six, down from nine.

The firms uniformly said that maintaining profit per partner levels were not behind the decline in new partnerships.

That’s not to say all firms are worried about 2002.

Sheppard Mullin Richter & Hampton LLP, which added three branch offices last year, expects 2002 revenues to surpass the $149 million reported in 2001. Last year’s revenues were up 11.1 percent from the $134 million reported in 2000. Robert Zuber, the firm’s executive director, said profits per partner were up 8.2 percent, to $528,000 from $488,000.

“When the numbers come in, we’ll be significantly higher than 2001,” Zuber said. “We made investments, we grew, we have more attorneys. I think we’re well positioned to hit a changing market. Maybe we’ve just been fortunate.”

Diversified practices

Many of the L.A. firms attribute their performance to a diversified group of practices where gains in litigation and intellectual property work balanced out diminished corporate and technology billings.

“The ones with a diversified practice mix, who enjoyed litigation and IP (intellectual property), had a very good year,” said Peterson. “And those who invested heavily in the IPO market and ramped up considerably were dealt the biggest blow last year. That’s why there’s such a big distinguishing characteristic between the L.A. market and the Silicon Valley market.”

In San Francisco, Brobeck Phleger & Harrison LLP reported that its profits per partner for 2001 were down more than 40 percent, according to American Lawyer, a trade publication. Other San Francisco firms, like Cooley Godward LLP and Venture Law Group, were forced to make layoffs last year.

But the numbers in L.A. are also higher than the national average, legal consultants said. “If they’re all reporting north of 10 percent, they did a tad better,” Peterson said.

He estimated typical revenue and profits per partner for large firms nationwide to land between 5 and 15 percent, with the majority below 10 percent.

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