US national giants risk losing their leading partners to the Manhattan elite after figures revealed that they are falling far behind in terms of partner remuneration.
While Baker & McKenzie (B&M), Jones Day, Latham & Watkins and Sidley Austin Brown & Wood all managed to break the $1bn (£567.7m) mark in gross revenue in 2004, analysis has revealed that they failed to convert this top performance into their profit per equity partner (PEP) figures.
According to the latest AMLaw 100 figures, the top-performing national firm based on PEP was Gibson Dunn & Crutcher. However, the firm, which has a significant presence in Los Angeles, still recorded an average PEP $2m (£1.1m) below that of top New York firm Wachtell Lipton Rosen & Katz.
Gibson Dunn recorded the highest PEP of all the national firms and ranked sixteenth overall, with an average PEP of $1.5m (£850,000). Latham featured at eighteenth with PEP of $1.4m (£790,000), followed by Dechert in 20th place with an average PEP of $1.2m (£680,000).
By comparison, the Manhattan elite are offering their partners significantly more, with average PEP at Wachtell Lipton Rosen & Katz reaching $3.5m (£2m), Cahill Gordon & Reindel reaching $2.5m (£1.4m) and Sullivan & Cromwell on $2.4m (£1.4m).
One problem suffered by national practices is the high running costs of operating out of several offices, particularly the spend on premises and management. This analysis appears to be borne out by the value per lawyer (VPL) figures. This calculation aims to analyse a firm’s efficiency by calculating how many lawyers are needed to generate $10m (£5.7m) in partner remuneration.
International giant B&M, which despite its global presence is included in our analysis because of its large US coverage, proved to be one of the worst offenders in 2004, with 74 lawyers being required to generate $10m in partner remuneration. This compares with 20 lawyers at Gibson Dunn, which again recorded the best results of all the national firms surveyed.
Coudert Brothers was the only firm in the whole of the top 100 with worse results than B&M. Figures recorded prior to the firm’s recent problems with its international network found Coudert requiring 91 lawyers to generate $10m in partner remuneration.
Meanwhile, the New York firms again proved their dominance by taking seven of the top 10 spots based on VPL, including the leading five rankings. Wachtell was the best performer, with only seven lawyers required to generate $10m in partner remuneration.
However, despite such poor results in VPL and PEP compared with the Manhattan elite, most of the nationals fared well in terms of gross revenue. Brian Cave and Coudert were the only nationals analysed to have seen a drop in overall revenues since 2003.
Bingham McCutchen reported steady figures, with a 12 per cent rise in gross revenue to $565.5m (£321.1m) as part of its first full-year set of figures since the tie-up of Bingham Dana and McCutchen Doyle Brown & Enersen in 2002, and the subsequent takeover of Riordan & McKenzie in 2003, all of which formed the national practice.
Bingham chairman Jay Zimmerman attributed the positive growth to the strong performance of the regulatory and financial restructuring practices.
The recent rush of consolidation within the US legal market also affected the results of Piper Rudnick, which managed to increase its PEP by 23 per cent to $900,000 (£511,000) in 2004. This can largely be attributed to the firm’s stunning 18 per cent reduction in equity partners in the lead-up to its merger with Gray Cary Ware & Freidenrich and DLA, which went live in January.
Piper Rudnick and Gray Cary’s combined revenue this year is expected to exceed $800m (£454.2m) without even taking into account the tie-up with DLA.
Meanwhile, the year’s other key merger between Kirkpatrick & Lockhart and London’s Nicholson Graham & Jones is expected to see their combined revenue reach $420m (£238.4m).
Kirkpatrick also reduced its equity partnership by
1.8 per cent in the lead-up to the merger, which went live on 1 January.
In fact, most of the nationals reduced their number of equity partners, with Morgan Lewis & Bockius increasing its partnership by 10 per cent following a string of hires, including a raid on Texan firm Jenkens & Gilchrist to staff its new Dallas office. This follows the firm’s haul of the bulk of the now defunct Brobeck Phleger & Harrison in 2003.
US IP specialist Fish & Richardson continued its rise up the US league tables based on gross revenue last year, climbing eight spots after reporting a revenue of $224.5m (£127.5m).
The little-known national firm only first hit the headlines last year when it entered The AmLaw 100 table at 95th place after recording an impressive 18.7 per cent rise in headcount and a 20.1 per cent rise in revenue to $197.5m (£112.1m) in 2003.
It continued its rise up the rankings last year to reach 85th place after recording a further 13.7 per cent increase in revenue to $224.5m.
The 320-lawyer firm, which has nine offices around the US, also bolstered its partnership by 9.6 per cent last year.
It has already furthered this growth strategy this year, with the hire of nine lawyers and 13 support staff from San Francisco technology specialist Heller Ehrman White & McAuliffe in February.