US firms outperform downturn
8 July 2002
The signs may have been ominous but, despite clouds on the corporate and capital markets horizon, US firms seem to have weathered 2001.
The American Lawyer's AmLaw 100 for US firms' turnover and profit performance for the last financial year has made curious reading. In a year when big-ticket transactional work diminished, the top-grossing 100 firms managed an average rise in fee income of 13 per cent.
But while turnover has risen, taking the combined total of the top 100 firms to more than $35bn (£22.9bn), profits per partner have risen by just 2 per cent to an average of $792,500 (£519,350). The simple explanation for this discrepancy is numbers. Law firms took on more people - the 100 firms grew in size by an average of 11 per cent to an average of 621 lawyers per firm - but individually they did not generate as much revenue as in previous years.
According to the magazine, revenue per partner increased by just 0.5 per cent last year, compared with an average of 6.4 per cent for each of the last five years. This slowdown in revenue-per-partner growth can be attributed to a concomitant slowdown in corporate and capital markets work. A case in point is Shearman & Sterling producing a rise in gross revenue of 5 per cent, but fee income per partner slipped by 19 per cent.
In terms of overall turnover performance, Shearman moved down only one place from fifth to sixth, but that will be little consolation to partners with lighter wallets.
Skadden Arps Slate Meagher & Flom led the pack with a revenue of $1,225m (£802.8m), up 6 per cent on last year's $1,154m (£756.2m). Skadden and Baker & McKenzie are the only firms to breach the $1bn (£655.3m) mark this year. Of these, only Skadden features in the top 10 in terms of profits per partner. With profits per partner of $560,000 (£367,000), Baker & McKenzie comes 66th, whereas Skadden's millionaire equity partners can expect to take home $1.56m (£1m). Baker & McKenzie brings up the rear when ranked by revenue per lawyer, as fee-earners each produced an average of $330,000 (£216,250).
The turnover top 10 is dominated by firms that have made international expansion a priority. White & Case swooped in from last year's thirteenth place with a revenue of $603m (£395.2m). Head of banking in London Maurice Allen said: "For a long time the firm's been making investments in Europe and they're starting to pay off. We're less dependent on M&A or any one market than some other firms, so we aren't as affected by business swings."
Both points are equally valid for Weil Gotshal & Manges. Its counter-cyclical strengths have helped boost its fee income by 15 per cent, taking it to eighth spot. Bankruptcy and litigation also fuelled New York's Paul Weiss Rifkind Wharton & Garrison's surge in profitability. It registered the largest increase in profits per partner, up 38.8 per cent to $1.68m (£1.1m). New York's elite M&A monoliths such as Davis Polk & Wardwell, Sullivan & Cromwell and Simpson Thacher & Bartlett have all slipped down the rankings.
Milbank Tweed Hadley & McCloy was another profitability success as profits per partner increased by more than 10 per cent to an average of $1.6m (£1m). Phil Fletcher, managing partner of Milbank in London, said: "Everybody did fine, but we got some kick-start from a couple of counter-cyclical areas. We had a lot of creditors work on big bankruptcies, including Pacific Gas & Electric and Enron. Private equity and M&A had a good year and litigation did very well."
The millionaires' club, where average profits per partner exceed $1m (£655,000), lost four members. Most notable were the declining fortunes of New York grandee Shearman and last year's high-flyer - that darling of the dotcoms - Brobeck Phleger & Harrison. The two accounted for the largest drops in profits per partner. Brobeck's equity partners saw their remuneration slump by 43.6 per cent to $660,000 (£432,500), while Shearman's profits per partner dropped by 29.6 per cent to $950,000 (£622,600). Ashurst Morris Crisp's mooted US merger partner Fried Frank Harris Shriver & Jacobson and Minneapolis-based Robins Kaplan Miller & Ciresi were the other firms to slide below $1m per partner.
Heading up the profitability charts and storming into the millionaires' club are Latham & Watkins and Gibson Dunn & Crutcher. Latham's managing partner in London David Miles said: "It just reflects the strength and depth of our practice areas and the growth of our international reach over the past 12-18 months. It's all going in the right direction for us."
Brobeck's fellow West Coast firm Fenwick & West toppled out of the AmLaw 100 entirely. Joining Fenwick in an eight-firm exodus from the top 100 were Arter & Hadden, Kelley Drye & Warren, Pepper Hamilton, Preston Gates & Ellis, Robins Kaplan and Wilson Elser Moskowitz Edelman & Dicker.
They were replaced by incoming firms Andrews & Kurth, Cozen O'Connor, Finnegan Henderson Farabow Garrett & Dunner, Haynes Boone, Quarles & Brady, Steptoe & Johnson, Troutman Sanders and Venable.
|AmLaw 100's highest grossing US law firms 2001|
|Rank 2001||Rank 2002||Firm||Gross revenue ($m/£m)||Revenue per lawyer ($K/£K)|
|1||1||Skadden Arps Slate Meagher & Flom||1,225/802.8||765/501.3|
|2||2||Baker & McKenzie||1,000/655.3||330/216.3|
|3||3||Jones Day Reavis & Pogue||790/517.7||535/350.6|
|4||4||Latham & Watkins||769.5/504.3||660/432.5|
|5||-||Sidley Austin Brown & Wood||715/468.6||560/367|
|6||5||Shearman & Sterling||619.5/406||595/389.9|
|7||13||White & Case||603/395.2||460/301.4|
|8||10||Weil Gotshal & Manges||581/380.7||690/452.2|
|9||9||Morgan Lewis & Bockius||574.5/376.5||530/347.3|
|10||6||Mayer Brown & Platt||573/375.5||640/419.4|
|11||7||Davis Polk & Wardwell||570/373.5||960/629.1|
|12||8||Sullivan & Cromwell||568/372.2||955/625.8|
|13||11||McDermott Will & Emery||562.5/368.6||645/422.7|
|14||21||Akin Gump Strauss Hauer & Feld||553/362.4||585/383.4|
|15||17||Gibson Dunn & Crutcher||537/351.9||755/494.8|
|AAmLaw 100 most profitable 10 firms 2001|
|Rank||Firm||Profits per partner ($m/£m)||Per cent change||Turnover ($m/£m)|
|1||Wachtell Lipton Rosen & Katz||3.16/2.1||-3.7%||327/214|
|2||Cravath Swaine & Moore||2.13/1.4||-4.9%||382/249.5|
|3||Cahill Gordon & Reindel||1.8/1.2||+12%||171/112|
|4||Davis Polk & Wardwell||1.78/1.2||+2%||570/372|
|5||Simpson Thacher & Bartlett||1.69/1.1||-2.9%||516/337|
|6||Paul Weiss Rifkind Wharton & Garrison||1.68/1.1||+38.8%||384.5/251|
|7||Sullivan & Cromwell||1.67/1||+2.6%||568/371|
|8||Milbank Tweed Hadley & McCloy||1.6/1||+10.3%||360/235|
|9||Skadden Arps Slate Meagher & Flom||1.56/1||-2.2%||1,225/800|
|10||Kirkland & Ellis||1.5/0.9||+7.1%||530/346|
|All firms ranked by partner profits |