Is Howrey in for another ‘lumpy’ ride?

Bob Ruyak
Bob Ruyak

Howrey chairman Bob Ruyak last week blamed his firm’s poor performance in 2009 primarily on “lumpy” revenue. As a way of ­rationalising one of the largest drops in both total turnover and average profit by any of the leading US firms so far this reporting ­season, it at least had the virtue of being novel.

Howrey’s total fee income dropped by 16 per cent, from $573.2m (£3.18m) to $480m, while average profit per equity partner (PEP) was down by 35 per cent, from $1.3m to $846,000. The results brought a five-year run of consecutive improvements in the firm’s finances to a juddering halt.

The ’lumpiness’ of Howrey’s ­revenue derives from its ­willingness to embrace ­alternative billing arrangements such as ­contingency fees. As the firm pointed out in a note accompanying its financials, “the timing and income stream from these ­matters is unpredictable”.

In 2008 this unpredictable ’extraordinary income’ added around 7 per cent – or $60m – to the top line and helped boost PEP to $1.3m.

The last time Howrey’s turnover enjoyed a similar spike, in 2003, was also the last time it was ­followed the year after by a drop in revenue – from $386.7m to $362m.

Last year’s drop was a little more pronounced, but Ruyak, naturally, is already focusing on the current year. And his plan for improving Howrey’s finances might raise a few eyebrows among rivals in the current, and still harsh, climate.

“We’re looking to incrementally improve our performance by ­trying to strategically improve our realisation,” says Ruyak.

In other words, ask clients to pay more.

“In 2009 our actual rates versus target rates were around 86 per cent against 92 per cent,” adds Ruyak. The 6 per cent differential between the two, which is accounted for by ­discounts, cost Howrey around $30m.

“This year we’ll go to clients individually and ask for either some minimal rate increase or a reduction in the discount,” Ruyak adds. “A number of them have already been receptive. The reality is we gave up something when they needed it, now we’re trying to get a little of that back.”

A price increase is only one strand of Ruyak’s plan to get Howrey back on the right track. Like most firms, Howrey will also be looking to improve collections, primarily by getting bills out up to a week faster, giving partners deadlines and enforcing them.

The firm is also planning ­further cost reductions, although Ruyak ruled out any more job cuts in the near future after a round of ­redundancies at the beginning of this year saw around 60 support staff and 29 lawyers laid off.

And while Ruyak admitts that Howrey is ” not in growth mode” right now, his attention is also on the long term as well as the ­current year.

“We’re in the process of putting together our 10-year business plan now,” he reveals. “These times ­provide enormous opportunities for firms that are willing to accept change. That includes what you might call ’the new norm’, which is longer periods of payment from clients, slower growth and lower ­realisation.”

Howrey’s hire of competition partner Shaun Goodman from Cleary Gottlieb Steen & Hamilton last month in its London office, which saw a slight improvement in revenue of around 2 per cent last year, shows that the firm has not shut up shop when it comes to growth opportunities.

But its 10-year plan, when ­concluded, is likely to see it focus more sharply on a smaller number of certain sectors, including ­energy and technology, rather than ­rampant expansion.

Ruyak’s view is that last year’s results are little more than a short-term setback on the long-term road of being among the top ­players in these chosen sectors. For Howrey, there is no alternative.