New year brings good cheer for US firms
With the majority of US firms on a calendar financial year, January is traditionally the time when the results begin to appear and confirm how good – or bad – the previous 12 months really were.
This year was no exception. By the end of January, enough firms had reported figures or given indications for a reasonably accurate picture of 2005 to emerge. And for most it was a bumper year.
Reed Smith was among the first US firms to report (www.thelawyer. com, 18 January). It posted a 12 per cent increase in firmwide revenue to $563m (£319m), with its two UK offices beating that with 15 per cent growth to $41.7m (£23.6m).
Among the first of the New York juggernauts to report was Shearman & Sterling, which saw global revenue rise to $830m (£472m), up 7 per cent from $775m (£429.4m), and global profit per equity partner (PEP) increase by a whopping 20 per cent, from last year’s £650,000 to £785,000. The return of big-ticket M&A powered Shearman’s results upwards as, it later transpired, it did for a succession of US firms. Not least among these was Cravath Swaine & Moore, which saw net profit rise by 30 per cent; although thanks to an increase of eight partners during the year, Cravath’s average PEP increased by a mere 20 per cent.
The West Coast firms were not to be outdone by their East Coast cousins, however. Leading the charge was Morrison & Foerster, which The Lawyer (6 February) reported was the top-grossing Bay Area firm for 2005, with revenue up 16 per cent to $687m (£387.5m). Orrick Herrington & Sutcliffe also saw revenue boom thanks to a massively expansionist year in which it added a large number of lawyers from Coudert Brothers. Revenue at Orrick was up 14 per cent to $554m (£312.5m).
The theme for the year for most firms was growth, whether financial or fee-earner, and for the majority of US firms 2005 will be filed in the ‘highly satisfactory’ compartment.
Freshfields sets sights on US merger
The strong year enjoyed by the top tier of US transactional firms will do little to enhance Freshfields Bruckhaus Deringer‘s prospects of securing a merger with one of them. But that was the bold plan outlined by the firm’s new senior partner Guy Morton in an exclusive interview with The Lawyer (30 January).
“I think there’s a good chance of it,” he said. “I would count it as a personal failure if the opportunity arises and we let it slip through our own fault. I think the partners are ready mentally for a merger. It’s certainly more than just saying, ‘here’s our number if you want to call us’.”
Mention a merger and lawyers will always point to the necessity of the right cultural fit. Morton was no exception, claiming that Freshfields was not prepared to compromise on quality or “culture”.
There is no doubt that being a team player and knowing how to behave at a dinner party are important, but there is equally no doubt that for ‘culture’, most lawyers read ‘PEP’. And in that department, Freshfields is still lagging well behind any of the New York elite that most of its partners would put on their merger wish list.
Hence Morton’s admission that his firm would be prepared to look beyond New York. It may have to.
Associate bonuses merry-go-round persists
The return of big-ticket M&A late last year did more than help boost the numbers at the majority of US firms. It put additional weight behind the argument of associates working long hours for big bonuses and bigger base rates.
As reported by The Lawyer (30 January), the 2006 round really got going when Shearman & Sterling upped its bonus by 25 per cent, with London-based associates pocketing merit-based bonuses as high as £40,000.
Earlier in the month (www.thelawyer.com, 20 January) came the news that Cooley Godward, DLA Piper Rudnick Gray Cary, Fenwick & West and Sheppard Mullin Richter & Hampton were bumping up associate salaries in the wake of a similar move by Los Angeles (LA)-based firms. All four firms matched the benchmark of $135,000 (£77,000) for first-years.
During January and into February, news of similar moves by other US firms emerged. Morrison & Foerster (MoFo) and LA-based Manatt Phelps & Phillips both raised first-year associates’ salaries to $135,000. Heller Ehrman also jumped on board to align itself with the hikes, with its first and second-year associates getting $10,000 (£6,000) on top of their annual pay packages.
Ralf Boer, the chairman and chief executive of Milwaukee-based Foley & Lardner, spoke for many senior partners in the US when he told The Lawyer: “We wanted to be at or above the competition in all the markets in which we operate. We want to make sure we recruit and retain the best and the brightest.”
One firm that exceeded the rises was New York’s Sullivan & Cromwell. It increased salaries by $20,000 (£11,000), taking starting salaries up to $145,000. Simpson Thacher & Bartlett immediately followed suit, while a partner at rival Skadden Arps Slate Meagher & Flom said it would do “whatever was necessary” to remain competitive.
None of the firms probably had Wachtell Lipton Rosen & Katz in mind with that kind of comment, however. The US’s most profitable firm pays a starting salary, including bonus, in the region of $200,000 (£114,000).
BlackBerry patent dispute rumbles on
A story that appeared to be coming to a head at the same time as the firms’ results could have even wider-reaching implications for US lawyers than the level of profit.
As reported by The Lawyer (6 February), the company behind every lawyer’s favourite gadget, the BlackBerry, was facing having its US network shut down over a patent dispute with rival business NTP.
IP boutique Antonelli Terry Stout & Kraus, representing NTP, had stepped up its threat to close the network used in the US for BlackBerry’s email system, the story said. The firm’s move followed the rejection by the US Supreme Court of BlackBerry manufacturer Research in Motion’s (RIM) appeal to review a key patent infringement ruling against the BlackBerry maker.
The next date in the diary for RIM is 24 February, when it must appear in court to hear if it is to be ordered to close its service in the US. Its lawyers will not be the only ones holding their breath.
- January results show bumper year for most US firms
- Freshfields looks to US for merger partner
- Associates benefit from bonus wars
- Lawyers wait with bated breath as patent row threatens
- BlackBerry’s US email network
Europe: 20 Feb
Asia: 27 Feb
Europe: 6 March US: 13 March