Hire and higher: Firms show growing signs of confidence

The MOney 20 law firms collectively did something right in 2013— maybe a few things. Their total gross revenue went up by nearly 6 percent and profit by nearly 7 percent. Revenue per lawyer — law firm leaders’ favorite untweakable indicator of financial health —went along for the ride, with the average up 3.8 percent.

Sandberg Phoenix & von Gontard Managing Partner John Sandberg sits in the firm’s downtown St. Louis office in January. Sandberg Phoenix added about two dozen attorneys in 2013.

Setting aside blowout contingency fee awards for two firms — $11 million for Baker Sterchi Cowden & Rice; $2 million for Sandberg Phoenix — the revenue upticks had a lot to do with firm leaders’ increasing confidence in the economy, as exhibited by their willingness to take on permanent expenses in the form of more lawyers.

Polsinelli added more than 100 attorneys in 2013, mostly through lateral hires. Husch Blackwell took on 65 attorneys with a merger with a Texas firm. Sandberg Phoenix added almost 25 attorneys. Stinson Morrison Hecker became Stinson Leonard Street in a merger of equals whose financial effects won’t be seen until next year’s MOney survey.

Some firms were bullish before 2013, adding offices and lawyers in mergers and lateral hires the previous year whose full revenue effect wasn’t seen until this year’s survey results. Spencer Fane Britt & Browne’s revenue jumped 21 percent after the addition of a Denver office; as predicted last year, Dentons’ three-way tie-up with a European firm and a Canadian firm drove business to the firm’s U.S offices, said St. Louis Managing Partner Jenny Marler.

Beyond measuring confidence, however, increased revenue due to increased headcount doesn’t say a lot about a firm’s performance. It falls to revenue per lawyer and profit to tell that tale. Just ask Shook Hardy Chairman John Murphy.

“If you and I are walking down the street and we decide to merge — you have $5 in your pocket, I have $5 in my pocket — we just doubled our revenue,” Murphy said. “It doesn’t make us any more profitable.”

Murphy’s firm fell from the No. 2 slot on the MOney 20 list, which is ranked by gross revenue, for the first time since the publication launched in 2006.

Polsinelli Chairman Russ Welsh stands outside the firm’s Kansas City headquarters in November.

Polsinelli may have beaten Shook Hardy out for the No. 2 slot, but it took more lawyers to get there, Murphy said. Shook Hardy still easily bested Polsinelli in revenue per lawyer, which places a dollar value on the average production of an attorney.

Which isn’t to say Polsinelli’s revenue per lawyer didn’t improve — it did, by a whopping 9.4 percent, to $526,000.

“Many practices were humming along in 2013.” Polsinelli Chairman Russ Welsh

“Many practices were humming along in 2013,” Polsinelli Chairman Russ Welsh said. “The demand for work was pretty high last year, spread out over the entire year in multiple practices.”

Welsh and Marler both pointed to real estate as one of the busier practice areas; it was one of the areas that had suffered more than many during the recession.

Another indicator of an improving market: the length of Polsinelli’s compensation guarantees for lateral hires has shrunk. Lateral hires like to have certainty about their compensation for a while if they’re taking the risk and hassle of moving, Welsh said.

Those guarantees tend to be shorter than they were four or five years ago, Welsh said, and now they’re usually at no more than a year.

But recession-era pressures on rates are here to stay, Murphy said. Those pressures from clients, which lead to discounting and alternative-fee arrangements, affected revenue at Shook Hardy, Murphy said. The firm’s revenue fell nearly 3 percent.

“It’s something all firms have got to deal with,” Murphy said. “Probably forever.”