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MOney2018- Flat Revenues

Scott Lauck//June 12, 2018

MOney2018- Flat Revenues

Scott Lauck//June 12, 2018

Missouri firms confront flat revenues

After a year of growth, Shook, Hardy & Bacon pulled ahead of Husch Blackwell to become the third-largest law firm in Missouri by revenue — but just barely.

Shook grew its revenue by 5 percent in 2017, ending the year at $350.7 million. Husch ended the year at $349 million, just a hair less than the firm earned in 2016.

Those two experiences illustrate the diverging fortunes of Missouri’s biggest legal enterprises.

Among the eight Missouri-based law firms with revenues of $100 million or more, just two — Polsinelli and Shook — saw significant revenue growth in 2017. Husch and three other firms — Stinson Leonard Street, Thompson Coburn and Armstrong Teasdale — had effectively flat revenue in 2017, with declines of less than 1 percent. Bryan Cave Leighton Paisner and Lathrop Gage saw bigger declines — Bryan Cave by 2.5 percent, and Lathrop by about 10 percent.

It’s a tough world out there. Legal work isn’t expanding much, and clients are demanding more and more of their lawyers. Missouri’s major law firms find themselves digging in and adjusting to the realities of the legal market.

At the same time, law firm leaders say 2018 is looking up. If 2017’s numbers reflect the costs associated with getting where they want to go, 2018 — they hope — will reflect what things look like when they get there.


bryan-cave-lisa-mayhew-and-terry-pritchardBryan Cave remains Missouri’s largest law firm by revenue, with $592.6 million in revenue last year. That’s down from the firm’s all-time high of $607.8 million the year before. Profit, both overall and per equity partner, also were down. The firm also saw a reduction in headcount, resulting in an increase in revenue per lawyer.

“There’s certainly a lot of competition in the category of firms that looked somewhat like we — Bryan Cave — looked last year,” Chairwoman Terry Pritchard said.

But on the heels of its April merger with London-based Berwin Leighton Paisner, the newly rechristened Bryan Cave Leighton Paisner has one foot firmly planted in the United States and the other in Europe.

“We look at the market more generally and where it’s going,” Pritchard said. “That led us to think that the ability to offer broader and deeper services across the globe would improve the opportunities we had to service clients and that we would then see a more significant increase in revenue and profitability.”

Pritchard said the two legacy firms now are working to integrate their operations and their partners, with efforts ranging from a recent partner retreat to a specially created app that lets lawyers tap the newfound expertise within the firm.

“Corporations want fewer firms to address more of their needs, and that’s really what we’ve positioned ourselves to do,” Pritchard said.

Polsinelli, Missouri’s second-largest law firm by revenue and its largest by headcount, has grown tremendously in recent years, and 2017 was no exception. It had $475 million in revenue last year, up more than 8 percent over 2016. Its profits increased by a similar margin.

Posinelli chairman Russ Welsh, show standing in front of the firm's Kansas City office.
Posinelli chairman Russ Welsh, show standing in front of the firm’s Kansas City office.

It’s a nice send-off for Chairman Russ Welsh, who steps down as chairman at the end of this year and will be succeeded by Chase Simmons. Welsh said 2017’s strong numbers are a continuation of the firm’s growth spurt in 2016, when it grew by 11 percent.

Twenty years ago, when he became chairman, Welsh said the then-90-lawyer firm had total revenue of $27 million.

“That would be a bad month now,” he said. “We were a much different firm 20 years ago, and we had a vision that we could expand.”

Much of that expansion is in the firm’s out-of-state offices. The firm now has offices from coastal California to Washington, D.C. — though, in contrast to Bryan Cave’s recent move to bolster its overseas presence, all of Polsinelli’s offices are in the United States.

“If everybody chases the same thing, it’s probably a good idea to look for something else,” Welsh said.

Madeleine McDonough, who took over as Shook’s chair in early 2017, attributes the firm’s growth to its intense focus on litigation. The firm’s lawyers had 25 trials in 2017, she said.

Madeleine M. McDonough
Madeleine M. McDonough

Shook once was known primarily for product-liability work, but McDonough said it has broadened its focus to encompass all manner of complex litigation.

“A lot of our existing clients and new clients are looking to us to do more for them than we’ve ever done in the past,” she said. “It’s still product-liability litigation, but it’s product-liability plus.”

Shook saw financial growth across the board, including a 15 percent hike in profit per equity partner to $931,200, the highest of any Missouri-based firm. Overall headcount has gone down slightly, however. The firm’s last major acquisition was the merger in 2015 with the Chicago boutique litigation firm Grippo & Elden. Since then, any expansion has been targeted, focusing on a handful of high-value hires.

“We wouldn’t rule out [a new office or merger] if it was the right group, but we are a little bit more focused on finding people who can really bring something special,” she said.

For Paul Eberle, Husch Blackwell’s chief executive, a 0.2 percent decline in revenue amounts to a decent 2017, all things considered. husch-logo

“The law-firm private practice is a challenging and declining-demand kind of space,” he said. “For us, being virtually flat on revenue year over year is a good year.”

Profits also took a bit of a hit, declining by 2.2 percent. Profit per partner, however, was up 1.2 percent.

Things aren’t likely to stay flat for long, he said. Eberle joined Husch as part of the 2016 merger with Wisconsin-based Whyte Hirschboeck Dudek. As the costs associated with that merger recede, the firm hopes 2018 will be a year of execution rather than planning.

“You know you’ve completed the integration phase when people stop talking about integration and just start talking about their partners and their clients and all the good things that come from a good combination,” Eberle said.

Eberle said the roughly 700-lawyer firm is committed to continued growth and would be open to new offices or mergers, particularly in nearby states that match its culture and cost advantages.

“I would say I expect us to be a firm north of 1,000 sometime in the next one to three years,” he said. “I don’t think we’re going to be a firm that takes over the world, but I think we’re going to be a firm that continues to grow at a good pace, because we think we need to get bigger in order to serve our clients.”

Missouri’s fifth-largest firm also knows about the costs associated with a merger. Following the 2014 combination of Kansas City-based Stinson Morrison Hecker with Minneapolis-based Leonard, Street and Deinard, the new firm set out on a multiyear effort to upgrade its computer network and its facilities.

Mark Hinderks, co-managing partner, Stinson Leonard Street. Photo by: Karen Elshout
Mark Hinderks, Stinson Leonard Street.

Mark Hinderks, the firm’s managing partner, said that with less overhead and little debt, 2018 is shaping up to be a year in which the returns on those investments begin to materialize.

“We’ve essentially built a new house, and it’s a pretty darn good, well-designed house,” he said. “We’d like to get a few more people to move in.”

Revenue in 2017 was $245.4 million, down 0.3 percent from the prior year. Profits were up by about 3 percent, however, and profits per equity partner were up 6.6 percent, to $578,100.

Hinderks said the firm wants to grow, but not just for growth’s sake.

“It’s not about adding generic lawyers. That’s a short-term and ultimately fool’s-gold approach to growth,” he said. “We want to add high-skill lawyers who match up with our high-value practices.”

Missouri’s sixth-largest firm also saw a modest slip in revenue — $198.4 million, down 0.7 percent from the prior year.

Chairman Tom Minogue, however, notes that the firm’s revenue per lawyer was at an all-time high — $587,400, up nearly 3 percent from 2016.

Tom Minogue
Tom Minogue

“We have baby boomers who are retiring,” he said of the reduction in headcount.

Minogue said the first quarter of 2018 was one of the best ever for the firm.

“The economy’s doing really well, and when clients do well, that’s good for service providers in the practice areas that we see as particularly hot at the moment,” such as health care and mergers and acquisitions, he said.

The firm’s profit declined 3.1 percent, to about $103 million, though profit per equity partner increased slightly to $536,600. Of the eight largest firms in Missouri, Thompson Coburn has the lowest ratio of equity partners to total attorneys. That means profits are being split among a relatively large number of people, but Minogue said it also leads to attorneys who spend much or all of their careers at the firm.

“We believe it’s important for people to enjoy successful careers and be happy doing it.”

Lathrop Gage’s managing partner, Cameron Garrison, acknowledges that 2017 was a “year of transition.” Its revenue, $131.5 million, was down more than 10 percent from the prior year. Profit was down 6 percent to $48.9 million.

Cameron Garrison
Cameron Garrison

However, the firm has cut both its overall headcount and the number of equity partners. As a result, Lathrop’s profit per equity partner grew 12 percent, though at $502,800 it remains smaller than that of its peer firms.

“I think we’ve gone through a process of trying to right-size our firm while also continuing to focus on our core and differentiator practices areas,” Garrison said.

By “differentiator practices,” Garrison means areas in which Lathrop has the talent and depth to be the go-to law firm for such work, ranging from life sciences to tax-credit financing.

“We want to look to grow, but grow in a smart way that focuses on our strong practices,” he said.

Garrison, who took over as managing partner on Jan. 1, said 2018 has been off to a good start.

“We’re doing really well this year, and as you can imagine financial success and health of the firm is something that always makes a transition easier,” he said.

By a fluke, Armstrong Teasdale’s 2017 revenue was only about $2,000 higher than that in 2016. With total revenue of $116.6 million, that’s essentially a rounding error. beulick-john

John Beulick, the firm’s managing partner, said below that seemingly placid number are “a lot of changes and a lot of effort” that he hopes will result in more obvious increases in the future.

“When we’re in a market where demand is flat, I think you really have to focus — and we are — on productivity and efficiency,” he said. He added that Armstrong has looked to technology to help drive efficiency, including using a proprietary software tool to help lawyers perform time-consuming due-diligence checks in mergers and acquisition work.

The firm increased its headcount slightly, but full-time equivalent equity partners fell from 74 to 70. Profit per equity partner grew 4 percent. “I expect there’s going to be a continuing trend where overall number of equity partners will be relatively constant and flat, and the number of associates likely will be growing,” Beulick said.


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