September 2, 2015
LOS ANGELES DAILY JOURNAL
By Steven Crighton
In the past three years, San Diego-based Procopio, Cory, Hargreaves & Savitch LLP has added eight shareholders to its ranks. While the number might not be startling for some of the world’s largest, for a firm with about 140 attorneys, managing partner Thomas W. Turner Jr. said he considers the increase “really substantial.”
“We have been growing steadily, we had our best year ever last year, and it looks like we’re certain to improve upon that again. It’s been a positive economic trend, and that’s resulted in an awful lot of cylinders firing, which is reflected in our equity partners.”
Though Turner noted that he doesn’t consider his firm’s recent increase in equity partnerships evidence of a trend, a recent study released by Citi Private Bank Law Firm Group suggests that it very well could be.
The study, conducted on a national level but broken down by region, revealed that in the second quarter of 2015, law firms in Southern California showed an increase in revenue, lawyer rates, lawyer headcount, equity partner headcount, expenses, and total inventory increased, while demand and productivity dropped. Northern California, meanwhile, showed increases across the board in all categories.
While some results were simple to explain, like the increase in lawyer headcount and decrease in demand resulting in a drop in productivity, Citi Private Bank senior client adviser John Wilmouth said what stood out as an anomaly was the increase in equity partner headcount in Southern California, which saw a 1.2 percent increase in the second quarter of 2015. The region saw the second-largest increase in equity partner headcount nationwide. Northern California grew by 0.9 percent while the national number of equity partners grew only 0.3 percent.
Wilmouth agreed that the increase in equity partners could be largely due to internal promotions.
“They could be deciding that they don’t want to delay any longer promoting well-deserving associates and income partners. I think it’s also part of the growth strategy that a lot of firms are following,” Wilmouth said.
Turner of Procopio noted that of the eight new equity partners added to his firm over the last three years, all of them were promoted from within.
“They were exceptional lawyers, but in each case they also had a healthy book of business that they could contribute,” Turner said. “We are certainly keen to concerns shared by others about not wanting to make equity promotions too easy, because we wouldn’t want that. But we’ve had success with the promotions we’ve had; they’ve all been strong players over the long term.”
John F. Cannon, a shareholder at the firm Stradling Yocca Carlson & Rauth PC, said that while his firm has seen equity partner growth over the last year with the promotion of seven shareholders, he is “reticent to read too much into the statistics.”
“Firms pursue talent and revenue opportunities. Business models vary from firm to firm with significant differences in profitability, strategy, and organization,” he said.
He added that an uptick in the number of equity partners “could simply be a swing post” encouraged by attrition that has occurred at large firms over the last several years.
Legal recruiter Diane Rifkin agreed that “statistics alone can be misleading,” adding that there are a number of explanations for the increase that wouldn’t necessarily indicate a trend.
“In our experience, the legal market has seen numerous mergers and acquisitions which have generally reflected lateral movement where equity partners retained their previous status,” Rifkin said. “Although some attorneys may have moved to smaller firms where their portable business allowed them to move upwards in title and status, without further data it is difficult to know if these attorneys were included or to corroborate the trend in the study.”
Citi Private Bank’s study revealed another anomaly, Wilmouth pointed out: National revenue was up 3.3 percent in the first half of 2015, but Wilmouth notes that despite the momentum generated by the largest firms, boutique firms had the strongest overall performance, with a 7 percent revenue increase in the first half of 2015.
However, Wilmouth noted that statistic in the long term is questionable because of the timing.
“A lot of smaller firms accelerate account receivable turnover, basically bringing over cash that might otherwise have been corrupted in the third quarter,” he said. “So they won’t have a running start heading into the third quarter.”