Credit: Egle Plytnikaite.
For law firms, just like the rest of America, there’s no better path to amassing wealth than to already have a healthy share.
Of the 20 firms that comprised The American Lawyer’s first Super Rich class in 2014, all but two have carried their status forward through the years to maintain a spot on our 2019 list, which has since expanded to include 31 firms. Together, they represent the richest of the rich. The way we define this elite group has changed over the years (firms must now post revenue per lawyer of at least $1.1 million and profits per lawyer of at least $500,000), but its founding members have largely held their places. Gretta Rusanow, head of advisory services for Citi Private Bank’s Law Firm Group, says it’s a sign of the “stickiness” the wealthiest firms experience at the top end of the law firm class structure, even in a year when nearly everyone took a step forward.
PremCon Leverage the Am Law 100 data with firm comparison and key performance data, exclusively on Legal Compass. Access Premium Content/PremCon
“They have the financial resources to be making different decisions and investments than firms not performing at that level,” Marcie Borgal Shunk, president and founder of the Tilt Institute, says. “So where an Am Law 200 firm may have to selectively choose among different priorities, the benefit of having deeper pockets is that you can be more exploratory, invest in different options and try more innovation.”
This year’s list is led by Wachtell, Lipton, Rosen & Katz, whose profits per lawyer ($1.957 million) are more than double the closest firm, even among an exclusive club, and whose revenue per lawyer ($3.207 million) nearly matches the feat. Cooley and Fish & Richardson represent the newest additions to the club. (The only firms from the 2014 list that failed to make it this year are Cadwalader, Wickersham & Taft and Cleary, Gottlieb, Steen & Hamilton.)
In the past five years, the 31 Super Rich firms grew RPL an average of 20 percent (compared with 14.6 percent for the rest of this year’s Am Law 100), and their PPL grew an average of 26.2 percent (compared with, again, 14.6 percent). Even during a period of strong growth for the industry as a whole, these firms are outpacing the competition.
In some ways, these firms are immune to challenges others face. A lengthening collection cycle was one of the few negative markers for law firms in a successful 2018, Rusanow notes, but the most profitable firms managed to shorten their own collection cycles.
The Super Rich are able to differentiate their brands, she says, by offering clients something different from the bevy of multidisciplinary, large-scale firms that dot the landscape.
“They tend to be focused on a handful of practices that they’re extremely strong at,” Rusanow says.
Fish & Richardson, for example, managed to join the list this year on the back of its focused intellectual property practice, proving that to gain entry to this select group, less is often more.
“We’re well known as an IP specialty firm and as a very good one, and it’s a field that is highly valued by our clients,” says Peter Devlin, the firm’s president and CEO. “They send us their toughest, most complex and highest-stakes work, and that has driven our financial success.”
And for firms that have made it into the upper tier financially, that status means they are well-positioned to leverage their financial success to grow in the future.
“As in any industry, the more cash that you have, the more options you have,” Shunk says. “And if you’re making the right decisions, it can work to your benefit.”
There might be something else working in favor of the elite staying elite, some who follow the industry closely say: culture. It may not be the defining reason that the list looks so familiar five years later, but Deborah Farone, a consultant who served as chief marketing officer at Debevoise & Plimpton and Cravath, Swaine & Moore, both of which have been among the Super Rich from the beginning, thinks it plays a bigger role than is often credited.
“Culture has a huge implication for why firms stay successful, and if I were a managing partner I would be focusing not just on strategic planning and practice planning, but also how do I keep a strong culture where people feel supported and feel like they’re growing, and partners feel like they’re treated well and appreciated for their work,” Farone says. “Those things are sometimes undervalued, but we’re seeing that they’re so vital.”
In an era of seemingly constant lateral movement, maybe the key to staying exceedingly profitable as a firm is to develop a culture that keeps exceedingly profitable partners in place.
“While we think and read a lot about the headline lateral moves, firms will also tell us that 30 to 40 other partners may have been approached and made the decision not to go,” Rusanow says. “When you ask those firms why that’s the case, they talk about their strong culture.”
Some of the 31 Super Rich firms have contracted their partnerships in recent years, but on average they added 20 partners in the past five years, including six equity partners. The most profitable firms have a better success rate in hiring laterals, Rusanow says, largely because they add lawyers who enhance the well-defined brands they’ve already built.
Those brands have been developed carefully over a period of years, but there may be change on the horizon that could unseat some of the country’s most profitable firms if they aren’t adequately prepared. As Shunk sees it, the generational shift that will see millennials take over the decision-making reins could pose a threat to the assumed status of the industry’s elite, who have long been on the receiving end of high-value business brought in, in part, by that status.
“There’s a time stamp on it, an expiration date on how valuable that brand is going to be,” Shunk says. “Are they offering some authenticity? Are they giving back to the community? Do they have a mission?”
Maybe in another five years we’ll have a better sense of whether culture begets profits or the other way around.