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U.S. law firm leaders weigh recovery strategies

|Written By Casey Sullivan, Reuters

SAN FRANCISCO — As law firms in the United States and around the world struggle to regain their footing in a down economy, firm leaders at a conference in San Francisco last week said they are weighing recovery strategies ranging from staff cuts to restructuring compensation, but they expressed doubts about the wisdom of further international growth.

The chairman of Akin Gump Strauss Hauer & Feld told attendees at the Thomson Reuters 17th Annual Law Firm Leaders Forum that his firm had chosen to focus on shoring up profits per partner during the recession. The downside, however, is that the strategy may have undermined Akin Gump’s ability to compete in the international market, said Chairman Bruce McLean.

“I don’t know if we’ve made the right decision to trade off short-term profitability for long-term success,” said McLean, who was on a panel of law firm leaders discussing lessons they learned during their tenure. “Because we decided to be smaller, the amount of profit we have to invest is diminished.”

Between 2008 and 2009, while McLean was chairman, Akin Gump chose to prioritize certain practice and geographic areas, he said. As a result, as many as 59 partners left the firm and Akin Gump’s profits per partner rose by nearly 17 per cent, according to The American Lawyer. In 2011, the firm’s profits per partner hit $1.6 million, up from $1.4 million in 2009.

The other panelists participating in “Lessons Learned from the Firing Line: A Candid Discussion with Outgoing Law Firm Leaders” included Orrick Herrington & Sutcliffe Chairman Ralph Baxter, Wilmer Cutler Pickering Hale and Dorr’s former co-managing partner William Perlstein and Mayer Brown’s former chairman Herbert Krueger.

Growth strategies featured as a subject of the panel “Challenges Facing Law Firm Leaders in the 21st Century,” where Gregory Jordan, the chairman of the 1,600-lawyer firm Reed Smith, talked about his experience cutting costs.

One of Reed Smith’s biggest savings initiatives has been trimming staff, Jordan said. The firm has laid off support staff and this year hired half as many associates out of law school as it did in 2007. The moves should bolster the firm’s revenue by three per cent and its profits by five per cent in 2012 if Reed Smith is successful in collecting on bill payments, he said.

The comments about growth and savings come amid ongoing turmoil in the industry. A Wells Fargo Private Bank survey released on Thursday showed while revenue has ticked up, firms are facing rising expenses and a glut of underutilized partners. About 15 per cent of U.S. law firms participating in the survey said they were planning to reduce partnership ranks in the first quarter of 2013.

There was a variety of opinions on the best way for firms to rebound. Some said they need to change their compensation systems to reward partners for the sharing of cross-departmental work, rather than rely on origination credit to determine pay — a common method used by law firms that can lead to a divisive culture, said Brad Hildebrandt, a law firm consultant and adviser to Thomson Reuters.

Other discussions centered on the wisdom of expanding into megafirms through mergers and the opening of foreign offices in places like Beijing and Shanghai, where a large number of U.S. law firms have established offices and everyone is competing for the same business.

“It’s tough,” Jordan said. “It’s tough for all of us.”

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