The Score

March 7, 2012 5:43 PM

The Am Law 100, the Early Numbers: Dewey & LeBoeuf Revenues, PPP Edge Higher

Posted by Julie Triedman

Update, 4/4/12, 7 p.m. EDT: On April 3, 2012, The American Lawyer published a story restating Dewey & Leboeuf's financials for 2010 and 2011 based on new information. Click here to read that story.

Dewey & LeBoeuf announced that revenues and profits were both up slightly in 2011. Revenues grew by 2.8 percent, but expenses increased, the firm noted. Profits per equity partner posted a 1 percent overall increase. "It was an okay year," chairman Steven Davis says. "We would have liked it to be a better year."

The firm said it collected $935 million, up from $909.9 million in 2010; overall profits stood at $340.5 million, up from $328 million. Lawyer head count (1,040), including the equity partner tier (190), and the nonequity tier (115), also remained nearly unchanged. 

Davis told The American Lawyer that the firm’s bankruptcy and litigation practices were booming last year, counterbalancing some declines in the corporate practice, which slowed noticeably in the second half of the year. "Our technology deals people were incredibly busy," he notes, "but that is the exception to the rule." In the restructuring practice, the firm had leading debtor-side roles in the bankruptcies of Ambac Financial Corp., NewPage Corporation, and the Dodgers; in November it was tapped as lead creditors' counsel in MF Global Holdings.

Behind the relatively static numbers, however, was a lot of lateral movement and a partnership showing the strains of increasingly divergent rewards.

On the lateral side, the firm said it brought in 30 equity partners—a record. However, at least seven partners left last year according to our 2011 Lateral Report. In the end, with the departures and retirement, equity partner head count rose by just five people.

On the compensation side, there was an increasing disparity between the highest and lowest earners, with many more partners in the lower tiers. Dewey management reserves a sizable chunk of total earnings each year—as much as 15 percent, according to our current and previous reporting—to fund discretionary bonuses; and, as it has over the past several years, the firm in 2011 rewarded dozens of partners viewed as the key to major new business with bonus money.

Conversely, compensation was cut back for others. Partners whose practice areas or revenue generation are viewed by the firm’s management as less profitable for the long term or in need of pruning were affected, the firm confirmed. Dewey management evaluates and resets partner compensation each year, and over the past year, compensation haircuts affected a range of equity and nonequity partners, according to Davis.

Dewey is hewing to a strategy its management has used for years: annually pruning less-productive partners and paying top dollar to bring in star rainmakers, as this story in The American Lawyer reported in 2009. Dewey's predecessor firm, LeBoeuf, Lamb, Greene & McCrae, also followed much the same strategy under Davis's management, as we first described in this American Lawyer story, Rainmaker Magnet [paid subscription], in 2006.

This practice continued last year. Dewey's 2011 financials showed that, in 2011, nonequity partners took the most direct hit. The firm's 115 nonequity partners saw average compensation plunge by 23 percent—bringing average earnings for nonequity partners down to $499,000 from $640,000. By contrast, equity partners earned an average of $1.8 million last year. The firm does not report its compensation spread, but our previous reporting indicates that the top-earning equity partners in recent years earned at least ten times more than their lowest-paid colleagues.

After cost-cutting in 2009 and 2010, the firm noted that expenses increased somewhat in 2011. Part of that was the cost of bringing in new lateral partners. And Dewey, like many other firms active in the lateral market, guarantees certain levels of compensation to incoming partners. Still, billable hours for the new laterals generally lag several months behind collections, resulting in a cost hit on the rest of the partnership. "There is a ramp-up period," notes Davis.

The firm confirmed for the first time that it does, in fact, give some laterals multiyear guarantees—but so do most of its main rivals for talent. 

As part of a long-term strategy to fill out specific regions and practice groups, Davis says, the firm took on Michael Fitzgerald, three other partners and a dozen associates from Milbank, Tweed, Hadley & McCloy in June (as we reported here); Fitzgerald headed Milbank's global securities, corporate, and Latin America practice groups. In December it took on a group of eight partners from the South African firm Werkmans. It also took on a duo of private equity partners from Taylor Wessing in May and Morgan, Lewis & Bockius's PE chair, Ira White, in June, among others. In the category of "opportunistic" hires, Davis says, are Bruce Bennett, a senior bankruptcy lawyer who joined last February from Hennigan Bennett & Dorman with nine other lawyers (as reported by us here); he is heading up the debtor's side in the Los Angeles Dodgers bankruptcy.

The firm does not expect to hire many laterals in 2012, Davis says, but will focus instead on integrating the new practices. Still, 2012 is already looking like a tumultuous year; in just the first two months of 2012, the firm has seen 16 partners depart, according to data collected by The American Lawyer. Corporate practice cochair Richard Shutran says the firm expects about 12 more partner departures in the next month or two. Recently announced departures include some well-known lawyers, such as William Marcoux, a former executive committee member and cohead of the insurance sector group (to DLA Piper); Timothy Moran, who headed the firm’s Washington, D.C., corporate practice (to Sidley Austin); and Sean Moran, MP of the Los Angeles office and cochair of the renewable and clean energy industry sector group (also to Sidley).

On top of the lateral departures, the firm announced plans in 2012 for its first major personnel cuts since early 2009 [paid subscription]. In an e-mail to partners on March 2, first reported by Above the Law here, Davis said the firm intended to trim 5 percent of its lawyers internationally, or roughly 55 attorneys. The firm confirmed that cuts will be across the board, hitting partners, counsel, and associates. Some 6 percent of nonlawyer staff will also be laid off, the firm said. Dewey's London office will see roughly ten lawyer departures, according to sister publication LegalWeek.

In another memo sent to partners and shared with The American Lawyer confidentially, the firm noted a major revenue uptick during the first two months of 2012. Davis told the partners that collections rose 28 percent over a year earlier; one partner, speaking on background, explained that in January the firm collected a major outstanding fee that had been expected in December, accounting for a significant part of the new revenue. Additionally, the memo said, fees billed were up 8.5 percent, and demand was up 13 percent over a year earlier.

This report is part of The Am Law Daily's early coverage of 2011 financial results of The Am Law 100/200. Final rankings and full results for The Am Law 100 will be published in The American Lawyer's May 2012 issue and on The Am Law Second Hundred will be published in the June issue. An interactive chart of the financial results reported so far is available here. The chart will be updated as additional data is reported.

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