Revenue rose 6 percent to $352 million in 2008. Profits per partner dipped 1 percent to $1.2 million, while revenue per lawyer dipped 4 percent to $767,000.
Chairman Guy Halgren said the firm did not shed lawyers from practices that became “out of fashion” when the economy was booming, like bankruptcy or labor.
“That strategy has worked out well for us, because we have some very strong countercyclical practices right now,” Halgren said.
We chat with the chairman about his flock, after the jump …
“During the high times, we did not fly as high as some other firms because we have a very broad practice, and in the slow times we do not go as low as other firms. We are a more consistent performer because of the scope of our practices,” he said.
Sheppard is the first of the Los Angeles-based firms to report their year-end results. The Recorder reported results for seven of the largest homegrown Bay Area firms in the third week of January. Most firms in the survey group reported modest to flat revenue growth, but large drops in profits per equity partner, with Orrick, Herrington & Sutcliffe posting the biggest decline at 21 percent. Pillsbury was the only firm in this survey to report a slight revenue drop, but the firm preserved profitability with cost cuts.
Several firms said rising associate salaries and expenses incurred from expansion efforts, both in terms of lateral hiring and new offices, hampered profitability.
Sheppard added a seven-lawyer Silicon Valley office this year, and also took on 13 lawyers from Heller Ehrman. In all, the firm took on 29 lateral partners, a record. For 2008, the number of lawyers grew 10 percent, to 459, but that does not include some of the Heller additions, which came after The Recorder’s August 31 cutoff date for head count.
Halgren was pleased with his Heller additions.
“We are just following that classic strategy: When great laterals are available and the market is down, that’s our time to invest and in the long run, and we’ll be stronger for it,” he said.
The firm did not do any work in the subprime area or securitizing loans, so it was not affected by the evaporation of that work. The credit freeze did affect clients’ ability to pay, and collections were slower this year than last, Halgren said.
Heading into 2009, Sheppard Mullin has frozen associate salaries. The firm did raise rates in 2009, but by half as much as its average rate increase over the last seven years.
“Our rates generally are materially lower than most of our competitors, so even with some very small increases this year, we are still well below our competitors’ rates,” Halgren said.
“We are cautiously optimistic,” Halgren said of the outlook in 2009. “We think that on the one hand, there are many opportunities for firm like ours that have a broad array of practices, but at the same time you pick up the paper every day and there is bad news. We are not sanguine, we realize ’09 could be a choppy year for us, but we do think we’ll have some opportunities.”
— Amanda Royal