Washington Business Journal

In-depth: Law

Firms laying down the law in effort to rein in costs

September, 2003 - There's a new hot topic at law firms to join the usual discussion about court strategies, fascinating (or dull) cases, pending legislation affecting clients and the inclinations of certain judges. From the senior partners to the most junior associates, a lot of the talk today revolves around this issue: law firm finances.

As law firms confront a decline in work from many corporate clients and want to look good to potential suitors in the profession's ripe merger market, they are scouring their bottom lines to clean out unnecessary expenses and burdensome debt.

Indeed, some merger discussions have ended abruptly when opened books revealed that a firm had puffed-up profits, hefty debts or poor cash management.

When struggling San Francisco-based Brobeck, Phleger & Harrison was up front about its finances earlier this year, two firms -- Washington-based Hogan & Hartson (www.hhlaw.com) and Philadelphia-based Morgan, Lewis & Bockius (www.morganlewis.com) -- balked at the opportunity to swallow the technology-heavy firm, which had big debt loads and pocketfuls of worthless equity in startup companies that went bankrupt.

Brobeck, considered one of the most profitable law firms just two years before, disbanded in February. Law firms rooted in Cleveland and Chicago also have broken up this year, Washington-based firms, however, have avoided visits from the Grim Reaper. Although they've run up against a tough economy like law firms elsewhere, many D.C. attorneys can draw on a relatively recession-proof source of business to help keep them going.

"The Washington-style law firm is more regulatory and legislative in nature," says Troy Laws, a consultant with Hildebrandt International, which assists law firms with management and strategy issues.

While a government-oriented firm might miss out on some of the business highs that come from being involved in things like the tech boom, it also means they avoid some of the lows when a boom goes bust, he says.

But their safer perch in the nation's capital hasn't totally isolated Washington firms from the pressures to reduce expenses.

Compensating for a tight budget

As in any business, there are three ways for law firms to increase profits: grow revenues, cut costs or do both.

It's been difficult to increase revenue when belt-tightening corporate clients have become more conscious of their legal expenses and the competition among law firms has grown more intense.

Thus, law firms' costs are being examined more closely. However, some major expenses may already be locked in or at least hard to reduce.

For example, a firm might be stuck with real estate leases that already have been negotiated. Also, the office's interior work might be finished, making it too late for savings in design. And there might be a minor riot if the office got rid of the gourmet coffee.

Supplying some solutions

Even though many law-firm costs are tough to cut, there are places where they can reduce expenses, says John Niehoff, partner at Beers & Cutler (www.beersandcutler.com), a D.C.-based accounting and business consulting firm.

Aside from incurring expenses directly related the practice of law -- such as document production, litigation support and contract attorneys -- law firms, like other businesses, spend money with vendors such as office suppliers, furniture dealers and courier services.

Those vendor relationships that don't directly affect the practice of law should be revisited and put up for bid, Niehoff says.

Law firms can make other changes as well to save money.

For example, instead of keeping the cafeteria open for dinner during long hours, they can use companies like SeamlessWeb, an online food-ordering service that is based in New York and recently entered the D.C. market. Attorneys can order food through SeamlessWeb and have it delivered to them.

"The economy has been an interesting one for us," says SeamlessWeb co-founder Jason Finger. "All the layoffs helped with word of mouth when those people get new jobs."

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