Howrey LLP, Partner Issues, Partner Profits

What's Wrong With Howrey? Profits are Down and Partners Will Be Axed.

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It’s been almost a year since a Biglaw firm dissolved, so don’t expect any more lights to be turned off because of the recession. But an article in Legal Week announces that Howrey is facing some difficult times:

Howrey is set to cut up to 10% of its partnership over the coming months in the wake of a 35% drop in profits per equity partner (PEP) during 2009.
Between 25 and 30 partners are expected to leave Howrey over the next few months as part of the restructuring, with the majority of the cuts set to fall in the US. Up to three partners are expected to leave across the firm’s European offices.

That’s a huge number. How do you say “trail of tears” in partner-speak? We’ve seen lots of firms lay off 10% of their associates, but we haven’t seen this kind of forced partner exodus.
How times have changed. It wasn’t all that long ago that Howrey was acquiring partners in bunches from other failed law firms.
Now the firm appears to be struggling. Am Daily suggests that these lateral hires are part of the reason for Howrey’s current troubles:

Ironically, the acquisition of high-profile laterals–including a construction group from the now-defunct Thelen and Gary Bendinger, whose lucrative client list includes KPMG and other auditors–created internal client conflicts that hurt some partners, according to two sources familiar with the matter. In an interview Thursday, [managing partner Robert Ruyak] acknowledged as much, but said that firms routinely make such trade-offs in planning for the future.

How bad is it at Howrey these days?


Howrey partners have already taken a significant hit to their profits:

As we’ve reported before, profits per partner at Howrey dropped 35 percent, to about $846,000 in 2009. Ruyak had prepared the firm for a tough year, but Howrey still wound up missing its budget projections by a significant margin, according to our reporting. Two sources familiar with the matter tell us that Howrey fell between 5 and 6 percent short of expected revenues, and that the firm’s numbers were worse than Ruyak anticipated when he briefed several partners on the state of the firm last fall.

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Howrey shed nearly 100 people in 2009. Since the firm laid off that many people and still took a beating, it makes sense that partners would be the next to go.
The ABA Journal summarizes the method Howrey used to make these partner cuts:

Howrey maintains that the cuts will not be based only on partner performance. They will be concentrated in practice areas and locations that don’t fit within the law firm’s core business of antitrust, global litigation and intellectual property law, the story says. Among the areas not within that fit are trademark prosecution and international arbitration, according to an internal review cited by the publication.

But Am Law Daily notes that a more ominous issue than “fit” could be looming over Howrey:

One former partner who preferred to remain anonymous tells us that Howrey had a “credibility gap” during his time at the firm, citing Ruyak’s pledge to partners that the firm’s 2009 financial performance would be better than it ultimately proved to be. In an interview Thursday morning, Ruyak declined to discuss specific numbers but said the twin decisions to offer clients discounts on hourly rates while extending payment deadlines had combined to create a a larger-than-expected drop in Howrey’s realization rate.
Two sources close to Howrey, including one still at the firm, say Ruyak took responsibility for the firm’s 2009 performance at an all-partners meeting on January 19. In that meeting, held by videoconference, Ruyak explained the decline in profits and vowed to restore the firm to financial health, in part by continuing to hire good laterals.

It should go without saying that a “credibility gap” between management and the general partnership is not good. And based on Howrey’s experience with Thelen, it’s not at all clear that hiring more lateral talent is the right move.
Legal Week reports that the Howrey hierarchy made the decision to let go of these partners around Christmas. Hopefully, this is just a step in the process of Howrey getting back on the right track.
Howrey restructuring set to hit 10% of global partnership [Legal Week]
Howrey’s Looming Partner “Layoffs” [Am Law Daily]
After a Disappointing Year, Howrey Plans to Axe Up to 10% of Its Partners [ABA Journal]
Earlier: Howrey Layoff Update: The Final Tally?
Howrey and Reed Smith: Latest Beneficiaries of Thelen’s Shutdown

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