As Hogan Lovells prepares to celebrate its fifth anniversary in May, there may be mixed reaction from the partnership today (13 February) over its 2014 financial results, as revenue for the calendar year modestly increased by 3.6% to $1.779bn from $1.718bn in 2013, while revenue per lawyer (RPL) rose 1.5% to $753,974 from $742,613 in 2013.
Profit per equity partner (PEP) remains broadly flat having increased by just 0.8% to $1.217m from $1.208m. Other international firms to have already announced results have seen better performance with Dechert’s PEP rising 7.7% on the back of 8% turnover growth while Mayer Brown’s 6.7% revenue increase generated a 12.8% increase in PEP.
The firm’s five global practice groups saw corporate represent approximately 30% of total billings, as did its litigation, arbitration and employment group, while government regulatory and finance made up 15% each, and finally IP, media and technology generated 10%.
By region, the firm was evenly split with the Americas representing 46% of total billings while London and Continental Europe generated 47%. The firm’s Asia & Middle East offering, headed by disputes partner Patrick Sherrington, continues to significantly lag behind and made up only 7% of total billings, the same as last year.
It marks a stark contrast to last year’s performance when the firm broke away from a sustained period of flat financials to unveil its highest post-merger global results, posting a fee-income increase of 5.2% while profit per equity partner (PEP) and revenue per lawyer (RPL) increased by 10% and 3.7% respectively. Despite the economy continuing to take its toll and the obvious cultural challenges faced by firms who adopt a merger-of-equals model, it seems Hogan Lovells has nevertheless fallen some way short of the sky-high ambitions its audacious merger raised in 2010.
Chief executive Steve Immelt (pictured), who officially took the reins last summer from co-heads Warren Gorrell and David Harris, says he is pleased. ‘We had a big jump in 2013 versus 2012. Some of the issues last year was whether performance at that level was going to be sustainable or in some ways a one-year phenomenon. To improve on that is encouraging to me. But the demand for overall legal services is not soaring – it’s relatively flat. Firms have to work hard to improve on that.’
Of greater concern to Immelt is the firm’s RPL figure ‘because it gives you the most insight and direction’ and he aims to tackle the issue this year, ‘to try to get that number up so that it’s tracking more closely our increase in revenue is something I would like to try to shoot for in 2015. The key to RPL is more work – we’re not in a market where there’s an ability to raise rates to any material degree. In that situation your revenue drivers are primarily making sure you’ve got the right team and it’s fully realised.’
Immelt has also set a target to make Asia constitute 10% of revenue within the next two years, and notably the firm has made multiple hires in the region of late which he expects will filter down to results next year. The firm is currently ‘studying’ its options for growth in the region and may consider a similar route to its Mexican tie-up in July with Barrera, Siqueiros y Torres Landa (BSTL).
The firm can also point to the pickup of significant mandates from last year. The corporate piece – which Immelt says is progressing well and looking to build upon in New York and London – advised Bank of America Merrill Lynch, Morgan Stanley, Wells Fargo Securities, and Deutsche Bank Securities on the $2.3bn IPO of Paramount Group, the largest REIT IPO in history, while the finance piece – which is also on management’s agenda for potential hires – took instruction advising the Republic of Ecuador in its return to the international sovereign bond market.
As for the firm’s well-documented tribulations over its merit-driven pay system, Immelt says the firm is working hard at ‘making sure partners understand direct consultations, and why they are where they are, rather than trying to find the magic formula that makes everyone happy.’
He adds: ‘Good, clear and consistent communication with individuals about their situation and we put a big emphasis on that this year.’
What may also help galvanise partners is the firm’s latest leadership initiatives – the most notable of which was the recent roll-out of a new leadership programme for experienced partners with Oxford Said Business School, to enable partners to build a unified approach to leading the firm and become distributors of a strong shared culture.
Immelt says: ‘We’ve done a better job of making partners understand the strategy and vision of the firm. This is a very concrete way of having more influence across the partnership by not just relying on me or David Hudd but people that know the firm’s ambitions and have the leadership skills to make that happen effectively. We have renewed momentum across the firm. I really do feel we have a clear sense of where we’re headed. Compared to a year ago, a group of people are able to tell you what it takes to achieve that – from the top to people on the ground.’