Is geography
destiny? It is if you believe that Philadelphia is "the
worst legal market" in the country. Sandwiched between
New York and Washington, DC, without indigenous investment or commercial
banks of any size, and with a high-taxation, business-hostile climate,
its AmLaw 200 member firms’ profits per partner ($431,000) pale besides
the comparable firms headquartered in New York ($1.37-million), Washington
($846,000), and Boston ($697,000).
In a somewhat opaque digression, the article implies that the five
"growth happy" firms (+49% in headcount over the past 5 years) have
adopted the wrong strategy, since their PPP is up 42% over the same
period, while the more conservative firms (+21% in five-year headcount)
have seen their PPP grow 52%. Although tempting, I’m reserving
judgment (the "Scottish verdict," of "not proven"). Too
small a sample size over arguably a very anomalous five year period. Conclusions
such as this can only be legitimized across more firms and longer periods.
To be sure, there are some local industry opportunities, including
pharmaceuticals, biotech, and a bit of financial services, but it’s
clear the Philadelphia legal community is on the defensive in reaction
to this article. The most common line of attack is that Morgan-Lewis
and Dechert, two highly profitable firms with Philadelphia roots, were
classified as "national" rather than "Philadelphia"-based, thus depriving
Philadelphia of a pair of nice upward-skewing profits per partner numbers.
As
for Morgan Lewis, I think the "national" moniker is fair. New
York, Philadelphia, and Washington each have "more than 250 [Morgan-Lewis]
lawyers" according to the firm’s website, so it’s hard to say the center
of gravity remains on the Schuylkill. As for Dechert, that’s
a closer call: There, the lawyer headcounts are 247 (Phila.),
102 (NYC), and 59 (DC). To be sure, Dechert aspires to the "national"
categorization (their website bold-faces, "international," in fact),
and I think the "national" characterization is fair: They
do total over 700 lawyers across 17 offices.
Bottom line: Counting Morgan-Lewis and Dechert as "non-" Philadelphia
is certainly fair.
Not fair—indeed positively laughable—is the counterattck
that "Skadden, Wachtel, and Cravath" should not be
deemed New York firms. Wachtel, let it be stated for the record,
has one office in the world: Here. Cravath has two: Here,
and London. Skadden is the only semi-marginal case, a truly international
firm. But their psychic, financial, and business center-of-gravity
is hard in Times Square.
The question remains what a Philadelphia firm aspiring to more should
do. My suggestion: An intra-city merger. Bulk up,
proceed to cost-cut and slim down, and get some people’s attention. After
that, one could always be acquired….
Another culture-versus-strategy puzzle, which makes me think of the following, which I freely admit is a riff:
When a business decides that it can succeed because it mines a segment that is *relatively* uncontested, its success in its segment is proof that its differentiation strategy is reasonably good. But the issue is whether it does indeed have ambitions to exceed the richness of its segment. Naturally the question is “why should it?” Will expansion cause better product, lower costs, or greater customer satisfaction? If not, then the opportunity cost is likely to overwhelm the underwriting of the only remaining projected benefit: more distribution dollars per share. To cover up this risk, venture funding is the kind of ploy that typifies the decision to go ahead with the expansion. It happens under the guise of future profits justifying the investment, but the reality is that almost every time the reverse is the true dynamic: the availability of investment funds “justifies” the expansion. We’ve already become accustomed to calling this dynamic “irrational exuberance”, and to simplify the description of what is going on here, the funded company shifts from selling products (services) to selling money. This would almost make sense if the company had already demonstrated a significant competency in doing that and remained on the right side of the law to boot. Caveat emptor, especially you investors called “employees”…