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The Shift: Move Over Wall Street. Silicon Valley Is Big Law’s New Power Alley.
In the last two years, as law firms survived the early anxiety of the pandemic and rode soaring legal demand to extraordinary financial results, one trend has emerged that gives us a glimpse at the future of the legal industry: The firms making the biggest year-over-year leaps are increasingly those with close ties to the technology industry and the sunny skies of Northern California.
Firms of all kinds flourished in 2021, but the outstanding success of the Silicon Valley elites stands out as an important indicator of where the industry is headed. For decades, close relationships with banks and financial institutions were a sure sign that a law firm had a bright present and a brighter future. In recent years, private equity bonafides became the defining trait of many firms that outperformed the competition.
Those well-heeled client bases are still the center of gravity for plenty of the top firms in the country, but the seemingly boundless growth available to tech companies in an increasingly digital world has made them a powerful engine for firms hitched to their wagon. If you’re looking for the future of the legal industry in the United States, as they say, go West, young man.
The numbers speak for themselves. Cooley’s revenue and profits per partner both jumped 28% last year, putting it on the doorstep of becoming a $2 billion firm. The firm’s revenue has more than doubled in the past five years.
Goodwin Procter, meanwhile, handled more deals in 2021 than any firm on record and turned that incredibly busy year into a 33% leap in revenue and a 28% spike in profits. Like Cooley, Goodwin has gone from less than $1 billion in revenue to a hair under $2 billion in just five years.
Fenwick & West may be smaller than either of those Silicon Valley titans, but its $723 million in revenue last year marked a 33% increase that was nearly matched by its 31.5% spike in profits.
For its part, Wilson Sonsini Goodrich & Rosati saw an 18% leap in revenue to $1.3 billion.
Only 17 firms in the entire Am Law 200 posted higher profits in 2020 than Fenwick ($3.743 million), Goodwin ($3.69 millIon) and Cooley ($4.064 million) did in 2021.
“When we look at [the numbers], we see two significant takeaways: More clients asked us to do more, and our clients capitalized on the convergence of capital and technology in all of our primary industries,” Goodwin chair Rob Insolia said.
Fenwick & West chair Richard Dickson, meanwhile, attributed the staggering performance to the firm’s “sharp focus on the tech and life sciences industries,” supplemented by its strategy of diving deeper into subsectors such as digital health and blockchain.
And at Cooley, firm chair and CEO Joe Conroy said that, as in past years, the firm’s emerging companies practice—representing the “best, most diverse, most high-growth, most innovative, most diverse companies on the planet”—drove its business practices in 2021, while also contributing to what he calls its “litigation engine.”
A few months ago, Conroy said that Cooley “aspire[s] to be one of, if not the great law firm of the next generation.” Based on the firm’s dynamic growth over the past few years, alongside that of its closest competitors in the Silicon Valley space, there’s a strong argument that the next generation in the legal industry has already been established.
In some ways, these firms are already acting as the new standard-bearers. They were eager to respond to the associate pay war by raising the bar for senior associates last month, and they’re positioned to use their growing clout to continue finding ways to separate themselves from the competition.
“Based on how successful they’ve been, it’d make sense that they’d be leading the pack, and in the future, I think we’ll see more and more signs of that,” said Summer Eberhard, a partner at recruiting firm Major, Lindsey & Africa.
In a tight talent market that determines so much about a firm’s relative success, the dynamic firms in Northern California have a leg up on the competition. As a recent report from Thomson Reuters indicated, firms making strides on profit metrics can better navigate the talent war than their more static counterparts.
“The decisions that firms make now in terms of hiring, structure, pay and other considerations will likely define their fate in the years to come,” the report stated. “Just as importantly, as partners and associates increasingly ponder whether to jump ship, dynamic firms are positioning themselves as their most appealing destination.”
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At the moment, it may seem like there is an established order toward the top of the Am Law 100. But as we’ve seen with the sudden and explosive rise of Kirkland & Ellis, success snowballs.
Goodwin and Cooley have already found comfortable homes in the Am Law 25, with Wilson Sonsini close behind. The Silicon Valley squad should all rise further up the rankings when the Am Law 100 report publishes next month—and that will only make it easier to attract and retain talent to push for more growth in coming years.
But beyond the revenue and profitability rankings lie more meaningful matters for the future of the legal industry. A shift from Wall Street to the West will allow a new group of firms to serve as a model for the rest of Big Law. And given their close connections to so many of the tech companies that have disrupted the economy over the past two decades, that’s sure to bring significant change to law firms.