© 2017 The Texas Lawbook.
By Mark Curriden
(May 30) – Haynes and Boone had a record year in 2016. Revenue was up. Net income was up. Profits were up. The Dallas-based firm now has more lawyers in North Texas than any other legal operation, and it successfully expanded into Europe by acquiring a 16-lawyer London-based firm.
By all accounts, HayBoo is off to a strong start to 2017, outperforming most financial measures from a year ago.
Even so, Tim Powers is anxious.
As managing partner, Powers is navigating the 570-lawyer firm through turbulent and challenging times never before witnessed in the legal markets in Dallas or Houston.
“The Texas legal market is red hot, and yet we have a net decline in the purchase of legal services by businesses,” Powers says. “To say that we are in a volatile market would be an understatement.”
To be sure, Powers is not alone in this struggle. In fact, leaders at more than a dozen Dallas- and Houston-based law firms share his fears.
There are two kinds of Texas-based law firm leaders: Those who admit that they are seriously concerned with their firm’s future and those who are lying.
Haynes and Boone leaders face the same challenges as a dozen other large, full-service firms indigenous to Texas: They are being attacked on all fronts.
Their larger clients are expanding their in-house corporate legal departments to do more of their work internally. More national law firms are opening offices in the state, which is siphoning off talent and dividing the legal work – especially the higher-end, more lucrative assignments – even more. Many firms are seeing their younger, more aggressive trial partners jump to litigation boutiques, which takes away even more business. And many non-law firms are increasingly competing for work that was previously handled by business lawyers.
The result, according to legal industry analysts, is that a handful of major Texas law firms will vanish during the next two or three years either by acquisition from larger national or global practices or due to outright failure.
Current financial success is good, but most corporate law insiders – Powers included – agree that it can be a false measurement for future performance.
“Nearly every full-service Texas law firm is in a battle for their future existence, whether they know it or not,” says law firm consultant Kent Zimmerman of the Zeughauser Group. “Those firms that don’t know it probably won’t make it.”
Zimmerman and other legal industry experts say Powers is one of the firm leaders who understands that law firms must adapt to the ever changing legal landscape.
“Even the most financially successful law firms are fragile institutions,” says Powers, a 1980 graduate of the SMU Dedman School of Law who is one of the most transparent large firm managing partners in Texas.
The Texas Lawbook firm finance report shows that HayBoo generated $375 million in revenues in 2016 – up 3.6 percent from a year earlier. Two-thirds of the firm’s revenues were generated by lawyers in their six Texas offices.
“We had a record year in 2016,” Powers says. “We under-collected a bit. Several deals that would have closed in December 2016 were pushed into the first quarter of 2017 for tax purposes.”
The firm could hit $400 million in revenues in 2017.
“We are planning very conservatively just because of the uncertainty in the market,” he says. “The current administration came into office with a lot of promises, which will be great for lawyers if it all comes about. If not, we must be prepared.”
Haynes and Boone has impressive clients, from American Airlines, AT&T and Exxon Mobil to Bank of America, Energy Transfer Partners and the National Football League. The firm also represents the Dallas Police and Fire Pension System.
The reason the firm has such blue chip clients and the lucrative revenues that accompany them is the stable of seasoned and respected lawyers in key practice groups. Appellate partners Nina Cortell and Anne Johnson are widely recognized superstars. Partner Kit Addleman is considered among the best white-collar criminal defense attorneys in the state. Barry McNeil, Ron Breaux and Phillip Philbin are three of the go-to trial lawyers for complex commercial litigation. Even founding partner Mike Boone, who is 75, remains active as one of the most trusted M&A lawyers in North Texas.
“Do you want to know what keeps me up at night?” Powers asks. “At the end of every day, our primary one assets – our lawyers – walk out the door. What if they don’t come back? Haynes and Boone will remain healthy and vibrant only as long as we have the talented lawyers that our clients want to use.
“There is no organic growth occurring in the Texas legal market because the demand by businesses for legal services is flat or even declining,” Powers says. “The only way for law firms to grow revenues is through lateral hiring.”
Powers says that all law firms will lose some partners to competitors. The threat occurs when several lawyers announce they are leaving.
“Several departures of key partners can cause a loss of confidence among the lawyers who are left,” he says. “Doubts about the future of the law firm can surface, and it could cause a so-called run-on-the-bank with other partners with books of business deciding to leave.”
“Firms like Haynes and Boone cannot match those guarantees for $2 million or $3 million a year,” he says. “So, firms like ours have to ask, ‘what are we able to do to keep our lawyers from taking those calls from other law firms?’ ”
To be clear, Haynes and Boone is no different from nearly every other firm in Texas in worrying that headhunters will recruit their talent to a competitor. Powers gets those calls himself regularly. And the firm can boast that it has lost fewer partners to the over-heated lateral hiring market than most other firms.
During his three years as HayBoo’s leader, Powers has invited special speakers to join the firm at its partners’ retreats.
In 2015, the guest was Oakland A’s General Manager and Vice President Billy Beane, who talked with the firm about facing larger, wealthier competitors. Freakonomics author Stephen Levitt was the speaker in 2016, talking about creative thinking.
This year, retired Exxon Mobil General Counsel Jack Balagia spoke about character and professionalism traits that the Irving-based oil giant seeks in its outside counsel.
“There are going to be winners and losers in the fight for business clients and legal work,” Powers says. “The winners are going to be those who think strategically, who are able to attract and retain the best legal talent.
“The winners are going to be the law firms that differentiate themselves from the others,” he says. “If we are able to stand out from the pack and offer the legal expertise that our clients need, then we will survive and even thrive.”
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