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June 19, 2007

THE EYES OF TEXAS

The eyes of Texas are upon you,
All the live long day.
The eyes of Texas are upon you,
You cannot get away.
Do not think you can escape them,
At night, or early in the morn'.
The eyes of Texas are upon you,
'Till Gabriel blows his horn!

As we pick up with a LawBall-type look at the metrics from, as I introduced in Different Strokes for Different Folks, a geographic perspective for the firms in The American Lawyer’s 2007 AmLaw Survey (2006 operating information) that’s certainly the case in the West South Central division as 12 out of the 13 law firms in this division are Texas-based:  Fulbright & Jaworski; Vinson & Elkins; Baker Botts; Andrews Kurth; Haynes and Boone; Locke Liddell & Sapp; Thompson & Knight; Bracewell & Giuliani; Jenkens & Gilchrist (which ceased its legal practice on March 31, 2007); Gardere Wynne Sewell; Winstead; and, Jackson Walker.  The sole non-Texas based holdout is Adams and Reese - based in New Orleans, Louisiana.

Below is a table that contains the 2006 financial operating performance metrics for each of the firms in the West South Central division, as well as a table that shows the firms’ ranking (1 – 13) within each metric category.  The tables may be difficult to read within the blog, so by clicking on the tables you should be able to open a larger version; and, I’ve attached a copy as a *.pdf document in the right-hand margin under the category “Posting Attachments” as “Legal Industry West South Central Division Metrics 2006.”

Several observations:

  • From a financial operating perspective, Vinson & Elkins and Baker Botts were head and shoulders above the other firms in the West South Central in 2006.  Both firms played LawBall extremely well.  Both were ranked either 1st or 2nd in the key “offensive” metric of asset turnover (revenue per lawyer) and the key “defensive” metric of margin.  When their asset turnover and margin metrics are multiplied together to yield the firms’ return on assets (ROA or profit per lawyer) - a good measure of the efficiency with which a business allocates its resources as it eliminates the effects of financial leverage on operating results – the two firms again were ranked 1st and 2nd.  And, with good “special teams” play with V&E ranking 5th in leverage and Baker Botts 3rd, the two firms ranked 1st and 2nd in return on equity (ROE or profit per partner) as well.   Two other ways, both admittedly simple and rudimentary but still effective, to gauge the firms’ relative financial operating performances are:
    • To sum up the firms’ rankings in all of the metric categories.  In this instance, Baker Botts’ rankings in all metric categories added up to 20, which rated 1st, and V&E’s added up to 21, which rated 2nd.  The next closest firm was Thompson & Knight, whose score was 33.
    • To sum up the firms’ rankings only in the key metric categories of margin, asset turnover, ROA, leverage, and ROE.  In this instance, both V&E and Baker Botts’ aggregate rankings added up to 10 and a co-1st place rating.  The next closest firm was Locke Liddell with 27.  (In an effort to conserve space, these latter two rating measurements are not included here but are included for all of the firms in the *.pdf attachment.)
  • Not surprisingly since the West South Central division had the highest margin of all the divisions within the AmLaw 200 at 41.25%, 7 of the firms in the division had margins that exceeded the aggregate AmLaw 200 margin, and 5 of those 7 firms had margins that exceeded the aggregate West South Central margin.
  • Only 2 firms, V&E and Baker Botts, had an asset turnover that exceeded the aggregate AmLaw 200 asset turnover.
  • Four firms, V&E, Baker Botts, Fulbright & Jaworski, and Gardere Wynne Sewell achieved a higher ROA than did the AmLaw 200 in the aggregate.
  • No firm achieved a financial leverage equal to or higher than the aggregate AmLaw 200 leverage.
  • Only 2 firms, V&E and Baker Botts, achieved a higher ROE than did the AmLaw 200 in the aggregate.

The *.pdf attachment also has easy to view individual tables that reflect the firms’ rankings in margin, asset turnover, ROA, financial leverage, and ROE versus both the West South Central division in the aggregate and the AmLaw 200 in the aggregate.

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