As he stepped up to speak at his firm’s annual partner conference in Miami this month, Miguel Zaldivar had a decision to make.
It has been 15 years since the merger of Washington DC’s Hogan & Hartson with London-based Lovells, so how should the firmwide CEO mark the anniversary? Many leaders might use the moment to lay out a new long-term strategy, celebrate cultural cohesion, or highlight gains in market share.
But Zaldivar chose not to focus on those things. Instead he talked about the strength of Hogan Lovells’ balance sheet, its careful balance of practice areas and geographies, and its concentration on highly-regulated sectors.
In short, he focused on the firm’s defensiveness.
With capital equivalent to nearly 14% of annual revenue and no long-term debt, the $3 billion-turnover firm is surely one of the best-capitalised in Big Law. The unusually high amount of capital largely consists of partner-contributed equity—which can sit in cash or short-term reserves, but is distinct from the firm’s day-to-day working capital.
Prudence rarely gets the spotlight in the upper tier of the legal industry. Growth stories—lateral hires, office launches, high-profile mandates—are what firms usually trumpet. But these attack strategiesdo not help law firm leaders sleep any better at night. Most large firms are structured to thrive in good times, but many are surprisingly fragile in downturns.
That’s part of the reason why the U.S. Trump administration’s Executive Orders earlier this year stirred such anxiety. The idea that a large chunk of clients and revenue could suddenly be at risk is terrifying for even the most powerful firms, who know a partner exodus could follow. One leader of a large law firm recently confided they had always slept well during their tenure until these EOs came along. It helps explain why some risked their reputations by agreeing deals with the White House.
And who could forget the first few months of the COVID pandemic lockdown in 2020, when it seemed all transactional work would cease? An analysis of the largest 50 U.K. firms at the time found that on average firms had only enough cash reserves to pay staff for two months. Firms can always issue capital calls but that in itself can spook partners and trigger exits.
In contrast, Hogan Lovells has decided to make itself overly resilient to market shocks, delayed payments or economic downturns. This financial discipline has led to it turning away from some opportunities...
