PPP loan and fixed profits: Denver-based Sherman & Howard overturned layoffs
Sherman & Howard’s profitability stagnated in 2020, as the litigation-heavy company prioritized keeping its workforce employed and withholding partner drawdowns to preserve cash flow throughout the pandemic.
The Denver-based firm’s trend in recent years of year-over-year revenue growth stagnated last year at $ 112 million, 1% lower than in 2019. Divided over a total number of lawyers which was reduced from 185 to 177, which generated revenue per lawyer of $ 635,000, or 3.4% more than in 2019.
At the same time, net profit declined from 2019, from $ 58 million to $ 55 million, a decrease of 5.1%. But that was split between a slightly smaller group of equity partners, or “equity members,” as the firm calls it, of 75. That’s five less than in 2019, which is $ 742,000 in profit per partner, an increase of 1.2% over 2019..
While company executives were hopeful gross revenue would grow at a similar rate to previous years, CEO Greg Densen said the company has met and slightly exceeded its budgeted revenue guidance. Densen said the net income generated by layoffs and pay cuts at peer companies was not realized at Sherman & Howard as he sought to support the company’s 300-plus workforce for a period of time. period of financial hardship.
“As we entered the pandemic, we sat down as an executive committee and thought about how we were positioning ourselves – we didn’t cut salaries and we didn’t downsize all the way through. year round, ”Densen said. “There has been no change in the way we approached associates or staff or otherwise. We are proud of this response. It is in a way the hallmark of our company.
In an effort to reserve cash at a time of economic uncertainty in the second quarter of 2020, the company has implemented temporary holdbacks on partner draws based on individual lawyer collections from April through June, which were reinstated at the end of the summer, according to Densen.
Densen said the company carried over a significant amount of financial reserves to prepay 2021 expenses and invest in the company’s future financial performance.
“We just wanted to make sure we had a sufficient cash reserve to be able to adapt to whatever came our way, so that we could position ourselves for 2021 and beyond,” he said.
A $ 5.91 million Paycheck Protection Program (PPP) loan, which is part of the $ 2.2 trillion stimulus from the CARES Act passed at the end of March 2020, avoided the company from having to reduce positions or wages, depending on the management of the company.
“The initial conversation we had was that it was the responsibility of the members of the capital of the company, and we are not going to make it the responsibility of our associates, our members and our staff,” said Densen. “The PPP really reinforced that and made the decision easier.”
Densen said the PPP loan allowed the company to keep employees who couldn’t work remotely, around 30% of the staff, on the payroll. And that group was reduced to less than 10% by the end of the summer. The company’s ongoing migration from paper to digital records has provided remote work for some professional staff, Densen said, but there remains a small contingent the company is struggling to provide stable virtual work for. this day.
Sherman & Howard business leaders said future cost savings would come in the form of cheaper leases in smaller offices, which would allow the company to increase its investments in data privacy and security. cybersecurity, a spending line in the budget that business leaders expect to exceed real estate costs. coming years. In an emailed statement, firm executives said that in the second quarter of 2022, Sherman & Howard would have moved its corporate headquarters from Denver and modernized its operations in Arizona.
Densen said that prior to the pandemic, Sherman & Howard signed leases from 2022 that halved the area of the Denver and Phoenix sites, with Denver’s area from 130,000 to 60,000. Reduced square footage will focus on open, collaborative spaces, reducing the use of individual work units, according to firm executives.
“This results in some pretty dramatic savings in terms of rental costs and how we’re going to position the business in relation to that,” Densen said.
According to Densen, Sherman & Howard saw a shift in income generation towards senior members retained by clients for “targeted advice from people at higher rates” on pandemic-era legal dilemmas in corporate law, tax law and labor law. He said the firm reduced the hiring of partners in 2020, helping to reduce the number of lawyers by 4.3%, from 185 to 177.
“Frankly, this is the result of working from home and the change in the mix of work for the year,” Densen said. “We didn’t let anyone go, but at the same time, we didn’t rush to hire associates, we felt like we weren’t going to use right away.
The firm’s litigation practice, historically a major revenue generator for the firm, suffered early in the pandemic when courts closed, although Densen said it started to rebound in 2021.
In contrast, the firm has had productive years in the public finance group and in the practice of trust and estates, said Densen, himself a trust and estates lawyer. He said his practice’s work had “significantly” shifted from clients seeking legal expertise to navigate anticipated changes in taxes and regulations with the election of President Joe Biden.
Densen said the company doubled its summer associate class in 2020 and will continue to expand its program in 2021. He said this was in part in an effort to add leverage to the business. – which increased only marginally compared to the 2019 ratio of 1.31 to 1.36 in 2020.
According to him, one of the main goals of hiring is diversity and inclusion of historically marginalized groups. Of the seven partners hired in 2020, five were women or minorities, along with 69% of the firm’s summer partner class.
The firm is also focused on creating practices that allow clients to access other legal services within the firm, such as litigation and corporate practice. Densen said, for example, that the firm has a wealthy clientele in its trust and estate practice, many of whom own businesses and can seek advice from lawyers and litigants at Sherman & Howard.
“We will integrate them through the practice of trust and estates, and we will integrate them through the business practice that we have and will continue to grow,” he said. “People did not see [trust and estates practices] this way historically. But our clients own businesses and we know they need corporate work. “