Sandy Lechtick, The Recorder January 31, 2014
“I feel the earth move under my feet, the sky tumbling down………” words that danced in my head as I was listening to Carole King singing her 1970’s hit. It occurred to me that those words also describe today’s legal market. I’m not sure about the sky falling down, but the earth is clearly moving under many lawyer’s feet.
“I feel the earth move under my feet, I feel the sky tumblin’ down … .” As I was listening to Carole King singing her 1970s hit, it occurred to me that those words also describe today’s legal market. I’m not sure about the sky falling down, but the earth is clearly moving under many lawyers’ feet.
In the 25 years I’ve been in the legal search arena, working with hundreds of partners and law firms, today’s legal market is about as fluid and chaotic as I’ve seen. In this post-recessionary economy, which many think is not “post,” the tremors are being felt everywhere. Competition is as brutal as ever, business has not rebounded as fast as many expected and billing rate pressures have not subsided. The gap between the very-well-managed firms and not-so-well-managed is widening—in profitability and success in talent retention and in attracting the most attractive lateral partners. In this free-agent market, partners with a practice clearly have more options, and many are voting with their feet.
Other than a lateral market that’s heating up, an equally compelling sea change is the number of ongoing merger discussions, strategic alliances, and law firm leaders openly discussing various combinations. The recently aborted McKenna Long & Aldridge/Dentons and Orrick, Herrington & Sutcliffe/Pillsbury Winthrop Shaw Pittman couplings were some of the latest to do the merger dance, and certainly will not be the last.
Law firm leaders have a particularly challenging environment growing their firm and enhancing profits without making the same mistakes that have felled many outstanding law firms in the last several years: Dewey & LeBoeuf; Heller Ehrman; Howrey; Thelen; Pettit & Martin; and Brobeck, Phleger & Harrison are a few that come to mind. Some might not think this particularly new. After all, 10 to 15 years ago, many other outstanding California firms merged, fragmented, or imploded. The following outstanding, once-prominent law firms have all gone the way of the dodo bird: Tuttle & Taylor; Kindel & Anderson; Gendel, Raskoff, Shapiro & Quittner; Kadison, Pfaelzer, Woodard, Quinn & Rossi; Lyon & Lyon; and Ball, Hunt, Hart, Brown & Baerwitz. The story is not different in the Midwest or on the East Coast. Who has forgotten the equally dramatic implosion of Finley, Kumble, Wagner, Underberg, Manley, Myerson & Casey two and a half decades ago? Today’s merger scene is particularly interesting and for some, troublesome. The size and scope of the deals are stunning.
There is no question that compatibility in clients, billing rates, compensation and practice areas are important. But, there is also culture, shared vision and how lawyers and staff interact with each other. And what about debt, unfunded pensions, ego clashes and a shifting power structure?
It seems like it was yesterday when I sat down with Peter Kalis, then chairman of Pittsburgh-based, 400-lawyer Kirkpatrick & Lockhart. We had placed several partners in the firm’s Los Angeles office and wanted to discuss overall needs in California. However, I got the sense he was positioning the firm to become much, much larger. I figured they’d grow to 700 to 800 lawyers. However, in the last decade, and after several mergers and acquisitions, K&L Gates is now about 2,000 lawyers and a major global presence. His friendly rival and Pittsburgh counterpart Gregory Jordan—who until recently ran Reed Smith—pursued a similar path. Reed Smith merged with California-based Crosby, Heafey, Roach & May and other firms, and now numbers roughly 2,000 attorneys.
Two decades ago, two top indigenous firms in San Diego were Gray Cary Ware & Freidenrich and Luce, Forward, Hamilton & Scripps. In 1993, Gray Cary Ames & Frye merged with Ware & Freidenrich, giving it a strong Northern California operation. Around 2003, I sat down with firm leader Terry O’Malley to discuss lateral partner candidates, the firm’s California growth strategy, and plans for a new Los Angeles office. However, he also told me that the firm had a significantly greater appetite than just California. That might be a bit of an understatement. What is now DLA Piper eventually grew to 4,000 lawyers, becoming perhaps the largest law firm in the world.
The 2005 Gray Cary-Piper Rudnick-DLA combination was not lost on Luce, Forward leaders, who generally looked at merging as worse than a four-hour root canal with zero pain medication. Over the years they had established a nice culture, grown organically and selectively added groups from Adams, Duque & Hazeltine; Tuttle & Taylor and other firms. At one point they expanded into West Los Angeles and New York. Eventually they closed those offices, and opened up in North San Diego and Orange County. Eventually management did an about-face and got serious on merger opportunities. A couple of years ago they hooked up with Atlanta- based McKenna Long & Aldridge. Before that, Chicago-based Sonnenschein Nath & Rosenthal hooked up with Denton Wilde Sapte, a major European firm. The merger dance between McKenna Long & Aldridge and whatis now Dentons recently ended. I’m not sure how many cooks were in the kitchen, but clearly some did not like the global sauce.
In the last several years, Arnold & Porter hooked up with Howard Rice Nemerovski Canady Falk & Rabkin; Steefel, Levitt & Weiss with Manatt, Phelps & Phillips; Weston Benshoof Rochefort Rubalcava & MacCuish and the Silicon Valley office of Akin Gump Strauss Hauer & Feld with Alston & Bird. Wilmer Cutler Pickering accomplished a “merger of equals” with Hale and Dorr. And that is just a few that come to mind. *** Many think it’s only the marginally profitable firms with “issues” that are interested in exploring mergers. Many think it’s only the partners with falling books who are interested in moving. In some cases that is true. For instance, Patton Boggs, which saw its profits decline and had two rounds of layoffs, got into serious discussions with Locke Lord. Falling profits and partner defections are certainly factors. But today, we are also seeing strong firms that have well-thought-out strategic financial and geographic reasons to grow and merge or add practice groups. In the last few years we, too, have been approached by a few law firm leaders interested in exploring opportunities where they could leverage relationships, enhance their geographic reach, and strengthen key practice areas. The takeaway on all this activity is that the stability that many lawyers used to take for granted is fading, the pecking order is changing, and talent reconfiguration is the new paradigm.
Many partners who used to be owners are now employees. For some that’s ok—especially as law firms become larger and more business-focused, and increasingly run by professional managers. Pepper Hamilton CEO Scott Green is a non-lawyer. This trend will continue. On the other hand, many small-to-midsize law firms are also looking for partners. Many partners tell us they want to practice in a firm where they have greater control of their destiny and client relationships.
At the end of the day, it behooves the partner, whether he is to stay or leave, to really understand the firm— where it is headed, what its goals are, and how solid the ground is on which he stands. Sandy Lechtick is the founder and president of Esquire Inc., a California partner placement firm. He heads up the law firm merger and acquisition division, and can be reached at www.esquiresearch.com or 818-712-9700.
Companies, agencies mentioned: Silicon Valley PLC | Esquire | Tuttle & Taylor | Adams, Duque & Hazeltine | Gray Cary Ames & Frye | Gray Cary Ware & Freidenrich | Underberg, Manley, Myerson & Casey | Hunt, Hart, Brown & Baerwitz | Pfaelzer, Woodard, Quinn & Rossi | Gendel, Raskoff, Shapiro & Quittner | Brobeck Phleger & Harrison | Kirkpatrick & Lockhart | Lyon & Lyon PLC Law firms mentioned: Akin Gump Strauss Hauer & Feld | Alston & Bird | Arnold & Porter | DLA Piper | Denton Wilde Sapte | Dewey & LeBoeuf | Heller Ehrman | Howard Rice Nemerovski Canady Falk & Rabkin | Howrey | K&L Gates | Locke Lord | Luce, Forward, Hamilton & Scripps | Manatt, Phelps & Phillips | McKenna Long & Aldridge | Orrick, Herrington & Sutcliffe | Patton Boggs | Pepper Hamilton | Pillsbury Winthrop Shaw Pittman | Rabkin | Reed Smith | Sonnenschein Nath & Rosenthal | Thelen | Wilmer Cutler Pickering Hale and Dorr