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Law: Tremors In The Realm Of Giants

8 minute read
Richard Lacayo

When the lawyers at Cadwalader, Wickersham & Taft moved to new headquarters a few years ago, they brought their old doors with them. That venerable walnut seemed to embody the traditions of the nation’s senior firm, founded in 1792. But beyond the doors, their New York City offices are typical of the sleek, hard-driving operations that now dominate the profession. Overlooking its ten- story atrium are hundreds of lawyers’ work spaces. Stop by at 3 a.m., and a dozen or more unlucky souls will be there, grinding out documents around the clock. Even at a respected old firm, the doors often seem one of the few traditions still in place.

Ten-plus years of spiraling growth have transformed the major law firms, leaving many of them more like the corporate world they serve: dollar conscious, competitive, increasingly bureaucratized and less genteel. With 300 attorneys, Cadwalader would have been counted as a giant ten years ago. Now it ranks as merely a large outfit in a field that holds megafirms of 800 plus. The largest, Chicago-based Baker & McKenzie, just broke the 1,000 mark. Many of the behemoths are run by nonattorney managers who operate like corporate chiefs, drumming up sales and plotting growth strategies. Says Richard Santagati, the onetime head of NYNEX who now oversees Boston’s Gaston Snow & Ely Bartlett: “Everything has accelerated — salaries, overhead, client fees, the stakes and the risks.”

Revenues too. Those were nourished by the Reagan-era frenzy of corporate mergers that generated tens of millions in fees. A survey by the monthly American Lawyer showed 20 firms this year with gross revenues of $100 million- plus. Two years ago, just five were in that elite. The leader, 840-lawyer Skadden, Arps, had gross revenues of around $228 million. With offices in eight cities, its weekly partnership lunches require an audio hookup to link conference rooms.

But with size and wealth have come some other characteristics of the business world: bottom-line thinking, firms that go bust as well as boom and charges of ethical misconduct. “Many lawyers say that law has always been a business,” explains Stanford University Law Professor Robert Gordon. “Now it’s just acting like one.” Some of the changes are of consequence mostly to lawyers, who can no longer count on the clubbiness of the past. But there are wider implications too. Not quite a calling, but more than a business, can a legal profession driven by market forces fulfill its role of tempering free enterprise through the counsels of law?

The new economic realities are being brought home the hard way at the giant firm most closely identified with the hardball style of practice. Finley, Kumble started in 1968 with a handful of attorneys and a then novel intent to operate like a business. This year, with offices in 13 U.S. cities and London, it has boasted 684 lawyers, including such prominent names as former New York Governor Hugh Carey and former Senators Paul Laxalt and Russell Long. Plagued by years of in-house feuding and a bank debt of some $60 million, however, the firm may soon be better known as Finley, Crumble. Partners have been huddling to consider shrinking the firm, while denying they are on the verge of disintegration. “Finley, Kumble will still be here,” insists Carey. “But it may look somewhat different.”

Much of the Manhattan-based firm’s growth was accomplished through tactics once branded unseemly. In a field where lawyers traditionally pledged themselves to a partnership for life, Finley, Kumble scooped up stars from the competition and spread nationwide through mergers, gobbling up smaller firms. Disdaining the practice of seniority-based compensation among partners, it showed heavy preference to “rainmakers,” the partners most adept at bringing in clients. Some reportedly reaped better than $1 million a year, while others drew a tenth of that. Finley, Kumble called its system a meritocracy, where compensation was based on value to the firm. Critics say it rewarded salesmanship instead of legal skill, while raising costs to the breaking point.

Even so, a more competitive environment has other firms adopting similar methods. Major banks and corporations once sent most of their lucrative legal work to a single outside firm. In the 1970s, many began shifting basic chores to in-house legal staffs. When they do go outside these days, they often shop around, using firms on a deal-to-deal basis. After a 1977 U.S. Supreme Court decision upholding the right of lawyers to advertise, once reticent partnerships became increasingly willing to toot their own horns. In the unaccustomed clangor of competition, the bonds of collegiality that held a firm together have withered. “If you’re going to exist in this competitive environment,” says Boston Attorney Richard Csaplar of the 90-lawyer Csaplar & Bok, “you’ve got to root out less productive seniors.”

Firms have dropped their inhibitions about pirating talent. “It’s not unusual to receive a call offering a package of six partners from another firm with a promise of $10 million of business,” says Chairman Alex Forger of Manhattan’s Milbank, Tweed. Meanwhile, by publicizing balance sheets and pay scales throughout the profession, aggressive trade publications like the American Lawyer, the National Law Journal and Legal Times have awakened ambitious attorneys to the greener pastures they might enter by jumping to a rival firm. Says Jonathan Spivak, who heads a Washington legal search firm: “It’s like baseball. You go where the money is.”

Because corporate clients making huge deals require wide-ranging expertise, competition has fueled a merger boom among firms. A large operation may acquire a “boutique firm” whose specialty it needs or absorb an established local operation to gain an instant foothold in another city. But as many as eight in ten mergers are illadvised, by the estimate of Houston Law Firm Consultant William Cobb. They can lead to a clash of egos among partners accustomed to independence, a ballooning of overhead costs or the mismatch of a loosely organized firm with a centrally operated one.

Many practitioners praise the changed environment for making firms more responsive to client needs. And while the “white shoe” partnerships of the past may have been more above the fray, they also discriminated against women and non-Wasps. “It was the good old days for some people but not for others,” says Skadden, Arps Managing Director Earle Yaffa. “Now there’s an emphasis on talent.” So much emphasis that the competition for top law students has driven starting pay to above $70,000 a year in some places. But to earn their keep, new associates are expected to rack up at least 2,000 billable hours annually. That leaves little time for personal lives or for pro bono work, the free services provided to indigent clients or public-service groups.

Those high starting salaries, along with big premiums for the rainmakers, are adding to the tab for clients. Ward Bower of the legal consulting firm Altman & Weil reports that rates have been soaring, to as much as $350 an hour this year for a full partner (up from about $300 last year) and as much as $100 for work done by the newest associates. To control costs, some firms have | created a new second-tier position, sometimes called staff attorney. Often recruited from less prestigious schools and hired at bargain salaries, these lawyers handle the grunt tasks. Unlike regular associates, they have no hope of becoming full partners.

The most crucial cost of the new environment may not be measurable in dollars. The past two years have seen a boom in alleged ethical lapses at even the bluest of blue-chip firms. New York’s Sullivan & Cromwell found itself contesting no fewer than four accusations, notably one by an opposing firm that a partner bribed witnesses while representing the widow of Pharmaceutical Heir J. Seward Johnson in last year’s estate battle. New York’s Paul, Weiss discovered last year that a young associate, Michael David, had masterminded the “Yuppie Five” insider-trading scandal. Attorneys handling corporate mergers also sometimes get too close to the action. “Twenty years ago, lawyers said to clients, ‘You can’t do this,’ ” says Cardozo Law School Professor William Bratton. “Now the old professional values have been eclipsed by the desire to ‘make the deal.’ “

When lawyers “cease to see themselves as having a special mission in American society, they will begin to devalue the importance of holding on to an ethical norm,” says New York University Law Professor Stephen Gillers. One possible result will be more regulation from outside, through courts, administrative agencies and even public shaming in the press. In the effort to turn into lean and mean competitors, firms have been cutting away the fat. They may be shedding something more valuable too.

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