Mid-Market Report

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David Gialanella

Lizzy McLellan

Mar 08, 2019

It's become a common refrain among large national and international firms that there is no headquarters, just a "one-firm" mentality. Midsize firms, in contrast, are often still centralized around a single home base. But a few have successfully installed firmwide leadership outside of the firm's original headquarters. Zack Needles has the story on what makes it work.

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Decentralized Law Firm Management Can Work. Detached Law Firm Management Cannot.

By Zack Needles

The phrase "perception is reality" is generally attributed to Republican Party strategist Lee Atwater, but that principle is just as applicable to running a law firm as it is to running a campaign—particularly when it comes to the tricky proposition of decentralizing management functions.

Whether the firm has moved to a truly "headquarter-less" structure or has simply installed a managing partner or chairman in a satellite office, the perception among lawyers and staff that their new leader's home base is the de facto HQ is a reality firm management must contend with.

And the only effective way to do that, law firm leaders and consultants said, is for the new firm head to put in plenty of face time with attorneys and staff around the firm and to remain acutely aware of how every decision will impact and be received by the firm as a whole.

While technology has eliminated many of the old geographic barriers to serving clients, physical location can still be a significant factor when it comes to the internal operations of running a law firm.

Eric Seeger, a principal at the management consultancy Altman Weil, said a managing partner who works outside of a firm’s historical headquarters or largest office is no longer rare.

“I don’t know that the clients care that much,” he added, but he emphasized that the firm administration could care a great deal.

Especially in the early days of a new managing partner’s tenure, Seeger said, “It’s important to be on site regularly” to establish relationships.

In 2016, after Ulmer & Berne partner Scott Kadish was elected to serve as the 150-lawyer Cleveland firm's first Cincinnati-based managing partner, he quickly made it a priority to travel regularly to the firm's other offices.

"The way I have made this work is I'll do Cleveland once or twice a month for a couple of days," he said. "And I use that time to meet with people, to actually walk around the halls and to see what people are doing. Maybe once every three months, I'll go to [the firm's smaller offices in] Chicago and Columbus to check in on people. I do that—one, to make sure they know I'm looking—and to make sure they know I care."

Given that the firm is still very much headquartered in Cleveland—its chief financial officer, chief marketing officer, chief information officer and all of its other administrative functions are housed there—forming personal connections with attorneys and staff around the firm and remaining accessible have been vitally important, Kadish said.

But, Kadish added, the fact that he was elected managing partner in the first place, beating out two other Cleveland-based candidates, is a testament to the firm's philosophy that leadership should be about ability, not location.

"I use this in recruiting: 'They voted for me even though I'm in a satellite office because they thought I was the best person for the job,'" he said. "It really has to do with the culture of our firm."

Walking the Walk

For some firms, naming a managing partner who works outside what has traditionally been thought of as the main office can be a way of signaling a de-emphasis on any one location; a step along the path toward full decentralization.

But, as Bob Hicks, chairman of the executive committee and managing partner at 450-lawyer Taft Stettinius & Holister, can attest, that path is a long and winding one that never really ends.

In 2017, Hicks, a partner in Taft's Indianapolis office, took over as the first firmwide chairman and managing partner based outside of Cincinnati in the firm's 131-year history.

By then, Taft already had in place a long-established model of decentralized management, in which C-suite positions, back-office functions and practice leaders are spread across a number of offices, each of which has considerable autonomy to operate in the way that makes the most sense in that particular market. All of that is overseen by a firmwide executive committee and a firmwide compensation committee, both of which are made up of attorneys from across Taft's various offices.

That structure was established during a period of great expansion the firm experienced under the leadership of Hicks' predecessor, Thomas Terp, in part to kill the notion that any one office was more important than the others, according to Hicks.

"Here’s the problem with a headquarters model: the only people who like the headquarters model are the ones who work in the headquarters," Hicks said.
And maintaining a truly decentralized model has been integral to the firm's growth, Hicks explained.

Since the mid-aughts, the firm has expanded throughout the Midwest via a series of mergers with smaller shops, including the tie-up with 100-plus-lawyer Indianapolis firm Sommer Barnard that originally brought Hicks to Taft.

Hicks said the firm has been able to find merger partners and quality lateral hires—and, most importantly, integrate them successfully—largely because of its laissez-faire approach to managing the day-to-day operations of its various locations.

But even with decentralization in place as a key tenet of Taft's identity by the time he took over, Hicks said he was and still is "obsessively compulsive" about combating the impression that Indianapolis is somehow the center of the firm's universe simply because that's where he calls home.

"The people who are disadvantaged by me being from Indianapolis, ironically, are the people in Indianapolis," Hicks said with a laugh. For example, he said, when the time comes to pick a location for one of the firm's annual retreats, his choice is invariably anywhere but Indianapolis.

Hicks said the firm also takes great care to ensure that its executive committee comprises diverse representatives from each of its 10 offices and that its growth does not become too concentrated on any one geographic location.

"If you ever develop a model where you say you're decentralized, but then you have disproportional growth or the management committee is stacked with partners from one city, that just destroys it," he said, adding, "To walk the walk takes a lot more work and a really thoughtful approach...It's not something you think about once a year. You think about it every day."

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Mid-Market Recap: Opportunities and Risks in the Billable Hour

By Hank Grezlak

There’s a tendency to talk about segments in the legal market as if they are completely different animals. And while that might be true in terms of the types of clients and billing rates, I don’t think that’s the case outside of those two elements anymore.

A lot of the same issues, challenges, problems and pressures are felt by firms of all sizes. The world is changing, the profession is changing, and the legal market is as competitive as it has ever been.

Case in point was this story by Roy Strom about a partner at midsize Chicago firm Neal Gerber & Eisenberg admitting to years of overbilling, according to an Illinois lawyer discipline complaint.

According to the article, Christopher Anderson admitted to the overbilling in August 2018. The firm’s investigation determined that Anderson’s conduct impacted 100 clients. Not an insubstantial number, right?

The firm offered to refund the clients $150,000, roughly 20 percent of the time Anderson had billed, according to Strom’s story.

Before joining Neal Gerber, Anderson spent time at Kirkland & Ellis, where he had overbilled as well.

In Strom's article, Neal Gerber’s managing partner, Scott Fisher, said the investigation into Anderson’s conduct didn’t turn up any unreasonable billing or “discernible pattern of time inflation.”

“The investigation further found that, had our firm been subjected to an outside audit of its billing records, Mr. Anderson’s time would not have drawn attention,” Fisher said in an email.

There are lots of interesting nuggets in the story. What drew me was that Anderson had felt pressured to overbill at both firms. The perception is often that big firm lawyers are under much more pressure to rack up billable hours. But that’s not the world Strom’s story portrays.

The story, citing the complaint, said Anderson, who had a billing rate of $450 in 2018, overbilled because of “what he perceived to be the firms’ billing expectations.” The days he felt hadn’t billed enough, he would simply add time to actual work had done.

One example given was that he might bill for 30 minutes for a task he had only worked on for 18 minutes.

Nowhere in the article does it suggest that Anderson felt less pressure at Neal Gerber versus a behemoth like Kirkland & Ellis. What does that tell you?

Dan Packel did a smart follow up and found that when it came to overbilling, most of the industry experts he spoke with pointed to the billable hour as the root of the problem. In his story, Packel cited a study that showed nearly half of all firms missed their billable hour targets.

One of the people Packel spoke with was New York University School of Law professor Stephen Gillers, who produces a widely used casebook “Regulation of Lawyers: Problems of Law and Ethics.”

“This is a perennial problem over the last generation with American law firms: the intensification of competition not only with other firms but also with lawyers within a particular firm,” Gillers said. “And it’s only escalated. No one has been able to say, ‘Wait a minute, let’s get some sense of proportion here and recognize that there are values in life other than money.’”

Two takeaways for me from reading both articles: most firms are just setting themselves up for failure/frustration when it comes to the billable hour, and if midsize firm lawyers are feeling the same billable hour pressures as Big Law attorneys, doesn’t that put mid-market firms at serious risk for talent? Read More

 

Q&A
At Levenfeld Pearlstein, Executives Lead Lawyers to Innovation, Better Metrics

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Firm Name: Levenfeld Pearlstein, LLC
Firm Leader: Angela Hickey, CEO
Head Count: 67 attorneys
Locations: Chicago
Practice Areas: Full-Service
Governance structure and compensation model: Professionally managed law firm. Merit-based, subjective compensation system.
Do you offer alternative fee arrangements? Yes

The following answers were provided by Hickey. They were edited lightly for style.

The legal market is so competitive now—what trends do you see, and has anything, including alternative service providers, altered your approach? Is your chief competition other mid-market firms, or is your firm competing against big firms for the same work?

Many of the ASPs were originated by professionals who work within the legal system and saw an opportunity to improve an aspect of the legal service delivery model. It speaks to the enormous lack of agility that exists in law firms that so many ASPs exist. Law firms are competing not only for clients but also for talent. Another unfortunate market trend involves the marginalization of women attorneys. That a majority of the female attorney population leaves the practice of law before the first decade of practice is both a significant problem as well as a huge opportunity for firms that can find a way to retain all of its talent.

Our competition varies by practice area. The overall size of firm is generally not an indicator of our competition; rather, it is the depth, experience, and approach of each practice as compared to various practices in other firms.

Having stated the above, our largest competitor is innovation itself. Firms that figure out how to retain talent and deliver the greatest value to clients win. We are dedicated to doing both at LP and have invested in a platform that embraces innovation and inclusion.

Does your firm employ any nonlawyer professionals in high-level positions (e.g. COO, business development officer, chief strategy officer, etc.)? If so, why is it advantageous to have a nonlawyer in that role? If not, have you considered hiring any?

I am a law firm Chief Executive Officer and my team includes a Chief Financial Officer, a Chief Operations Officer, a Chief Business Development Officer, and a Chief Talent Officer. None of us has a law degree (we have plenty of other degrees). Our firm outperforms its peers on virtually every metric. I don’t think this is a coincidence. Law firms are complicated businesses and are missing a significant opportunity when they are managed by consensus and by committees, especially when the decision makers are not trained or fully available to commit to the role. There are extremely talented executives in our industry and it is a shame to see their talent underutilized. To pick up on a popular Steve Jobs quote, “Don’t hire smart people and tell them what to do. Hire smart people so they can tell you what to do.” Amen.

On another note, can our industry PLEASE stop saying “nonlawyer?" It is more than just an annoyance. Referring to someone as non-anything indicates that the person is starting from a position of weakness. This one small change may serve to turn the attention away from what highly talented people are not and toward what they can actually do. This shift may help lawyers-in-charge appreciate that we likely already have the tools available to deal with market demands and opportunities, if only we could see and deploy them. More than most other industries, ours should appreciate that words matter. We do not refer to hospital executives as “non-doctors.” How about just saying, law firm executives? Read More

 

Big Moves? Big Clients? Let Us Know.

Have an item to share for our Who Got the Work or Midsize Moves" columns? Tell us all about it, by emailing afurman@alm.com.

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Column
How the Rise of the Legal Network Is Powering Midsize Law Firms

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By Glenn M. Cunningham

The annual paper recently published by Georgetown University and Thomson Reuters—2019 Report on the State of the Legal Market—issued one of the starkest warnings yet of the rapid demise of the traditional law firm model. The report urges the legal sector to challenge some of the long-held assumptions underpinning the conventional economic structures adopted by law firms for decades and recommends alternative approaches that are more compatible with the needs of 21st century clients.

It was noted that this is especially the case for independent, midsize U.S. law firms that can no longer sustain a business model, typically favored by their bigger and wealthier cousins, which relies on firms competing for top talent by hiking associate pay and then passing the cost onto clients.

We now operate in a world where clients want borderless, tech-savvy, enterprising and accessible legal services providers that are able to combine global reach with in-depth local expertise. However, clients do not necessarily want—or expect—to pay premium fees for these services. Indeed, while legal talent and expertise are important for clients, midsize firms must appreciate that this should not come at the expense of efficiency and reduced costs.

So, is it possible for midsize firms to use the rapidly changing marketplace as an opportunity? How can they attract top talent to help them compete for complex big-ticket mandates—traditionally the preserve of wealthier firms—while maintaining a competitive pricing strategy?

International firms and elite Wall Street practices often trade upon their reputation and track record, and by doing so have traditionally been able to command premium fee levels for client work that requires the highest level of legal expertise. This in turn makes them a potential magnet for top caliber rainmakers and associates who are enticed by top-end compensation packages and golden hellos.

Inevitably, midsize firms feel pressure to follow suit. Despite the fact that these firms may not able to generate the same high level of fee rates as their larger counterparts, such firms may feel compelled to match escalating salaries to employ or indeed retain the best talent—a recruitment strategy that will ultimately prove unsustainable.

The Georgetown/Thomson report warns mid-tier law firms that face the greatest level of competition from a variety of providers to resist the temptation to do this. A suggestion we can all agree on, but what is the alternative? The report recommends firms make a realistic assessment of their market position and think more creatively when it comes to securing a long-term, sustainable and successful future.

A True Alternative to Big Law?

Against this backdrop, how can midsize firms compete for top-end work? For some, this will mean investing in technology and reducing costs or to improve the efficiency of service delivery. But another solution, I believe, is to join an elite global legal network. Arguably, firms can gain a significant advantage in their domestic markets by drawing in expertise from a network, which provides them with the capacity to undertake complex cross-border work through collaboration. All without the need to sign up to an unsustainable and indeed outdated recruitment model.

Clients, meanwhile, will benefit from working with some of the best legal talent in the world, without the top fees charged by the large international firms. Interlaw’s report, Global Legal Services in a Disruptive World, uncovered that the one area of major frustration for today’s global client is the sheer lack of consistency offered by traditional international law firms across their offices. Clients want a seamless service, with lawyers able to collaborate effortlessly across multiple jurisdictions. For the client, the structure of the legal provider is becoming less important. Delivery and client service excellence are key. Read More

 

Who Got the Work: An International Art Feud and Bread Packaging IP

By Aleeza Furman

Nicholas O’Donnell of Sullivan & Worcester is representing Russian-born, New York-based art dealer Alexander Khochinsky, who was detained at a Paris airport after Poland made an Interpol request for his extradition, according to artnet News. Khochinsky, an American citizen, has been in a legal battle with Poland over his ownership of an Antoine Pesne painting that Poland labeled as stolen by Nazis during World War II. O'Donnell claims the detention was an act of retaliation for a suit Khochinsky filed regarding the painting.

Bread manufacturer King's Hawaiian announced in a press release that it settled an intellectual property lawsuit with grocery store chain Aldi. The suit, the second in three years between the two companies, centered on claims that Aldi sold sweet Hawaiian bread stuffing mix in packaging that was confusingly similar to King's Hawaiian bread packaging. Brian M. Wheeler of mid-market firm Atkinson, Andelson, Loya, Ruud & Romo was on King's Hawaiian's intellectual property enforcement team, alongside lawyers from Quinn Emanuel Urquhart & Sullivan.

Hanson Bridgett is acting as legal counsel to Tetra Tech EC Inc. after several groups filed a petition with the Nuclear Regulatory Commission to revoke the company's license to work with radiological materials. San Francisco activist group Greenaction and the the Golden Gate University School of Law Environmental Law and Justice Clinic filed the petition regarding Tetra Tech's work at Hunters Point Shipyard, according to Oakland News Now Today The NRC initially rejected the petition, finding credible Tetra Tech's claims that its work complied with contractual requirements.

McAfee & Taft, alongside Fulmer Sill, filed a lawsuit on behalf of commissioners of Pittsburg County, Oklahoma, over the effects of the opioid crisis in the area, according to the McAlester News-Capital. The firms are seeking damages against 37 pharmaceutical companies and two physicians, alleging that the crisis is a result of corporate greed and that the defendants are responsible for the costs and resources spent fighting the opioid epidemic.

Attorneys John S. Guttmann and Hilary T. Jacobs of Beveridge & Diamond are representing the National Security Archive pro bono in its filing of a Freedom of Information Act suit against the Defense Intelligence Agency. According to History News Network, the Archive is trying to compel the DIA to release documents that it believes likely contain a letter from a former DIA director warning that a 1983 NATO nuclear exercise may have caused danger surrounding tensions with the Soviet Union. The suit comes after the DIA allegedly failed to substantively respond to the Archive's FOIA request six months ago.

 

Midsize Moves: An Office Move in Allentown, a Solicitor in Chicago

By Aleeza Furman

Fitzpatrick Lentz & Bubba announced that its main office is set to move from its current location in Center Valley, Pennsylvania, to downtown Allentown, Pennsylvania, starting in early 2020. The move comes as a result of the firm's expanding numbers—it now has 36 attorneys, 13 paralegals and 80 total employees. The new office will be on the eighth floor of Two City Center.

Former Dechert attorney Ethan E. Litwin joined Constantine Cannon's New York office as partner. Joining in the antitrust practice, he represents domestic and international clients from Europe and Asia. As well as being admitted to the New York Bar, Litwin is a solicitor of England and Wales.

Civil litigation attorney Peter M. Katsaros left his position as partner at Golan Christie Taglia, which he held for 10 years, to become partner in Hahn Loeser & Parks' litigation practice in Chicago. According to the firm's announcement, Katsaros has practiced in his field for almost 40 years and is co-founder and principal of both a public speaking consulting firm and an organization providing performance-based public speaking workshops.

New York-based Patterson Belknap Webb & Tyler hired Barbara L. Mullin as special counsel, the firm recently announced. According to her LinkedIn profile, Mullin is based in the Philadelphia area and was formerly partner at Akin Gump Strauss Hauer & Feld. She focuses her practice on patent litigation, with experience in technologies and products such as recombinant antibody technology, medical devices and methods, small molecule pharmaceuticals, semiconductor wafer processing and water guns.

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