Law Practice
May 30, 2001
Does Size Matter?
Doug Barton isn't apt to divulge per-partner profits of his firm, Hanson Bridgett Marcus Vlahos & Rudy. He's equally evasive when it comes to the San Francisco-based firm's revenues, partner compensation packages and the names of the firm's rainmakers.
Doug Barton isn't apt to divulge per-partner profits of his firm, Hanson Bridgett Marcus Vlahos & Rudy. He's equally evasive when it comes to the San Francisco-based firm's revenues, partner compensation packages and the names of the firm's rainmakers. But get him talking about the success of his 115-lawyer firm, as well as the success of other midsize firms, and you'll find the 58-year-old labor and employment lawyer effusive. Not only is his firm a success, he says, but the legal press is dead wrong about midsize firms.
"I thought the idea that certain firms, based on their size, are destined to fail unless they merge or globalize is fundamentally wrong," Barton says with a steady and determined stare.
With Hanson Bridgett as his primary example, Barton cites almost nonexistent turnover at his firm, steady growth in both lawyers and revenues, a stable client base and no interest in merging with larger suitors. When pressed to explain why he's so bullish on Hanson Bridgett and other successful midsize firms, Barton sounds like a big league manager. It's all about chemistry. Collegiality, loyalty and professional satisfaction keep law firms together, he says. Even the most talented, best-paid partners can't keep a joyless firm (or a ball club) out of the cellar.
Richard Stratton knows both sides of success and failure. Now a litigation partner at Hanson Bridgett, he practiced at San Francisco's Bronson Bronson & McKinnon before the firm dissolved in 1999. "Success in a professional sense requires that you have good people who are happy where they are and like what they do," he says. "You also have to be well-compensated and feel well-rewarded for your efforts."
The people at Bronson were certainly collegial. Bronson, in fact, defined the concept of the lifestyle firm, where lawyer happiness came at the expense of revenues. At its worst, Bronson partners were averaging only 1,500 billable hours a year. At the same time, the firm was growing rapidly, with cultural rifts between the firm's six offices cropping up. As a result, some well-performing partners, such as the prominent entertainment lawyer Barry Langberg, began to depart. Finally, the remaining partners stopped the hemorrhaging and agreed to close the 81-year-old firm in April 1999.
At the time, managing partner Richard Ardoin summed up the firm's failures.
"We were successful as a law firm but failed as a business," he said.
Why doesn't the same thing happen at Hanson Bridgett?
Stratton says he's happy and well-compensated, and the firm hasn't pushed growth at the sacrifice of personal relationships among attorneys.
"The point is that I'm happy to make significantly less than I could expect to make [at a larger firm]," he says. "But, there's a huge tradeoff. I know all my partners. That's very important to me."
Stratton's experience isn't uncommon at Hanson Bridgett.
Marcus Wu, 30, joined the firm as an associate after a year at the 700-lawyer Cooley Godward.
"I had opportunities elsewhere," says Wu, who specializes in employee-benefits law. "One of the main reasons I'm here is that the people I get to work with are not only competent, but it seems like people here actually care whether or not associates have a life."
Big firms pay lip service to quality of life issues, he says.
"If I've got a doctor's appointment, it isn't a problem here," he says. "There isn't a hidden resentment that I'm out of the office for a couple of hours."
Wu's not a slacker, however.
"I'm much happier here," he says. "I attribute most of that not to a decline in workload, but to the daily interaction between people here."
One of Hanson Bridgett's homegrown associates, Glenda Zarbock, thinks she's well-paid but knows she could probably make more at a bigger firm.
"The intangibles make up for any difference in salary," she says.
First-year associates at Hanson Bridgett make $105,000 a year, which is significantly less than the $135,000 salaries paid at some of the biggest firms. But Hanson Bridgett associates can earn a $5,000 bonus if they remain with the firm after a year and can also qualify for merit bonuses. Those bonuses aren't tied to any particular billable hour requirements, so they don't result in a bunch of overworked, stressed-out associates.
Bill Schlinkert is the chairman of the 120-lawyer Farella Braun & Martel in San Francisco. Like Barton, he talks fondly about the intangibles found at a midsize firm.
"We have the same quality and sophistication of work as larger firms. We have the same economics and we are charging the same amount of money for our time," Schlinkert says. "What you have here is a somewhat closer, more collegial atmosphere."
Collegiality, Schlinkert says, is the key to keeping partners and associates together.
"The cost of turnover is quite high," he says. "[Law firms] want to reduce their attrition rates."
Instead of shrinking, Farella grew by 30 percent last year.
Among other moves, it acquired 11 lawyers from the environmental practice group of the failed, 65-lawyer Landels Ripley & Diamond last year and increased its first-year associate base salaries to market rate, which hovered between $120,000 and $135,000 in 2000.
Specialization and sophistication seem to be another ingredient of successful midsize firms.
Both Hanson Bridgett and Farella have a handful of well-defined, distinctive practice groups. So does the 130-lawyer Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco and the 150-lawyer, Los Angeles-based Munger Tolles & Olson.
At Munger Tolles, those practice groups include litigation, corporate, tax, real estate and labor law.
"We're clearly not as full-service as megafirms," Ruth Fisher, the co-managing partner at Munger Tolles, says. "But we offer the areas that a significant client would want."
Munger Tolles clients certainly aren't small potatoes. They include Southern California Edison and Warren Buffett's Berkshire Hathaway.
Last year, in the wake of mergermania, it was thought that midsize firms must merge to survive. Clients, the thinking went, demand global representation with huge, full-service firms.
Midsize firms were also doomed, according to some recruiters, because it was thought that they couldn't compete with larger firms during the salary wars. As a result, recruiters predicted that they would lose the race for top law school graduates and laterals.
The midsize Munger Tolles isn't desperate to merge - in fact, it is anything but. And, the firm is an avowed salary warrior. Last year, it upped its associate salaries to $125,000 to meet market rates.
Stuart Lipton, the managing partner of Howard Rice, says his firm is also not dying to merge. Like Munger Tolles, he says it pays the same associate salaries as megafirms like Brobeck Phleger & Harrison, Orrick Herrington & Sutcliffe and Wilson Sonsini Goodrich & Rosati.
"We compete with big firms," says Lipton, whose firm represents Pacific Gas and Electric and the Oakland Raiders.
Howard Rice also competes financially with the big boys.
For one, Howard Rice's billable rates are comparable to the biggest firms. First-year associates bill at slightly less than $200 per hour, while the top billing rates for partners are approximately $500 an hour.
The firm remains competitive with clients by keeping overall costs for clients low.
"We tend to use more-experienced people, which allows us to use fewer people and tap our strengths of creativity and value-added expertise," Lipton says. "That's our true competitive advantage."
Howard Rice has an almost one-to-one partner-to-associate ratio.
"We strive to get the highest quality legal work we can and we try to stay away from routine, repetitive work," he says. "That's why we don't have three or four associates per partner."
Munger Tolles' Fisher echoes that principle.
"We don't as a firm do a lot of commodity work," she says. "We tend to handle unusual or significant work. That's very attractive to the people we like to hire."
David Slone says his firm, Townsend and Townsend and Crew, is starting to deal with growth issues, as it finds success in the midsize firm niche.
"We're not too large and not too small," he says of the 150-lawyer, San Francisco-based firm. "We're not so large that no one knows anyone, but with five offices, it's getting harder."
Townsend is an anomaly among midsize firms. It's really a large intellectual property boutique. Even so, Slone shares some of the same values of his midsize firm colleagues.
"I've never been at a firm where I didn't value knowing my partners," says Slone, who joined Townsend in 1977.
For this reason, he's resisted overtures from larger firms.
"From our point of view, we don't want to join up with an 800-lawyer firm," he says.
Although he's bullish, Hanson Bridgett's Barton isn't Pollyannaish about the health of midsize firms.
One pitfall, he says, is success.
Success, he explains, can breed rapid growth and rapid growth can endanger collegial midsize firms.
Bronson, he says, grew too fast. As it reached 190 lawyers in the early 1990s, cultural differences between its offices began to crop up. As a result, partners began to defect, revenues dropped and overhead remained high.
Collegiality can also endanger an otherwise healthy midsize firm.
Hanson Bridgett verged on becoming a lifestyle firm in the 1990s. Revenues were flat and the firm's lawyers seemed a little too relaxed.
"We had a collegial relationship at the expense of accountability," Barton says.
Although no major partners and clients departed the firm, the period was marked by malaise.
"There was some unease and a little bit of puzzlement," he says. "We were really not progressing. Associates began to wonder if there really was a future for them. We were at risk of losing associates and we had lost a few."
At about the same time in 1996, Barton was elected managing partner. Although he wasn't facing an official "crisis" at the firm, he was determined to turn things around at the sluggish San Francisco outfit.
At first, the firm went through a diagnostic period. Barton attended managing partner workshops, talked to a law firm consultant, and began talking in earnest with his peers.
Farella's Schlinkert says self-diagnosis is important for any firm, large or small.
"You constantly need to re-evaluate your model and how to be competitive," he says. "Midsize firms do fill a very prosperous niche if they correctly understand their market."
For a while, that wasn't happening at Hanson Bridgett.
"Many of us didn't understand the business very well," Barton says. "We didn't even know how to price ourselves and what the necessary work ethic should be. Firms cannot survive if they're not practicing law in a businesslike way."
When it finally understood this reality of business, Hanson Bridgett installed strong section heads and redefined its core practice areas. It also began to hold partners and associates accountable for the financial health of the firm.
The firm changed its compensation and bonus schemes to tie compensation to performance. Barton and other section leaders began to talk seriously to underperforming partners and associates, and the firm began circulating monthly financial reports to partners and quarterly reports to associates.
Recently, Barton says the firm has talked about conducting so-called 360-degree reviews, in which associates review the performance of the firm's partners.
"The idea was that everybody should provide for the firm's future," he says. "It wasn't enough for people to handle things on their desks."
Over time, Barton says the firm learned to be more agile and entrepreneurial. Now, he says, the firm can pick lateral partners quickly. Recently, for instance, it acquired the Sacramento outpost of a failed San Francisco firm, Schachter Kristoff Orenstein & Berkowitz, in a matter of days. The acquisition included one Schachter partner and two associates.
Perhaps even more importantly, the firm began to understand its own mission.
Hanson Bridgett, Barton says, is determined to "provide a high level of service to clients in need of our specialized areas of expertise at a reasonable price with attorneys who share common goals and see the firm as a place where they can have a fulfilling career."
That might be a mouthful, but once the firm's lawyers understood that mission, Barton says, the malaise turned into determination.
"If everyone is committed to the same collective purpose, then you have tremendous staying power," he says.
The only concern now is success itself.
"The bigger we get," Barton says, "the harder it is to hold on to what we've got."
Erik Cummins
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