Richard J. Yurko, The Daily Record Newswire
Law firms are fragile. Even large law firms are fragile. One can make a cogent argument that large law firms are particularly fragile. While a large law firm may have hundreds of partners and thousands of associates spanning the globe, its very bulk can mean both that it is not inherently nimble and that there may be no shared ethos or "glue" holding the firm together.
The recent mass lateral acquisition of most, but not all, of the partners of Bingham McCutchen by Morgan Lewis is just the latest example of the swift disappearance of a large law firm from the national scene.
Not surprisingly, several social media posts have the tenor of a death in the family - or, if you will, a wake.
Over the last 35 years, I have tried to observe the legal scene. Let me put into words some of my conclusions. These conclusions are not particularly trenchant insights. They are points that many partners in law firms could articulate if they were given the chance.
Legal free agency
The real assets of any law firm are the lawyers that practice at the firm. Those lawyers, of course, go home every night. Through inertia, a shared ethos or camaraderie, or perhaps an act of faith, they return to work every morning. That is because, in general, attorneys cannot enter into agreements that restrict their ability to leave and practice somewhere else.
Think of it as though the New England Patriots had no long-term contracts with their players; every player was a free agent at every moment. Tom Brady could wake up one morning and decide that, really, he preferred to play for San Francisco for the rest of the season. After an equivocal start to the 2014 season, with some fans complaining, Brady might have done just that and the Patriots would not now be leading the AFC, as they are at this moment.
What person would want to be a Coach Bill Belichick in such a world? Yet that is the reality facing every managing partner of a law firm.
Reverse gravitational pull
Not only are there few legal impediments to partners and other lawyers leaving a firm at any time, but there is a peculiar perverse reverse gravitational pull that occurs at law firms.
If a large firm falls behind its peers within the AmLaw 100, its peers see that as an opportunity to raid key partners.
It is almost certain that a law firm that seeks to entice away a major producer from one of its competitors can offer that producer more compensation, and sometimes substantially more compensation, than the producer receives at his or her current firm.
The marginal cost of adding that producer to the new firm's roster is much less than the fully loaded cost of that producer at his or her home firm. That is especially the case if the major producer does not bring with her the entire team of lawyers that do her work, thereby allowing the new firm to spread its current overhead between its current business and the added business of the newcomer.
So, the "money" will almost always be better, at least initially, at the new firm for a producer who jumps ship. (Think about the Tom Brady analogy. If Brady were in New England only for the money, how tempting would it be for him to listen to higher numbers dangled before him by San Francisco?)
Money is not glue
Thus, if money is the "glue" that binds a firm together, then, well, its days are likely numbered as soon as the money hits a significant dip, other firms perceive that producers readily can be peeled away, and lucrative offers are discussed.
What would it be like to work at a firm where there is not a preponderance of home-grown producers but rather where it is only money that brought in large numbers of big producers laterally?
If large lateral producers Amy, Bob and Chuck arrived with much fanfare and several glowing press releases discussing "synergy" and an "international platform" (but they were actually only enticed by the money), does it not mean that those same producers will leave for their next synergistic international platform if the firm's profit growth lags behind others?
As a matter of self-preservation, does not such a firm have to rig the numbers so that reported profits per partner increase every year (to avoid falling behind its competitors), even if that means resorting to gimmicks like "de-equitizing" some service partners or partners whose billings fall below some arbitrary threshold, just to keep the publicized "profits per partner" growing?
Finally, even if a large firm can manage the profits per partner challenge well, keep in mind that every large firm with offices in many cities across the country or around the world always runs the risk that some bonehead move by a partner one does not know and has never met in a city far away can put the continued viability of the firm in jeopardy by some malpractice or misconduct with respect to a large matter. (Think of an accounting analogy, the fall of Arthur Andersen.)
Whither mid-sized firms?
Periodically, I hear announced the death of all medium-sized law firms by one consultant or another in the legal or business press. Mid-sized firms, which are not small enough to be focused boutiques and not large enough to span the country or globe, are seen by some as misfits, neither fish nor fowl. Such sweeping obituaries are far too premature.
A small law firm can stick together just because the partners actually enjoy practicing with each other. So, too, at mid-sized firms: The glue that can hold a firm together can be a shared ethos or a shared experience. It could be the fact that you actually know and like your partners.
Genuine affection for one's partners and a shared ethos can be the real glue that holds firms together. Such glue does not and cannot exist at a firm that has hundreds of partners and hundreds more associates, especially if many partners are there only as lateral acquisitions brought in by and for the money.
There are both boutiques and mid-sized firms that I know are truly thriving and enjoying their own non-AmLaw 100 definition of success. But, of course, boutiques and mid-sized firms fail as well.
Twenty years ago, after learning to be a lawyer at three different fine law firms, I founded my own firm. When I did so, many of my good friends at larger firms told me I was quite brave, and, well, I thought so too. But now, each of the fine firms where I first practiced has disappeared.
There is no joy in this, only sadness. Whether one practices at a large firm, a mid-sized firm or a boutique, there is risk everywhere. Law firms are fragile. Forget that at your peril. And on that note, let us now raise a glass.
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Richard J. Yurko is the founding shareholder of Yurko, Salvesen & Remz, a business litigation boutique in Boston. Prior to establishing his own firm in 1995, he was associated with Bingham, Dana & Gould, was a shareholder and litigation department head at Widett, Slater & Goldman, and was a shareholder and litigation department head at Hutchins, Wheeler & Dittmar. On occasion, he advises lawyers who are leaving law firms.
Published: Wed, Nov 26, 2014
