(Illustration by William Duke)

James Maiwurm, Squire Sanders’ chairman, was waiting for a flight at National Airport in Washington, D.C., at 9 in the morning on May 22 when his cellphone rang. On the line was a D.C. partner with alarming news: Someone was subverting the firm’s plans to merge with Patton Boggs. Specifically, former clients of Patton Boggs were challenging a settlement that Patton and Chevron Corporation struck over fraud allegations related to Patton’s role in bringing a multibillion-dollar suit against the oil company in Ecuador.

The call came at a particularly awkward moment: Squire partners were in the final hours of a three-day vote on a merger with the D.C. firm. If Patton Boggs’ former clients convinced a judge to reopen the settlement, that firm would face renewed litigation and the potential for a much larger financial hit—and in a merged firm, so would legacy Squire partners.

Maiwurm quickly ordered the vote suspended and the court filing made available to partners, who would also be given the chance to reconsider their choices. “Some people thought it was wishy-washy, that I was putting the deal at risk. But our partners deserved a chance to read the motion, and Patton Boggs’ response to it,” he recalled in early June, days after the merger became effective. “I owed that to our partners.”

While Maiwurm, 65, and the chairman-elect, 52-year-old Mark Ruehlmann, downplay the 11th-hour hiccup, it is revealing. While support for the combination in the United Kingdom, Europe and Asia appeared secure, enthusiasm in the United States was tepid, according to several current and recently departed partners. Ultimately, however, Maiwurm’s bet that partners would stand by him paid off: After the vote resumed late that evening, the deal passed overwhelmingly, with only about 10 “no” votes out of 428 partners. A week later, the agreement took effect, vaulting the now 1,579-lawyer firm to about 21th globally by head count; the firm is in 21 countries, behind only Baker & McKenzie, White & Case and DLA Piper among U.S.-based international firms.

Maiwurm insists that while Patton Boggs’ embroilment in the Chevron scandal unquestionably was the “elephant in the room,” once it had become clear that Chevron had settled, the reaction to a proposed combination was “uniformly positive.” But several partners note that Chevron was also just one of many concerns. After several years of declining profitability, Patton Boggs had seen an exodus of almost 100 partners in the previous 16 months, a severe cash crunch at the beginning of this year, and had even tapped restructuring counsel to explore its options—a crisis that played out very publicly. “The media was carpet-bombing Patton Boggs,” notes Maiwurm.

(For more coverage on what went wrong at Patton Boggs, click here.)

Is He Right for Her?

The real job is just beginning for Squire Patton Boggs’ new leadership—Maiwurm until the year’s end, and Ruehlmann after January 1. Despite the refrain by management at both firms about a shared vision and compatible cultures, the two have vastly different footprints, personalities and histories. In early June, amid a continuing drumbeat of Patton Boggs defections in Washington, some wondered whether the deal would drag legacy Squire’s already thin margins even lower—or worse. Still fresh in many lawyers’ memories was the downfall of Dewey & LeBoeuf, where a merger with a firm with structural weakness arguably contributed to a loss of confidence in management and to the firm’s eventual failure. Other recent firm failures—Howrey and Heller Ehrmann, for example—were hastened when key practice groups decamped, leading to a downward spiral. “There’s nobody I’ve talked to at Squire Sanders who doesn’t think Patton Boggs doesn’t have the potential to take the firm down,” says one partner who left recently.

“Merger math is real simple,” says another. “One plus one has to equal more than two. That’s not what’s going on here. We’ve been running at about 80 percent of what we could be the past few years, and Patton Boggs, maybe 60 percent.”

Nonetheless, a careful review of legacy Squire Sanders’ past growth is instructive. Squire’s story—one that has gotten lost in the glare of attention on the much smaller Patton Boggs—reveals a firm appreciated for its collaborative culture and remarkable for the flexibility of its business model. Unlike many single-tier, lockstep or non-verein rivals, its model allows for wider adjustments in both billing rates and compensation. It is a firm with an appetite not just for the premium cross-border deals and disputes but for the local, lower-rate bread-and-butter fare, much in the manner of Baker & McKenzie, Dentons and DLA Piper. And this is hardly the first time Squire has absorbed a distressed firm. The global firm’s future success or failure in digesting this latest merger partner—its largest, and in one of the most expensive and competitive legal markets—will depend on strategies developed in those earlier expansions.

The merger’s proponents include Bradford Hildebrandt, a veteran law firm consultant who advised on the combination and two previous Squire Sanders mergers. Asked by Maiwurm to speak to The American Lawyer, he said he believes the transaction will ultimately be a boon to Squire Sanders, which desperately needs some brand recognition and greater ballast in the United States to complement its global spread. “It’s good for their public image,” he says. “If you take firms in that range of 700 to 800 lawyers, they all kind of look the same. This is not just the same thing. It really changes the firm in an interesting way.”

“The fact is, Patton Boggs brings to Squire Sanders elements that Squire Sanders has long wanted: a very strong D.C. presence and some additional weight in New York,” agrees one partner who left early this year.

“It’s going to be fascinating to see what happens,” says a more skeptical former partner. “If some white knight had ridden in to save Dewey at the last moment, what would have happened? I guess we’ll see here.”

Earlier Marriages

Tall and bespectacled, with a slightly brooding aspect, Maiwurm, 65, looks more like a staid midwestern banker than a jet-setting dealmaker. “He’s not one of your brash types,” says one Ohio partner, in an opinion echoed by several others. “He is more of a quiet, cerebral administrator.”

But since he was elected chair of what was then Squire, Sanders & Dempsey in 2009, Maiwurm has been single-mindedly ratcheting up a global strategy initiated by his predecessor, Thomas Stanton, two decades earlier. Two-thirds of his time, he admits, is still spent on airplanes, in airport lounges or in any one of the legacy firm’s 39 offices.

In 1990 Stanton convinced the then-390-lawyer, eight-office Cleveland-based firm (three offices were in Ohio and a few were in other cities, with a tiny outpost in Brussels) to move into Prague and Bratislava in the wake of the Cold War. Soon Squire opened in Poland, Hungary and Ukraine, ultimately beating out larger rivals to win advisory work in the privatization of state-owned telecoms and other sectors. Though the firm had historically been best known for its public finance, mid-market M&A and infrastructure work, “we realized even back then that it would be something that would distinguish us in a market that is crowded,” says Frederick Nance, regional head of the the firm’s eastern U.S. offices. “In hindsight, the decision to start that process was not only farsighted, but has proved to be critical in positioning our firm in the new legal economy.”

Stanton also bulked up in some regional U.S. markets, striking deals in 2000 for the California and Asia offices of San Francisco’s Graham & James, then in the midst of dissolution, and in 2005 for an old-line Florida firm, Steel, Hector & Davis, at the time riven by high-profile departures. Stanton was a constant suitor, initiating talks at various times with Bryan Cave, Seyfarth Shaw and Denton Wilde Sapte, among others; one dream not realized was to find a merger partner to bulk up the Washington, D.C., office.

Maiwurm, appointed managing partner in 2003, was Stanton’s right-hand man in those efforts. As chairman, he was quick to make his mark, negotiating a transatlantic union with a midtier U.K. firm, Hammonds, in 2010. Then, during a 16-month period in 2011 and 2012, Maiwurm scooped up the Perth office of Minter Ellison, a major Australian firm. From there, it was on to Seoul, Singapore and Sydney. Maiwurm “has now stepped on the gas and has really pushed things forward with Hammonds and now with Patton Boggs,” says Nance.

The recent tie-ups have depended in large part on Maiwurm’s instinct for “fit” and on personal connections with like-minded firm leaders. “A lot of impetus for the Hammonds tie-up was driven by our relationship,” says Crossley, managing partner at legacy Hammonds and now Europe and Middle East managing partner of the combined firm. “Fundamentally what drove it was a very similar way of approaching the management and remuneration of partners and a similar management style.”

Both were looking for ways to build on their firms’ strength in cities typically avoided by their larger competitors. Hammonds, founded in 1887, had roots in the industrial heartland in Yorkshire and the West Midlands; Squire, in Cleveland. Hammonds had only opened a London office in 1991, a year after Squire opened in New York. Rather than focusing on the financial centers, which were already crowded and littered with failed efforts, both had built up “super-regional” global firms. Both had a focus on midmarket M&A; and Hammonds added Beijing, Berlin, Madrid and Paris to Squire’s international network.

Hildebrandt advised Squire Sanders to avoid regulatory and tax consequences by restructuring as a verein, splitting a single legal entity into separate U.K. and U.S. LLPs. Initially, Maiwurm didn’t like the idea, Hildebrandt says; the firm’s motto has always been that it is a “one firm” firm, and Maiwurm wanted to preserve a collaborative focus—and central control—over what would be a much larger organization. But in the end, Hildebrandt’s view prevailed. “It was the best way to get it done,” Hildebrandt says. “You can run it loose or run it tightly. Squire Sanders is the most closely run verein of any I know.”

The merger involved compromises on both sides. Hammonds, which had been gradually moving from a pure lockstep compensation system towards a merit-based one, adopted Squire’s system within a year. Squire allots compensation based on “contribution to the firm;” the amount of business a partner brings in is the primary, but far from the only, factor. Decisions about compensation are opaque, but pay information is transparent; pay ranges from around $300,000 for a dozen nonequity partners to $3 million for the firm’s three top earners, who include the chair-elect. About 15 earn more than $1 million, with many in the $700,000-$900,000 range, according to current partners. “People make what they should make,” says one.

For the first time, U.S. nonequity partners were asked to contribute capital; the size of the call is currently $30,000.Their voting power was greatly reduced. (Previously, every partner had one vote; afterward, nonequity votes represented a tenth of an equity partner vote, the firm says.) But changes were handled well, even former partners agree; and before the agreement was sealed, partners from both firms had gone on joint pitches, and found clients supportive. The combination would create a 179-lawyer London office, more than Cleveland’s 132, and, significantly, rope in a top U.K. pension fund practice and a well-regarded employment group. The merger “was Jim Maiwurm’s finest hour,” says one partner. “He went out and found this opportunity. And the process of selling it was very grassroots, relying on others to sell the combination to the partnership.”

After Hammonds, expansion into Asia became the top priority. But things had changed. Partners now learned about the firm’s acquisitions when they were all but finished. The Perth deal, for example, took just two weeks from handshake to completion. “What it showed management was that you didn’t need to have partner buy-in. There was never really any integration,” says one former partner. Perhaps because the firm is a verein, or perhaps because it has grown so fast, something has been lost, that partner asserts: the idea that “we were all part of one team. The idea that we’re all fighting for the exact same result.”

Maiwurm rejects the notion that the firm is less unified, and has been willing to spend firm resources to encourage that integration. For instance, partner meetings until recently occurred twice a year, rather than once a year like most other firms, and there was usually ample time to get to know one another, note several former partners (meetings are now every nine months).

Management’s global focus was so consuming, says one former U.S. partner, that the firm added a section to the annual partner achievements form asking partners to list three matters derived from the international expansions. Because of the local nature of some practices, however, some partners say that they began to feel left behind. “In our practice group, I don’t think any of us saw work come in because of the global expansion,” says a former IP partner, echoed by two others. Even though their practices weren’t benefiting, “we were paying a price for it,” the same ex-partner adds, noting that the firm pushed back upgrades on 10-year-old software despite what he called a dire need.

Baggage on Both Sides

As a result of Maiwurm’s efforts, legacy Squire Sanders is 50 percent larger than it was pre-Hammonds merger, but it appears to be stretched very thin; its profit pool in 2013 was 11 percent smaller than 2009. During the same period, profit margins sank from 22 to 14 percent, ranking it 198th for that data point among The Am Law 200.

While profits per partner have edged to $810,000 in recent years, that number hardly tells the full story. The Hammonds merger doubled the size of the nonequity tier—most legacy Hammonds partners were already classified as nonequity—and dragged down the combined firm’s average partner compensation by 22 percent, from $615,000 in 2009 to $480,000 in 2013. It ranked 93rd for that indicator among the Am Law 100. Although partners routinely call the firm’s financial management conservative, the firm missed its budget targets the past three years by 5 to 10 percent each year, according to former partners.

Maiwurm waves his hand dismissively. “We don’t get too fussed about the Am Law data,” he says. “We don’t have profit centers. We don’t look at these things through a precise financial lens.” The costs of running a widely spread firm are higher than at firms with a few large offices, he notes. “The greater the geographic division, the greater investment it requires,” he says. “My predecessor had the vision to put us on this international expansion track, and our partners have had the guts and the grit to do it.”

He adds that the lower revenues per lawyer stem from a structural fact: The firm does the bulk of client work in lower-cost, regional offices, regardless of provenance. That structure, he says, will continue to be a selling point to clients. The combined firm’s new tag line, rolled out in early June on the website, pitches the firm’s “Local Connections. Global Influence.” While growth in New York and London are viewed as important, he and Ruehlmann emphasized, the firm’s roots in regional markets will remain at least equally important. “Location is less and less a factor than it used to be,” says Maiwurm. “If you think about our strategy, cost-effectiveness is going to be a lot of what we’re doing here.”

Hildebrandt agrees. “A lot of firms have recently been opening back offices in low-cost areas,” he says. Squire Patton Boggs “already is in some.”

But some current and former partners, particularly in bankruptcy and litigation, say that problems go deeper. Their practices have been hurt during and since the recession; profits have slipped under increased rate pressure, and realization rates have dropped. Litigation realization rates, one former senior litigation partner says, fell from about 98 percent prerecession to 93 percent firmwide. (The firm confirmed that realization rates have declined.)

So far, the poor showing financially hasn’t led to an exodus; the firm has brought in 29 partners so far this year, and seen 25 depart. But Crossley says that the firm is now focused on increasing profitability. “We accept that we need to improve our financial performance,” he says. To keep talent from moving to other firms, “their numbers have to improve,” adds Hildebrandt.

The merger will be a drag on profits in the next few years—according to Hildebrandt, the firm will spend at least $4 million on marketing and technological integration alone, not to mention the cost of management time. Legacy Patton Boggs now adds Denver, Newark, Doha, Dubai and Riyadh to the geographic spread, increasing operational costs. The combined firm also assumes $8.6 million in Patton Boggs debt. (Squire Sanders had little debt and relatively minor pension liabilities since it phased out its defined benefit plans about a decade ago, says Maiwurm.)

More importantly, management will have to grapple with Patton Boggs’ productivity declines, which left it in a funk so profound that about half that firm’s partners billed less than 1,000 hours last year. Maiwurm says legacy Patton’s managing partner Edward Newberry (now one of three global co-managing partners) had already spent a few years in a large-scale restructuring, culling less productive partners and adjusting the compensation system away from its origination-based system toward Squire’s merit-based system. That restructuring continues; in the first week after the merger, 11 partners from legacy Patton Boggs were changed to “senior” status and three to counsel on the firm’s web site.

Maiwurm says the firm evaluated Patton Boggs not on its current situation but on its past financial strength and its premium clientele. Like Squire Sanders, Patton Boggs “went beyond their core,” says Maiwurm. “They were entrepreneurial, like Hammonds. They had the guts to go beyond their borders. That says a lot.”

Much of legacy Patton Boggs’ domestic practice—lobbying and public policy, but also litigation, white collar and investigations work—originated in its relationships with sovereigns and business entities in the Middle East. Relationships originally cultivated by those four offices generated many millions of dollars in annual revenues; five of legacy Patton’s top 15 clients are from the region. “You could spend a huge amount of money in the Middle East, and you would not be able to replicate what Patton Boggs has there,” says Crossley.

Crossley also notes that until recent years Patton Boggs was more profitable than Squire Sanders. (In 2011, Patton Boggs’ compensation to all partners was $625,000 to Squire’s $500,000, and PPP was $865,000 to Squire’s $800,000.)

“You’d have to say that Patton Boggs has been distracted,” Maiwurm says. “There was nothing normal about 2012 and 2013. But what does a normalized Patton Boggs look like? They’ve got some very strong horsepower. Think about what that firm’s gone through, and admire that it still exists. There was cultural glue there.”

Among the selling points, Maiwurm acknowledges, was the leadership of Newberry and cofounder and chair Thomas Hale Boggs Jr., who ponied up $3 million of their own money to help clear a firm bank loan the early this year. “Pretty damn impressive,” he says, nodding.

The Proposal

Negotiations and interoffice exchanges with Patton Boggs followed something of the Hammonds pattern. Partners first heard about a potential tie-up at the end of February, when Maiwurm sent a note to let the partnership know that the firms were in preliminary talks. One partner in Ohio says the news elicited shrugs at the time, since so many possible combinations had been discussed over the years. Partners heard more at a board presentation at the firm’s all-partners meeting in Los Angeles in March. Concerns about Chevron dominated the question-and-answer period. When the board was asked whether Patton Boggs had revised its client intake procedures in the wake of the Chevron matter, “the answer was, ‘We don’t know, we’re still doing due diligence,’” says the Ohio partner. Another attendee asked what the benefits would be to Squire Sanders. “The answer was pat talking points,” the Ohio partner says.

Later that same month, a group of Patton Boggs practice heads visited Cleveland. During a luncheon, partners split up into practice groups for an informal sharing. The meeting wasn’t reassuring to some attendees. “The litigation guy from Patton Boggs basically said they were struggling, that there was a lot of rate pressure, not a lot of high-volume engagements,” recalls one participant. “They were suffering from all the same problems we were.”

The exchange of detailed information about clients, compensation and finances went into hyperdrive after May 7, when Patton Boggs agreed to pay $15 million to Chevron to settle the oil giant’s fraud claims against it. Partners in Europe and the U.K. were the most enthusiastic about having more ballast in Washington; roughly half the firm’s lawyers are in the U.S. now, up from 38 percent before the merger. “The U.S. is the market that has the capacity to produce the most work for the rest of the firm,” Crossley says. “Greater critical mass in a place like Washington is potentially great news for us in Europe.”

But on the eve of the vote, many U.S. lawyers did not share management’s enthusiasm for Patton Boggs, despite that firm’s far higher brand visibility. “For some people, [the concern] was Chevron,” says one partner, who like others asked not to be named. “For a lot of others, it meant a dramatic change of focus from Cleveland to D.C. It was going to disrupt existing power relationships. For a lot of folks, it was the realization that there’s already a lot of work needed to get the firm going in the right direction. And Patton Boggs represents a whole lot of additional work. Integration is really hard work. It consumes a lot of time and energy. It takes three years to be seamless and integrated. So you’re really talking about the benefits not being seen for four or five years.”

Despite concerns, the overwhelmingly positive vote, partners say, was no surprise. One says he can’t remember any management initiative being voted down since 1996. “The truth is, there comes a point where you don’t really have the information, and if someone you trust who’s spent a lot of time looking at it says it makes sense, it must make sense,” he says. Partners were willing to give Maiwurm and Ruehlmann the benefit of the doubt.”I would not have done this merger,” says another partner who voted for the deal, “but that said, I trust Jim [Maiwurm].”

Ultimately, the megafirm’s success will depend on partners’ continuing confidence in management, which will continue to be dominated by Ohioans. Ruehlmann, a litigator and the chair-elect since last March, is respected for his rainmaking prowess, and the Cincinnati office, which he cofounded when he joined the firm in 1999, has the firm’s highest revenue per lawyer. A longtime colleague there, Stephen Mahon, will become global managing partner of clients and strategy. But some partners say they know relatively little about their incoming leader or his management style. His interests include “Cincinnati Reds, golf and bourbon,” quips one. “So far, that’s all I know.” ???Initial response from some long-term major clients, meanwhile, has been encouraging, say two current partners. Many of the firm’s Midwest-based clients, such as Cintas Corporation, Cardinal Health Inc., Eaton Corporation, The Sherwin-Williams Company, 3M Company and Ashland Inc., have regulatory concerns in Washington. On the day the successful merger vote was announced, Nance was attending a meeting of the 50 Club of Cleveland, a group of top local business professionals, when executives of two Cleveland-based Fortune 500 clients came over to congratulate him on the Patton deal. “They said, ‘This is good for you, and it’s good for Cleveland.’ But what surprised me is that they said that the merger was also good for them, because they have issues with the federal government and abroad,” he says, “and that we should talk.”

Ruehlmann is already looking ahead. Five years from now, he says, “we will have taken it to the next level. We will be bigger in the U.S. Every place where there is a major deal or dispute, where clients bump up against governments, this merger will be viewed as a game changer.”

With reporting from Brian Baxter and Katelyn Polantz.