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Midsize, and Loving It
The National Law Journal
Michael Napoli had to get honest with himself. As a partner in the Dallas office of K&L Gates, he was representing mainly midtier clients in commercial and securities litigation. "If I were representing Google, K&L Gates would be the right place. But I'm not that guy. I'm never going to be that guy," said Napoli, 45.
Now a partner in the Dallas office of 115-attorney Cox Smith Matthews, Napoli finds that the San Antonio-based firm he joined a month ago is a nice fit for his practice. Still, he struggled with letting go of the prestige of practicing as a partner in a giant international law firm.
Napoli went to K&L Gates in 2001, when it acquired his old firm, 14-lawyer Wolin, Ridley & Miller. It was his decision to leave K&L Gates, he said, but it had become clear that he was not representing the major clients that the 1,762-attorney firm wanted to serve. "It is something to say you're a partner in one of the largest firms in the world," he said. "But that's just silly pride. It was just ego."
Napoli's situation is not unique. Many attorneys landed at big firms during the boom years of the last decade, often through mergers, only to find that their regional books of business didn't fit the large-firm model. With their clients unwilling to pay higher fees charged by big firms, Napoli and others have left behind the prestige and platforms of megafirms to find a better match with midsize practices.
Sometimes the partner's departure is the big firm's decision and at other times it's the partner's, but often it's a mutual decision -- both sides realize the fit isn't right. Ward Bower, a principal with Altman Weil, said the movement of partners into smaller shops is partly the result of larger firms "dusting off" their pre-recession strategies, which, for many, means refocusing on big clients with big fees and shedding partners with smaller practices.
That can be good news for midsize law firms, which generally have lower overhead costs and are better suited to sustain practices with smaller clients. While by no means immune to market downturns, midsize firms by some indicators seem to be bouncing back better than the bigger firms are. During the second quarter of 2012, midsize firms collectively posted the best performance of any law firm market segment, according to Peer Monitor, the Hildebrandt Institute's legal market tracker. Demand from clients of midsize firms -- which, for Peer Monitor, are those firms not on the Am Law 200 -- increased by 1.9 percent, compared with a 0.8 percent increase in Am Law 100 firms and a 1.0 percent increase for Am Law 200 firms, the organization reported. (The Am Law lists represent The National Law Journal affiliate The American Lawyer's survey of the largest firms by revenue.)
At the same time, big clients have been unbundling the work they previously doled out to megafirms and sending pieces of it to midsize firms with better rates, said Peter Zeughauser of Zeughauser Group, a consultancy.
"More work that can be bought at lower prices is going to midsize, lower-price firms," Zeughauser said. "This, combined with the pressure to maintain high profits per equity partner at the top national and international firms, is driving partners in those firms with lower-rate practices to greener pastures at the midsize firms."
Five years ago, Carl Westmoreland joined Seyfarth Shaw when his firm, Powell Goldstein, was suffering. Most of the lawyers remaining in that 100-year-old Atlanta firm were scooped up by Bryan Cave the following year.
"In 2007, it made a hell of a lot of sense to go to Seyfarth," said Westmoreland, 59. "The most sound economic models [at the time] were at the national firms."
Westmoreland, a real estate lawyer, practiced in Seyfarth's 730-attorney Atlanta office until June, when he left to join 130-attorney Morris, Manning & Martin. It was his decision to go, he said. His commercial real estate practice, which is heavily focused on land use and zoning in the Atlanta area, had taken a hard hit during the recession.
"After the unpleasantness of '08, '09 and 2010, a lot of large firms started looking more at what their core practices were," Westmoreland said. "I had the sense that practices like real estate that were disproportionately affected by the recession were never going to be that important for Seyfarth."
Seyfarth management declined an interview for this story through a spokesman (as did K&L Gates). The Seyfarth brand is more recognizable in major markets -- something Westmoreland said he liked about working there -- but for his Atlanta-centric practice, Morris Manning is better known for real estate, he said.
"Having an office in L.A. is fine for some partners, but it does me very little good," he said. "Has anyone in Houston heard of [Morris Manning]? Probably not, but it doesn't matter to me."
Neither Westmoreland nor Napoli provided specific information about compensation at their old firms compared with their new ones, although both said they expected to earn more at their new firms. They also said that the "buy-in," or capital contribution required of them to enter the partnership at their new firms, was much less. The buy-in at Cox Smith was at least 100 percent less than at K&L Gates, Napoli said. "It's night and day."
With higher overhead and technology costs, big law firms generally require partners to kick in larger percentages of their revenue as their capital contributions, said Bill Brennan, a principal at Altman Weil. At smaller firms, total contributed capital represents about 5 percent of cash receipts. At large firms, it's about 10 percent, he said.
Kevin Collins, 42, who left Greenberg Traurig in November to join the Sacramento, Calif., office of 142-attorney Nossaman, said the buy-in at his former firm was double the amount at his new firm. But that wasn't his reason for leaving.
"Even with the clients I have that are international, there is a lot of rate pressure," said Collins, a litigator whose practice focuses on commercial, construction and public law. At a firm like Nossaman, he can bill about $450 to $500 per hour, he said. At a firm like Greenberg Traurig, he could bill $700 an hour. The only difference, he said, is the price -- "I'm the same damn attorney wherever I go." His clients have included resort giant Intrawest Corp., Anheuser-Busch Inc. and Platinum Motors Inc.
Kurt Kappes, co-managing partner of Greenberg Traurig's Sacramento office, declined to comment specifically about Collins' departure. "Attorneys join and leave firms for different reasons," he said in an email. "Not every firm will meet everyone's requirements."
Though happy at his new firm, Collins finds he misses the advantages of big-law practice in a couple of ways. It's easier as a partner in a well-known firm like Greenberg Traurig to snag new business from big clients "already beholden to Am Law 10 or Am Law 50 firms," he said. At smaller firms, "you get their commodity work to begin with, and then you have to prove yourself."
He also misses the bells and whistles of big-law practice. Greenberg Traurig has a huge library system with top-notch librarians who knew how to use it. Computers and other technology were fancier, too, he said. But the ability to charge lower rates and get to know all of his colleagues makes up for any shortcomings, he said.
"I really like having personal relationships with the lawyers I work with," he said. "I don't want to rag on Greenberg Traurig, but the partner retreats were like speed-dating."