Updated 5:05 p.m.
Leaders of Patton Boggs and Squire Sanders on Tuesday called their firms’ merger, announced four days ago, a “game changer” built on the ability to represent clients in multiple countries.
As merger talks progressed, each firm flew partners around the globe to visit offices. Patton Boggs partners looked at about half of Squire Sanders’ offices, and Squire Sanders’ lawyers spent time at all but one of Patton Boggs’ offices. The trips helped solidify the relationship between the two firms, according to Thomas Hale Boggs Jr., a Patton Boggs founding partner and the new firm’s chairman emeritus.
The cultural fit between the two firms is “remarkably good,” Boggs said on a teleconference Tuesday. “Maybe it’s because we both started as babies and grew up,” he said. Boggs said the merger will be judged in the future as “one of the most successful combinations of two firms in some time.”
“This is about building not a bigger law firm but a better law firm for our clients,” James Maiwurm, Squire Sanders CEO and the new firm’s global chairman until January, said Tuesday.
The 30-minute phone conference, in which reporters were only permitted to submit questions via email, came four days after Squire Sanders’ partners approved the merger despite a hiccup in the voting last Thursday. Patton Boggs’ partners approved the merger on May 20.
The merger will go into effect June 1. It caps almost six months of negotiations between Squire Sanders and the financially struggling Patton Boggs. The smaller, Washington-centered firm declined from 485 lawyers at the end of 2012 to about 325 lawyers; Squire Sanders has about 1,300 lawyers.
Total lawyer headcount at Squire Patton Boggs will be 1,573 lawyers, leaders of both firms said, making it the 21st largest firm worldwide, viewed against last year’s American Lawyer Global 100 list.
Patton Boggs will become part of Squire Sanders’ Swiss verein structure, an organization that allows separate profit pools in different countries and brings together the firms under one management team and brand name. Citing a culture of collaboration among offices, Maiwurm said he believes “the verein structure is irrelevant in the way that we manage this law firm.”
Maiwurm will take the reins initially as chairman and global CEO and will step down at the end of this year. Mark Ruehlmann, who was chairman-elect at Squire Sanders, will occupy the top position at the combined firm beginning Jan. 1.
Edward Newberry, Patton Boggs’ current managing partner, and Stephen Mahon, Squire Sanders’ current global managing partner, will serve as co-global managing partners at the combined firm, with Newberry in charge of “regulatory and policy solutions,” and Mahon handling “clients and strategy,” according to the firm.
Squire Sanders began the talks with Patton Boggs last December, as the latter firm completed a calendar year of downsizing and in the midst of its struggle to maintain sufficient cash flow.
During an almost three-month public courtship, Dentons also tried to engage Patton Boggs, but Squire Sanders insisted on an open-ended exclusivity agreement in its talks with the firm, according to a person with knowledge of the Dentons discussion.
Squire Sanders was interested in Patton Boggs’ lobbying clout, as well as business practices and white-collar work in offices across the country—Dallas, New York, Denver—and in the Middle East, Maiwurm said. Boggs said his firm’s work representing sovereign nations, including China, Georgia and countries in Africa, fit well with Squire Sanders’ global network.
The combined firm will encompass 45 offices in 21 countries worldwide, with about half outside the United States.
Although no offices will close, there will be some consolidation where both firms have offices. Lawyers in Patton Boggs’ New York office will move into Squire Sanders’ space at Rockefeller Plaza for a combined team of about 50 lawyers. Dual offices in Saudi Arabia will also combine, Maiwurm said. In Washington, Squire Sanders’ 60 partners, now near Dupont Circle, will move to Patton Boggs’ building in the West End.
Both firms are reasonably well matched in terms of revenue and profitability. According to the most recent Am Law 100 report, Squire Sanders’ equity partners took in an average of $810,000 in profits last year, a 1.3 percent increase from 2012. Patton Boggs’ equity partners earned $720,000, a 2 percent drop. Squire Sanders’ revenue per lawyer stood at $630,000, while Patton Boggs’ stood at $640,000. But a partner at Squire Sanders says that many more Squire Sanders than Patton Boggs partners earn in the $1.1 million to $1.3 million bracket, while a majority of partners at Patton Boggs, with the exception of a handful of high earners, earn around $500,000.
The recent trajectory of the firms is different. Patton Boggs has been plagued by low productivity and declining profitability in recent years, including both planned and some unplanned departures.
Patton’s cash flow worsened in 2012, after a major account involving insurance settlements from the 2001 World Trade Center attacks dried up. The firm’s New Jersey office, which had billed $50 million at its peak on the World Trade Center matter, attempted to regenerate that cash flow by taking on the enforcement of the $9.5 billion judgment against Chevron over pollution in the Amazon—an attempt that almost crippled the firm’s prospects. (Patton Boggs announced in February it would close the New Jersey office.)
Early this year, Patton Boggs faced a cash crunch, according to several former partners. Partners were asked to be patient with their draws as Newberry and Boggs volunteered to suspend their own, sources said. Around the same time, Newberry and Boggs personally contributed $3 million between them to carry the firm through, according to the sources.
Squire Sanders’ Maiwurm said the firm made a variety of analyses, and that “when you put the balance sheets together, it’s a balance sheet that those of us who are conservatively oriented will be comfortable with.” The combined firms will not incur significant additional debt, he added.
The compensation systems are also different, but according to Maiwurm, the combined firm will follow Squire Sanders’ more subjective model.
Patton Boggs had long relied on using a strict formula for compensation that awarded origination credits to partners. Newer partners, billing thousands more hours, received less because they hadn’t originated the accounts.
Half of the partners were billing less than 1,000 hours a year and some billed less than 100 a year, according to a current Squire Sanders partner who reviewed the firm’s finances, a consultant and another partner familiar with the partnership. “People were eating heartily and barely killing,” another former Patton Boggs partner said.
Squire Sanders, by contrast, has a system that assigns value to origination and billings, as well as rewarding other kinds of nonbillable work such as firm leadership and other intangibles, according to several lawyers at the firm and a consultant.
Maiwurm said the shift at Patton Boggs toward a more holistic compensation system was already clear when the two firms began talks.
“The cultural fit had to do with that shift in philosophy. It’s a compensation system that focuses on the global good of the law firm,” Maiwurm said. “Patton Boggs has embraced that philosophy; that was a direction that they were heading towards already.”
Patton Boggs, according to several partners, has planned to shift the compensation away from a purely origination-based system for several years, though that process was far from complete. They also said firm leaders have waffled on pruning its equity partner ranks. The firm had told some of its less productive partners they would have to retire, former partners said. But the names on that list changed, causing frustration among partners.
These problems and others are among the reasons some partners with significant business have left Patton Boggs in recent months.
Departures that represented large books of business included lobbyist Jonathan Yarowsky, who joined Wilmer Cutler Pickering Hale and Dorr, and government contracts group leader Robert Tompkins, who went to Holland & Knight. Serious losses also occurred in Patton Boggs’ Dallas office, where a group of 23 attorneys left last July for Holland & Knight, including the office managing partner; more recently, a group of six partners in Dallas opened an office for McGuireWoods in April.
The merged firm, Maiwurm said, is not expected to trigger many departures related to client conflicts. “Substantially everybody from both firms will be joining the combined firm,” he said. The conflicts, he added, “were fewer than expected.”
A few attorneys, however, “don’t feel comfortable” joining the new firm and will leave, Maiwurm said. Among those likely to be left behind: James Tyrrell Jr., who had pushed for Patton Boggs’ involvement in the Chevron case.
Pillsbury is in talks with more than a dozen partners at Patton Boggs who are considering leaving the firm, according to someone familiar with the discussions. None of the moves would happen before the June 1 closing of the merger.
According to several lawyers and consultants in Washington who have seen résumés, however, partners at both firms were still mulling plans to leave for other firms as of last week. At Squire Sanders, several partners are moving on, including four health care lawyers who are joining Jones Day.
A question during the teleconference about the new firm’s name—which drops Sanders to make room for the full name of the Washington-focused entity—elicited laughter and hesitation from firm leaders. “It was a difficult negotiation,” Maiwurm said.
He further explained: “We’re trying to take advantage of two storied names in the legal profession. These are two names that have a lot of value.”