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At 61, Stuart Gordon still bills more hours than any other attorney at Gordon & Rees, the firm he co-founded in 1974. He works seven days a week, and his office seems like a shrine to a type-A personality: Medals from the 49 marathons he’s run adorn the wall next to his desk, and the desk itself is buried under piles of unfinished work. “I work on the plane when I travel; I work both weekend days, and even while sitting poolside on vacation,” Gordon said with a wide smile. Working hard — very hard — seems to be the key theme these days at Gordon & Rees. An anomaly in an economic climate characterized by downsizing and canceled summer associate programs, Gordon & Rees seems to be surviving, and at least according to partners, thriving. In the past year alone, the 185-lawyer firm has added 30 new attorneys — a 20 percent increase in attorney ranks at a time when others are laying off lawyers. The firm now fills five floors in its Battery Street office building in San Francisco, up from two a decade ago, and has added offices in San Diego, Los Angeles, Sacramento and Newport Beach. All this for a firm that has specialized in one of the lowest-margin, least attractive practice areas of the past 10 years: insurance defense. In fact, the firm’s growth may be the direct result of its early response to changes that have roiled insurance defense firms. Less work, more rate competition and the growing use of in-house counsel by insurance companies caused a number of defense specialists to shutter. While still dependent on insurance clients, Gordon & Rees has tried to diversify its practice and has had to let go of some of its low-end clients. It also has had to grapple with how fast growth and a more competitive business environment transformed the firm’s culture. “We had to do something; we could see the writing on the wall,” said Michael Lucey, the firm’s managing partner. “We had to diversify. The only way to survive was to [focus our efforts on] specific expertise — like employment and pharmaceutical. That allowed us all to specialize our practices. It’s not a unique approach, but we did it quicker than others.” DRAMATIC CHANGES If times have been tough for Bay Area law firms, they have been especially rough for insurance defense firms. Many have been forced to reinvent themselves completely — or close their doors — as insurance defense work has dried up. The insurance industry changed dramatically in the 1990s. Once comprising myriad small companies, the insurance industry saw rapid consolidation. Realizing that money could be saved by creating in-house defense groups, the larger companies stopped spending as much money on outside counsel. Gazing out his office window at the bay below, Gordon reflected on that. “[It] was a major indicator to us. The insurance companies were putting a strong hold on rates — there just wasn’t a lot of financial reward in [insurance defense work].” Gordon estimated that insurance defense made up about 80 percent of the firm’s practice 15 years ago, and now it comprises maybe half. Representing pharmaceutical companies has been a key area of growth. Gordon & Rees represents the pharmaceutical company Wyeth, the maker of Fen-Phen, in California class actions over the diet drug. The firm also was a local counsel in litigation involving breast implants, representing Dow Corning. For the past few years, Stanford University has used Gordon & Rees as its primary law firm for defense in employment claims against the school. The firm recently helped the university settle a case of an employee who alleged that a co-worker told her to get an abortion because “successful researchers do not have children,” said Jeffrey Seilbach, Stanford’s director of risk management. Gordon and Lucey said the firm now only takes “high-end” insurance defense work — meaning bad faith and construction litigation — which brings in higher billing rates. Gordon & Rees reported $54 million in revenues for 2001, making it the 36th top-grossing firm in California, according to a Recorder survey. “We want to continue to expand our non-insurance defense areas — more corporate, more securities, more tax, estate and probate,” Gordon said. Ronald Ruma, managing partner of Hancock Rothert & Bunshoft in San Francisco, said Gordon & Rees was early to recognize the importance of lessening the firm’s dependence on the insurance industry. “They probably did do it earlier, and they’re growing because of it,” he said. “That’s why they’re going to be less dependent on the insurance industry, which is a very smart move,” said Ruma. In contrast, Ruma said Hancock also decided to diversify its practice, but unlike Gordon & Rees, the firm has not increased its size. “You see everyone else growing and it causes you to say ‘gee, did we make a mistake?’” Ruma said. “We’re always discussing our size. I’ll admit that growing has its attractions.” CULTURE SHOCK With the movement away from insurance defense — the firm’s bread and butter since its inception — Gordon & Rees’ culture began to change. “We lost a number of partners who philosophically didn’t agree with this decision,” Lucey said. “They didn’t want to change.” Gordon was managing partner during the early days of the firm’s growth. As management issues demanded more time, Gordon handed the management reins off to Lucey and focused on being a lawyer again. In addition to diversifying, Gordon & Rees had to bring in more revenue, increase billing rates and bring in fresh talent — no easy task. “The insurance defense business is a tough business to grow — it’s low-margin work,” said Peter Zeughauser, a law firm management consultant. “It’s hard to attract top talent to practice in [insurance defense]. Margins are low and salaries are low. By diversifying their practice they may have fueled it with revenue and profits.” Gordon & Rees began marketing its new practice groups to companies who couldn’t afford the big firms, and that strategy was successful almost immediately. Soon the firm was luring partners from larger firms whose clients wanted lower billing rates, Lucey said. Casey Clow, a former partner who had been with the firm since 1984, saw the firm’s growth as a natural progression, but opted out in 1997 to join a smaller, four-attorney firm. ” I made a quality-of-life decision,” he said. The departure of some longtime colleagues who preferred the environment of a smaller law firm “was a hard time emotionally,” admitted Lucey, who has also been with the firm since the early 1980s. Laurie Simonson, a seventh-year associate at the firm, said Gordon & Rees has tried to maintain its close-knit, familial culture — but growth has made that a challenging task. “The hardest thing about the growth is that it’s hard to know all the faces and names. The partners used to know everyone, and now it’s impossible.” The firm’s most pronounced growth is in its San Diego office, which focuses on many of Gordon & Rees’ newer practice areas, including business and technology, and some intellectual property. In fact, that office has seen a 300 percent revenue growth, said Lucey, and holds 40 attorneys. But Gordon & Rees has not been quick to pay large firm salaries. That’s not necessarily a bad thing, said Simonson. “Other firms pay more, but they require more billable hours. MoFo raised the salaries but they also raised the billable-hour requirements. There’s no such thing as a free lunch. “I don’t want G&R to keep increasing hours — and the tradeoff for that is the compensation is lower,” Simonson said. “The tradeoff is to have a life. I am active in community service and bar groups. People can spend time with their families.” The firm does not release information about compensation, and said only that a compensation committee looks at everyone individually and figures out “what’s fair.” And as it’s grown, Gordon & Rees has struggled to add diversity to management ranks. “Ethnic diversity is not where we want it to be. We have tried, and it’s a difficult task,” said Simonson. “The firm has succeeded in hiring a good number of gay and lesbian associates, and there is a pretty good balance of men and women at that level.” But that’s not the case as you ascend the ranks. “It’s hard to keep ethnic minorities at the firm when they look at the top and only see white faces,” Simonson said. Lucey said the firm has signed on with the Bar Association of San Francisco’s goals for minority recruitment, and it just held a reception for minority law students at Bay Area law schools. “The firm is working on it. In seven years it will be better,” Simonson said, referring to the firm’s seven-year partner hiring track. “It’s a long-term thing.” Long-term growth is exactly what Gordon and Lucey are banking on. On the wall next to Gordon’s desk hangs scores of medals he has collected from the marathons he’s run — New York, Paris, Boston and others. He’s in for the long haul. “We’re not an insurance defense firm anymore — if someone said that, they’re missing something,” Gordon said. “I’d like to see the firm hit 300 lawyers by the time I stop practicing.” “I want to be an all-purpose law firm — that’s my goal — and we’re getting there, but still have a ways to go.”

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