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Fred Schwarzer set out to create a more financially efficient law firm by throwing one major cost out the window: associates. So in 1988, he left his job as a corporate partner at Pillsbury, Madison & Sutro and started General Counsel Associates in Sunnyvale. During the first year Schwarzer, sitting alone in his office at a cheap desk he assembled himself, had difficulty selling other attorneys on his idea. “I wasn’t able to convince anyone else to be stupid enough to join me,” he said. After a year of going it alone, Schwarzer resolved to give it one more year and told himself if he hadn’t attracted any other attorneys, he’d take another firm job. Eventually Schwarzer persuaded Debbie Robbins-Schwarzer — then a partner at Wilson Sonsini Goodrich & Rosati and now his wife — to join him. Soon, they lured former colleagues from Wilson and Pillsbury, and another from Fenwick & West, and put together a team of lawyers they felt would be positioned to gain business from the Valley’s emerging startups. “[Schwarzer] had this inspiration that there is a lot of legal work that doesn’t take an army to do,” said Elizabeth Roth, one of the first four partners to join the firm. “All many clients need is one smart, experienced lawyer. He thought he could make a good living pricing his services at half of what the big firms charge.” Like many other businesses, a vibrant Valley economy fueled GCA’s early growth, and the firm’s business model never faced tough times. But it is being tested now. Low overhead has enabled the firm to continue making money — but not as much. Revenues are down by as much as 20 percent, according to firm estimates. But having no associate salaries to pay has helped keep the firm afloat. Its model has also restricted growth by limiting the scope of work attorneys can handle. In fact, as the firm continues to grow, GCA’s 22 partners question whether the firm’s model can be sustained. “At some point there are sizes of deals that aren’t appropriate for us,” said Clifford Robbins, a corporate and securities partner who joined the firm in 1994 from Coudert Brothers in New York. “An IPO pushes it, everyone has to be on board. We don’t have associates who are our servants.” MODEL BEHAVIOR Partners at GCA tout its model as being able to provide clients with up-close-and-personal service at a low cost. “We’re not training attorneys on our client’s nickel,” Roth said. “The big firms are doing a bait-and-switch — a partner comes in to talk, but they aren’t the person to actually craft the paragraphs of a document.” By the time the dot-com boom hit the Valley, GCA had positioned itself to take advantage of the booming startup business. “The model started on the idea that startups really needed a dedicated general counsel and couldn’t get one,” Robbins said. “Junior associates were handling this work at the big firms. But here, they knew [experienced partners] were actually doing the work. VCs liked the model too; they liked having me on the case, not a junior associate.” Like Robbins, many of the partners brought a number of clients with them when they joined the firm. As GCA slowly grew, partners mixed in work for small startups with the nuts-and-bolts — transactional work contracts, agreements — for large corporations. GCA’s client list includes some of the biggest names in Silicon Valley: Genentech Inc., 3Com Corp. and Novell Inc. among them. Much of the firm’s business comes in the form of referrals from other firms. “GCA has traditionally gotten business by word of mouth,” said John Montgomery, a former corporate partner at GCA who left for Carr & Ferrell in 1999. “When I was there, I did little business development. It was all word of mouth and referrals.” A number of referrals have come from Schwarzer. The firm founder left in 1994 to become general counsel of a technology company and referred most of the company’s legal business to GCA. Schwarzer is now a venture capitalist and still sends work back to his old firm. Yet, for some partners, the drawback of the no-associates model has been the limit it places on the size of projects that the firm can take on. “Ultimately, the partner-only model didn’t work for my practice,” said Montgomery. “The model is perfect for real estate, commercial litigation and tax practices,” he said. Montgomery said he couldn’t handle some of the larger deals that came his way, which is why he ultimately left GCA. Robert Sloss, an intellectual property attorney at Farella Braun & Martel, started GCA’s litigation group in the 1990s. He left the firm because he wanted to grow his practice beyond the limits that GCA’s model imposed. “Because of their structure, they’re limited in the kinds of cases they can take,” Sloss said. Partners have talked at times about abandoning the firm’s no-associates model. “We did an IPO in 1998, and we were stretched, and it wasn’t much fun — we were taxed,” Robbins said. During that time, partners discussed the possibility of adding associates or support staff to allow them to better handle larger deals. But that never happened. In addition to Sloss and Montgomery, the firm acknowledges some attrition from attorneys who wanted their practices to grow beyond their limits. “This firm has never had convulsive exodus — it’s been organic, Robbins said. “One former partner wanted more IPOs — his practice had many companies headed toward that path and he didn’t want to hand them off to another firm.” ALL ABOUT LIFESTYLE Attorneys who come to GCA often do so with the intention of escaping the demanding culture of big law firms. To say GCA is a lifestyle firm may be an understatement. There are no billable-hour requirements, no associates to manage or mentor, and, partners say, these factors provide them with the freedom to grow their practices and earnings to suit their lifestyle. “We’ve always attracted people a bit more counter-culture than the law firm model,” said Robbins. “The autonomy [our model] brings is attractive.” “We do the work out there that there is to do; we don’t have to take care of associates,” said Deborah Aikins, a real estate attorney who came to the firm in 1995 from Wilson Sonsini. “I’m not required to be here all night. As long as my clients are comfortable and happy, that works for me.” Aikins’ husband, Douglas, a land-use attorney, joined the firm in 1995 from Gray Cary Ware & Freidenrich. Sallie Kim, who recently came to the firm from Wilson Sonsini, said she felt some concern over the firm’s limitations at the beginning of the hiring process. “But after looking at their history, I’ve seen them all do well,” she said. “Not only with the types of cases but with their level of happiness and contentment.” Kim, a mother of two, said the independence that the firm’s model affords makes it a good place for working moms. When Roth started at the firm, she had three elementary school-aged kids. “I was able to stay connected to the lives of my three boys,” she said. Partners say GCA’s model has also helped make the economic downturn more palatable. “When the downturn came I had spare time — it didn’t hit as hard because we didn’t have associates to feed. I am as busy as I want be,” said Roger Royse, the head of the firm’s management committee. He had just returned to the office in the afternoon after kayaking in Bolinas. The upside to the model is freedom for partners. “If I decide this is my ski winter, I’ll make less money, but the impact on my partners is minimal,” said Robbins. All administrative functions at GCA are dealt with by co-op committees. The committees have a rotating membership, so each partner at one time or another takes turns running the day-to-day business. At the end of the year partners who have worked on tougher administrative tasks are awarded a small bonus for their efforts. “We’re the reverse of most law firms,” said Alisa Baker, an employment compensation partner who came to the firm from Fenwick & West. “There is no ego thing to being in charge; you’re donating your in-charge time.” But giving everyone a say in the firm’s decision-making process is another aspect of the business model that will be compromised if the firm continues its growth, partners say. “We are a true democracy — everyone participates in the decision-making process,” Royse said. “That might be not workable at 50 attorneys — but it could be at 30. There will come a day where we are bigger than the model will support.” In some ways, GCA appears more like a conglomerate of solo practitioners sharing a shingle than a law firm. But that’s not the case, Royse explained. “It’s a very independent compensation model, but we work together. On a big deal, we staff it with employment lawyers, tax lawyers, et cetera.” Schwarzer said he originally set up the firm’s compensation structure so that GCA partners keep 60 percent of all the money billed. Of the remaining cash, half is a fixed amount paid to the firm for overhead. The other half goes to a variable fund that is used for business origination bonuses and other firm overhead costs. If at the end of the year money remains in the variable fund, it is given back to the partners. This way, Schwarzer said, some partners can earn 80 cents on every dollar. Current partners at the firm said this equation has changed a bit over the years, and partners now keep 65 percent to 75 percent of their revenues, with the rest going to overhead costs. While traditional firms place a lot of emphasis on rewarding partners for originating business, the GCA model places more on the amount of hours worked. Schwarzer said he created the firm’s financial model this way because he tired of the animosity created between big-firm partners by sharing profits evenly regardless of the amount of hours worked. “People, for legitimate reasons, didn’t want to work 2,400 hours a year — but unless they gave up their lives at the big firm, people were always unhappy with them. If you were part time at a big firm, you were a second-class citizen,” he said. CHANGING TIMES The troubled economy has forced GCA partners to retool their practices to respond to the changing needs of businesses. The firm’s real estate lawyers, for example, are taking on more subleasing work compared to the sales transactions they were handling a few years ago. Litigation is also going strong, the firm said. The group comprises three former Wilson Sonsini associates and a former partner at Gibson, Dunn & Crutcher, and they have been picking up work mostly on defense-side employment matters. The firm has litigated general commercial and employment cases for Bausch & Lomb and Novell and is working on multiple cases for San Jose-based Flextronics. GCA is also looking to capitalize on the new areas of business stemming from the massive regulatory changes resulting from Sarbanes-Oxley, the just-enacted federal law on corporate governance. Baker’s employment compensation practice is looking toward capturing business emanating from new standards of independence governing the boards of directors at public companies. “I am now being hired by board members to watch over their compensation dealings to make sure they adhere to Sarbanes-Oxley,” she said. “The board looks at our firm when there’s any potential conflicts [of interest].” But GCA’s livelihood hinges on its ability to lure seasoned attorneys from big law firms who bring not only their legal gravitas, but also their clients. For attorneys used to the vast resources and comfortable offices of a large firm, GCA’s more meager, stripped down environment is not for everyone. Like management and every other aspect of its business, GCA employs a co-op model for hiring. “It’s an excruciating process; the person needs to want it,” said Roth. Candidates have to meet and interview with every partner. A majority of the people working at GCA are colleagues of existing partners. For GCA, growth also means questioning the values on which the firm was predicated. And change is already taking root. The firm is changing its name from General Counsel Associates to GCA Law Partners to help alleviate confusion about the lack of associates. “If the firm grows, the model will have to evolve a little in terms of governance. But the basic financial model doesn’t need to change in spirit,” Schwarzer said. “But GCA will have to have some system of rewarding client development and a slightly more hierarchical structure if the firm wants to move into larger transactions.”

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