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Few characterize Gray Cary Ware & Freidenrich’s general ambivalence about money as well as John “Bob” Shuman Jr., the firm’s new managing partner of operations. “If you had decided it was all about the money, you never would have come here in the first place,” Shuman said. “And if you did, you were an idiot.” Yet Gray Cary partners are thinking about money a great deal these days, and that’s fueling some changes at the firm. Partners aren’t plotting a palace coup, and so far, there has been no mass exodus for better-paying competitors. But clearly, they are not satisfied with their paychecks. Gray Cary is under pressure to raise profits to remain competitive as a Silicon Valley player. Now, management has to balance preserving the firm’s collegiality — which rewards teamwork over rainmaking — while adopting policies, including ushering out unproductive partners, to force the numbers up. “We’ll make the smart and tough decisions we need to be competitive economically,” said firm Chairman J. Terence O’Malley. “Our culture makes us a little slower to jettison partners after one bad year. Over time, everybody’s got to carry their weight.” The firm’s profits per partner peaked in 2000 at $525,000, slid in 2001 to $515,000, and last year plunged to $460,000. To put it into perspective, the firm’s partners now earn between $95,000 and $340,000 less on average than their major Silicon Valley competitors. Brobeck, Phleger & Harrison and Gray Cary were the only two of the 10 largest-grossing law firms in the Bay Area to experience a decline in profit margin in 2002. Gray Cary’s profit margin was 20 percent on a $205 million gross. In 2001, the margin was 23 percent. In hindsight, partners say Gray Cary didn’t move fast enough last year to cut excess associates and staff. “We hung in longer with our staffing decisions than was optimal,” O’Malley said. The firm also continued to increase the size of its partnership, including absorbing a small Washington, D.C., firm and promoting from within. But partners won’t be immune to cost-cutting pressures going forward. The firm is now considering firing partners after years of carrying underperformers with the hope they will transform. It’s not clear, however, if the firm has actually taken steps in that direction. To be sure, Gray Cary had made some progress in recent years when it comes to productivity. Prior to the 1994 merger of Palo Alto’s Ware & Freidenrich and San Diego’s Gray Cary Ames & Frye, partners and associates at both firms were billing an average of 1,750 hours. The firm managed to get that average up to 2,025 hours for associates in 2000 and 1,950 for partners. Currently, the firm’s annual billable target is 1,850 for partners, 1,900 for non-equity partners and 1,950 for associates. However, the firm’s lawyers were billing about 10 percent below target last year, O’Malley said. The drop in billable hours prompted the firm to do two rounds of layoffs in 2002, one in January and the second in August. The firm also reshuffled its 420 lawyers into two practice groups � transactions and litigation — and appointed managing partners to each to make sure the firm wasn’t missing any cross-selling or marketing opportunities with clients. The hardest-hit practice group was corporate, which contributed less than half of the firm’s $205 million in gross revenue in 2002. That put litigation on the hook to carry the firm for the first time since the merger. Partners deny that this has created tension between the two practice groups or has echoed the growing pains the firm experienced after its 1994 creation. Before merging, Palo Alto’s Ware & Freidenrich focused on corporate transaction work and San Diego’s Gray Cary was a litigation specialist. Merging the two firms was a slower process than expected because of the resulting disparate range of practice groups and an inefficient culture. The problems proved a drag on profitability for several years, and the firm has consistently lagged behind that of its tech competitors in both revenues and profits. And though Gray Cary is now known for its laid-back culture, Palo Alto and San Diego didn’t immediately mesh. White-shoe litigators accustomed to wing-tips in the south had to learn to work with their casually clad corporate brethren in the north. Despite that history and the drop in corporate work, litigators say they’re not ready to bolt — even if they could fetch a much higher salary at competing firms where litigators command top dollar. John Allcock, an intellectual property litigator, said corporate lawyers generated significant income for the firm during the boom, so it’s fitting that litigation should kick in during the corporate downturn. “If you look at the way we are configured, out litigation practice is generally strong and those are good counter-balances,” said Allcock, a pre-merger veteran. He acknowledges that an “us and them” mentality once existed between northern corporate lawyers and southern litigators, but he said that dissipated as the firm grew. Allcock added that he sticks around for the camaraderie, which has bred a fierce loyalty among the partners. “Money isn’t long-term glue because everybody is going to have a bad year,” Allcock said. As Mark Radcliffe, a Gray Cary corporate partner who is a leading intellectual property lawyer, puts it, “You want to turn it around rather than take the ax out and start cutting away,” Radcliffe said. “I don’t think we feel there needs to be a massive reorganization.”

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