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You’d be hard pressed to find anyone who would 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,” says Shuman. “And if you did, you were an idiot.” Even so, Gray Cary partners are thinking about money a great deal these days, which is fueling some changes at the firm. Partners aren’t exactly 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,” says J. Terence O’Malley, the firm’s chairman. “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 then plunged last year to $460,000. That means partners are currently earning, on average, between $95,000 and $340,000 less than their couonterparts at other major Silicon Valley firms. Brobeck, Phleger & Harrison and Gray Cary were the only two of the 10 largest-grossing law firms in the San Francisco 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,” says O’Malley. The firm also continued to increase the size of its partnership, including the absorption of a small Washington, D.C., firm and promotions from within. But partners won’t be immune to cost-cutting pressures going forward. The firm is now at least thinking about firing partners after years of carrying some who were under performing. To be sure, Gray Cary had made some progress in recent years in terms of 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 boost 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 hours for partners, 1,900 hours for non-equity partners and 1,950 hours for associates. However, the firm’s lawyers were billing about 10 percent below target last year, according to O’Malley. The drop in billable hours prompted the firm to go through two rounds of layoffs in 2002. 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 experienced by the firm after its merger-related creation in 1994. Before the merger, Ware & Freidenrich focused on corporate transaction work while Gray Cary specialized in litigation. Problems stemming from the merger resulted in 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. The wing-tipped litigators down south had to learn to work in harmony with their casually clad corporate colleagues to 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, one of Gray Cary’s IP litigators, says corporate lawyers generated significant income for the firm during the boom so it’s only fitting that litigation should kick in during the corporate downturn. “If you look at the way we are configured, our litigation practice is generally strong and those are good counter-balances,” says Allcock. He acknowledges that an “us and them” mentality once existed between Northern California corporate lawyers and Southern California litigators. But that, he says, has since dissipated, and he now sticks around for the camaraderie, which has helped to fuel a sense of loyalty among the partners. “Money isn’t long-term glue because everybody is going to have a bad year,” says Allcock. Or, as IP lawyer Mark Radcliffe, a Gray Cary corporate partner, puts it, “You want to turn it around rather than take the ax out and start cutting away. I don’t think we feel there needs to be a massive reorganization.”

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