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Arent Fox Kintner Plotkin & Kahn is looking for answers. A longtime fixture of Washington’s legal scene, Arent Fox today is beleaguered by flat revenue and a stream of partner exits. Now the firm has begun an extensive effort to regain its footing. “It’s a task that leaves nothing sacred except our name,” says managing partner William Charyk, who hoping to change Arent Fox’s status in the marketplace while not undermining its traditional mores about partnership and loyalty. But Charyk and his partners face a difficult task. Within the last year, Arent Fox has weathered the departures of 52 lawyers. And over the past decade, the firm has shut four offices, leaving only the D.C. home base and its New York outpost. A series of merger talks with close to a half-dozen firms reached a dead end — along the way provoking internal dissent and prompting the departures of key partners from core practice areas. In 2002, Arent Fox dropped off the D.C. 20, Legal Times‘ survey of the top grossing law firms in the D.C. area, after a long slide. In 1987, it was No. 4, with $43 million in overall revenue and 185 lawyers, falling behind only Covington & Burling, Arnold & Porter, and Hogan & Hartson. The leaders of Arent Fox, while engaged in critical self-analysis, say the firm isn’t ailing. As proof, they point to a jump in profits per partner last year and the arrival of recent hires, including former South Dakota Republican Rep. John Thune, the firm’s new senior government affairs counselor, and legal commentator and litigator Roger Cossack. If there is anyone vested in Arent Fox’s well-being over the last three decades, it is Charyk, who joined the firm in 1973 as an associate after graduating from George Washington University Law School. A tai chi and kung fu practitioner in his spare time, Charyk has an even, quiet bearing that has won him respect from both lawyers at the firm and those who have left it. The 54-year-old tax attorney, who served as managing partner from 1995 to 1998, is also well aware that he’s heading a firm that many lawyers agree is in need of a better-articulated vision for its future. “In the past, the firm has prided itself on being a one-stop shop,” says Charyk. “There wasn’t a really good focus on where we should be committed to grow.” Firm chairman Marc Fleischaker, who has served on the firm’s executive committee since 1997, echoes Charyk, who took over day-to-day management responsibilities in January. “Right now, we’re a little unfocused,” says Fleischaker. “We’re trying to be all things to all people, and we’re clearly not that.” Six months ago, Arent Fox hired Hildebrandt International to assist in forming a new business and management strategy. Within the firm, three task forces comprising four partners each are mapping plans for how to refocus on core practice areas and revamp the compensation and governance structures. Their recommendations will be presented to the partnership by the end of the summer. While the endgame isn’t clear, the process will surely foster internal change, says Fleischaker, another George Washington law graduate, who joined the firm in 1971. It will not, he stresses, involve shedding practice groups and kicking lawyers out the door. Unlike other firms that have undertaken dramatic restructuring efforts that forced out entire practices, Arent Fox wants to reshape itself more gently. The 58-year-old Fleischaker, who last month was awarded the Whitney North Seymour Award by the Lawyers’ Committee for Civil Rights Under Law for his pro bono work, doesn’t want to follow the lead of other firms that have followed a radical restructuring model. “They basically told people who weren’t in mainstream practices to leave,” says Fleischaker. “We don’t have that attitude. We wouldn’t tell that to our friends.” Founded in 1942 as Posner & Fox, the firm was finally reconfigured in 1961 as Arent Fox Kintner Plotkin & Kahn with the addition of a former Federal Trade Commission chairman, the late Earl Kintner. Throughout the late 1970s and 1980s the firm grew substantially, rising from 119 lawyers in 1979 to a head count of 207 in 1989. But between 1991 and 2001, Arent Fox shuttered outposts in Vienna, Va.; Bethesda, Md.; Jeddah, Saudi Arabia; and Budapest, Hungary. Long known for its ties to the local Washington business community, Arent Fox now bills its strengths as government relations, real estate, corporate, federal regulation, international business, and litigation. In recent years, however, many of its key practice areas, perhaps with the exception of real estate, have suffered blows as leading partners cleared their desks. In March, William Sarraille, an anchor of the firm’s health care practice in the District, left for Sidley Austin Brown & Wood, and former managing partner Christopher Smith moved to Sonnenschein, Nath & Rosenthal. Elliott Portnoy, Arent Fox’s lobby group leader, went to Sonnenschein in 2002. Smith and Portnoy are among 14 Arent Fox lawyers to join the Chicago-based firm’s D.C. office within the last year. In May, the firm lost the head of its New York real estate practice when Bradley Kaufman jumped ship for Morgan, Lewis & Bockius. Charyk doesn’t dwell on the exits of key partners, nor does he dismiss them out of hand. Instead, he quotes T.S. Eliot: “Last season’s fruit is eaten and the fullfed beast shall kick the empty pail. For last year’s words belong to last year’s language and next year’s words await another voice.” Eric Bernthal, managing partner of Latham & Watkins’ D.C. office and a former Arent Fox partner, takes a less poetic approach. “There’s no question that there’s an inherent instability that is very hard to explain,” says Bernthal. One reason to leave the firm? A significant jump in income for most, notes Bernthal, whose tenure at Arent Fox lasted from 1972 to 1986. Many former Arent Fox partners mention a need for more depth in their practice areas and the opportunity to make more money elsewhere. Arent Fox’s profits per partner have traditionally been among the lowest of top Washington firms, ranking last, at $420,000, on the D.C. 20 list in 2001. In the past decade, big-firm lawyers have led increasingly peripatetic work lives, jumping from one firm to another when better compensation and added prestige beckon. But the rate at which Arent Fox lawyers have left the firm still surprises some onlookers. D.C. legal recruiters note that the number of Arent Fox lawyers seeking positions elsewhere dwarfs the list of job-hunting lawyers interested in the firm. Queasiness over a sequence of aborted merger talks is partly to blame, one recruiter says. But Charyk points to the firm’s hiring of 28 attorneys and eight professional staff so far this year as a testament to his strategy of deliberate growth. Within three years, he wants to have at least 100 attorneys in New York and 300 to 350 in the District, up from 54 and 213, respectively. Charyk also says that he wants the firm to be “a brand name” in a few designated areas. And if there is a practice area that the firm can lay claim to in the D.C. market, it’s real estate, say observers and Arent Fox lawyers. With clients such as Goldman Sachs Group Inc. and Fannie Mae, the practice already has a platform well beyond Washington, says Charyk, who adds that Arent Fox now needs to market its capabilities accordingly. According to Charyk, the bankruptcy, health, food and drug, and biotech groups are also targeted for growth. In terms of profits, Charyk says he wants to see the firm push up to the middle of the D.C. 20, which could be achieved in part through a merger or acquisition. That would put the firm at about $600,000 to $800,000 in partner profits and $150 million in gross revenue in the District. For now, Charyk says he wants Arent Fox to win more business from existing firm clients — such as AOL Time Warner, Marriott International Inc., Monsanto Inc., and Discovery Communications Inc. — rather than seek new clients that utilize only one of the firm’s practice groups. Following a period of what Charyk calls “self-imposed austerity,” Arent Fox plans to return to a policy of higher bonuses and raises this year for staff. In March, Charyk said that the firm over the previous year had pared down operating staff and their bonuses and raises. That tactic paid off on some counts. Firmwide profits per partner grew from $390,000 in 2001 to $470,000 last year. Of course, the pie was being split into fewer pieces since the firm shed 15 equity partners in 2002 and went from 248 lawyers in Washington to 213. Overall revenue dropped by $4 million in the District. Problems with the firm’s compensation structure are significant, according to an Arent Fox partner who left within the last year. This former partner says that some partners opposed a merger because they feared that another firm’s more rigorous compensation structure would force them out. “They [Arent Fox] didn’t cull out the dead wood,” says the former partner, who nonetheless has high praise for Charyk and the discipline he expects the managing partner to bring to the firm. The firm’s partner-to-associate ratio has shifted over the years, but not toward dramatically increased leverage. In 1985, for example, Arent Fox listed 65 partners and 63 associates in the Martindale-Hubbell Law Directory. For 2002, it reported 70 equity partners, 31 nonequity partners, and 112 associates. The firm wants to improve its leverage and has begun to do so, but won’t de-equitize partners simply to boost profits, Fleischaker says. The firm has little debt — around $4 million — all of which is in the form of nonrecourse loans, which don’t hold partners individually liable if the firm can’t pay back the borrowed capital, according to Charyk. It has also traditionally maintained billing rates by as much as $200 an hour below those of many major Washington firms and doesn’t rely on superstar attorneys to boost billings, says Fleischaker. “What we don’t have is the King Kong who is billing $20 million to $30 million a year,” says Fleischaker. “We never had a lawyer who billed more than 5 or 6 percent of the firm’s billings or a client who accounted for more than that much of the firm’s billing.” One factor that lawyers at Arent Fox and those who have left point to as a source of fragmentation within the firm were the merger talks. From 2000 through 2002, the firm’s leaders were engaged in talks with a number of firms, including Los Angeles-based Sheppard, Mullin, Richter & Hampton; Philadelphia’s Pepper Hamilton; and Boston’s Brown, Rudnick, Freed & Gesmer (now Brown Rudnick Berlack Israels). Fleischaker says the drive for a merger has slowed. He doesn’t question whether the firm should have engaged in any of the negotiations, but thinks the merger possibilities were made known to the whole firm before they were adequately weighed by firm leaders. “Maybe I should take a lot of the responsibility for bringing in the wrong [merger] partners — but I don’t think that I did,” says Fleischaker. Although he is confident that Arent Fox doesn’t have to join forces with another firm to achieve its goals, Fleischaker, like Charyk, leaves the question of a merger open-ended. However, Mark Alberta, a D.C. partner in the firm’s real estate group, says the current focus on self-examination has, at least for now, pushed aside merger discussions. When Christopher Smith left his post as managing partner last year, the firm shifted attention away from a merger, says New York partner David Dubrow, who heads one of the firm’s strategic plan task forces. In offices high above Broadway and just a few blocks from Times Square, Arent Fox’s New York lawyers emphasize their distance from the dramas playing out in Washington. They say they were perplexed by the seemingly unending merger talks that occupied much of the partnership. But despite an insistence that the upheaval and defections didn’t affect Arent Fox’s reputation in New York, lawyers there still agree that the firm’s vision of its identity and future needs clarity. “We need to choose certain areas to promote and areas that we excel in, and I think the firm is on a path to doing that,” says Dubrow. “We need to promote a coherent identity.” Given the number of firms Arent Fox has courted and been courted by, it is unsurprising if goals for internal growth and development became murky. William McSherry, who manages the firm’s New York office, is frank about the effects of the series of merger and acquisition negotiations. “We kind of lost our way for a while,” says McSherry. “There was a tremendous amount of wasted effort learning about what our lives would be like if we merged or were absorbed by another firm.” Why didn’t any of the mergers happen? Charyk cites a lack of focus and consensus among the partnership. “The firm didn’t have a strongly integrated vision of where it wanted to go,” says Charyk. Fleischaker points to higher debt carried by some of the merger candidates and client conflicts that were impossible to hurdle. Also, at the root of the merger debates were questions about where the firm should expand geographically. Like Charyk and other firm leaders, Hildebrandt’s D.C.-based Lisa Smith, who is consulting for Arent Fox, sees the firm’s presence in New York as key to its success. She says the firm has wisely focused on a few specific areas there, particularly litigation. “They haven’t gone in trying to do the $8 billion mergers,” Smith says. “A lot of firms think they’re going to go in and compete against the top two firms in New York, and no one can do that.” Just a few years ago, money was draining out of Arent Fox’s New York office, which was opened in June 1991 when the firm acquired litigation boutique McGarrahan & Heard. The lack of profitability didn’t deter McSherry from jumping ship from Bryan Cave to join Arent Fox as a New York partner in 2000. He was convinced of the firm’s resolve to expand in New York. McSherry points to the $75 million the firm will pay over 15 years for its Manhattan office space as proof of that dedication. A new lease signed this spring gives the firm room to grow to 110 lawyers in New York and the option to lease additional space that can accommodate up to 225 lawyers. But the 55-year-old litigator, who has represented dozens of sports and entertainment clients, is also eager to open an office on the West Coast, where the firm handles film financing, media, computer industries, and litigation matters. Charyk is plain-spoken about what he calls “geographic dispersion.” Arent Fox might consider a West Coast location, but needs to define its direction for existing offices before expanding elsewhere, says Charyk. In the past, satellite offices offered added prestige, but were barely profitable, he adds. “If someone comes to me and says, ‘I need an office in Akron or one in Springfield,’ God bless you, but I can’t do that,” says Charyk. Many lawyers within Arent Fox are — at least publicly — optimistic about the firm’s health. Daniel Renberg, who joined Arent Fox’s government relations group in January following his departure from the board of directors of the Export-Import Bank of the United States, points to attorneys such as of counsel David Evans and associates Samuel Huang, Rhonda Barton, and Jennifer Woodbury, who have recently returned to Arent Fox after sampling other firms. “Perhaps they thought the grass was greener on the other side,” says Renberg. “What they found is that we have a pretty good lawn.” Indeed, the firm has been known for that “pretty good lawn” for decades — but over the years perceptions about its status have fluctuated, says Judith Harris, who heads Reed Smith’s Washington office and has been active in the D.C. legal community for decades. When she graduated from Yale Law School in 1973, Arent Fox was considered “right up there with a handful of very top firms,” says Harris. In the 1970s it was considered more local in scope than Covington & Burling or Arnold & Porter, but still a strong pick for top-tier law school graduates. Now, says Harris, a perception that the firm is beset by retention problems could be difficult to shake. “It’s building a bit of a reputation that’s hard to dig out from unless you do some pretty drastic things,” Harris says. “Why would you go to a place you’re hearing rumors about? You’re not going to be the firm’s savior.” The firm’s managers, though, aren’t looking for a savior. Their goal is to shape Arent Fox into a more competitive firm, but they are unyielding in their resolve to maintain a firm culture that is, in one partner’s description, “not cutthroat, not a place where you’re always watching your back.” In the words of Latham managing partner Bernthal, the firm has never been “a place where the swords come out.” Nor will it be, say its leaders. Charyk’s modest office is lined with a library uncharacteristic for a managing partner, with books on the Boer War and Tibetan spirituality. He is candid, if circumspect, about the firm’s strategy for its future and how to realize it. “Your head swims with good ideas,” says Charyk. “But then I think, ‘Am I thinking like Churchill, like Machiavelli?’ It has to be a consensus thing.” Fleischaker is hopeful that Arent Fox can reclaim its role as a powerful player in the D.C. legal market without losing its ethos of an old fashioned partnership. “I hope we’re a firm with a pocketbook,” says Fleischaker, “but also a heart.”

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