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NEW YORK — By the mid-1990s, the “Littler” in Littler Mendelson was sounding more and more ironic. The San Francisco-based labor and employment boutique had grown far beyond its California roots, setting up shop in cities as far-flung as Dallas, Atlanta and Seattle. Now, with 27 offices and close to 400 lawyers, Littler is the biggest labor and employment firm in the country. But even as the empire keeps growing amid a boom in employment law — just this year Littler brought on 13 lateral partners and opened a Miami office — the once tightly knit firm is losing shareholders faster than it can hire them. Already this year Littler has lost 18 of its 204 shareholders, 14 of whom had equity status, and eight of whom were on the second-highest rung of Littler’s five-tier partnership. Many who left took decent books of business. Holly Williamson bequeathed roughly $1.5 million in annual billings to Akin Gump Strauss Hauer & Feld in July, including such clients as Occidental Chemical Corp., Union Pacific Railroad and Unocal Corp. Fraser McAlpine, whose major clients include El Paso Corp., also left for Akin Gump after having served three years on Littler’s executive committee. Jeffrey Tanenbaum, the co-chair of Littler’s occupational health and safety group, and Robert Carrol, a 26-year veteran of the firm, who represent more than 150 clients combined, left this summer for Nixon Peabody. “It’s cutting into the bone, and that hasn’t happened before,” says one lawyer still at the firm. When opportunity knocked, many shareholders were ready to answer. They blame slow-growing profits, unhappiness with management and dissatisfaction with the lower-margin insurance defense work on which Littler, like other employment boutiques, has grown more dependent. Managing Director Wendy Tice-Wallner says she’s not worried. Littler’s annual departure rate has been relatively steady over the course of her four-year tenure as managing partner, Tice-Wallner says, ranging from 7 percent to 8 percent in typical years up to 11 percent during the dot-com exodus. “We have a lot of baskets and a lot of eggs in the baskets,” she says, adding that the firm’s biggest rainmakers, those who generate more than $2 million a year, have stayed put. Indeed, the firm’s most renowned names — including Garry Mathiason, Robert Millman and Wesley Fastiff — haven’t budged. Plus, Tice-Wallner adds, the firm’s 13 new lateral shareholders, coming from a mix of regional and national firms, have ushered in a respectable chunk of new business. Even so, 18 shareholder departures — nearly 9 percent of the partnership — in less than eight months hardly passes as typical. Jackson Lewis, another nationwide employment boutique, has not lost one of its 140 partners this year. Nor has Jackson approached Littler’s turnover rate in recent history, reporting just four shareholder departures last year and three the year before. One positive explanation is offered by Littler patriarch Mathiason: Littler lawyers are more in demand. “The quintessential standard is a Littler degree,” Mathiason says. But among the shareholders who have left, the explanations are not nearly so benign. For all of Littler’s growth, seven former shareholders complain, the firm is still run by only a few. “It tends to feel less like the individual partner’s voice matters, and more like we’ve reposed our trust in four or five people,” says one defector, who, like others, would comment only anonymously. For example, when Littler axed its immigration group earlier this year — letting two shareholders and other immigration lawyers go, and replacing the group with a joint venture Littler launched with another firm — this lawyer recalls learning of the decision only after it was made by the board of directors. “It was announced via e-mail, without any partner voting,” he says. “Just ‘Here’s what we’ve done today.’” Others complain that Littler has grown too quickly for its own good. One lawyer currently at the firm acknowledges that Littler still hasn’t mastered integrating new lawyers and offices. Says a former shareholder: “There’s a feeling among the shareholders that the bureaucracy has become too overbearing.” Such gripes, of course, aren’t unique to Littler. “The very nature of lawyers is that they like to have a lot of control,” Tice-Wallner says, adding that as the firm grows, some centralization of power is unavoidable. Then there are the complaints about money. Littler was an AmLaw 100 firm until 2000, when it dropped to the Second Hundred. (The AmLaw 100 and Second Hundred are produced by The American Lawyer magazine, a Recorder affiliate.) Comparing its five-year growth to The AmLaw 100 shows that Littler held its own in revenue per lawyer — growth of nearly 33 percent compared to the average of 35 percent. But the firm’s profits per partner, which in this year’s AmLaw 200 report were $390,000, ranking it 163rd, grew less than 24 percent over that five-year period, compared with the average growth of more than 64 percent. Tice-Wallner calls the comparisons to full-service firms apples and oranges. But many of her departed shareholders — who went to full-service firms — complain that Littler’s overhead costs, its unprofitable investments in ventures like Employment Law Learning Technologies and the influx of lower-margin work paint an anemic profits picture. Part of that picture is affected by the changing nature of employment boutique work. “Historically, I believed that the nationwide boutique was absolutely the right way to practice employment law,” says Nixon Peabody’s Tanenbaum, the former co-chair of Littler’s OSHA group. But as more employers carry so-called employment practices litigation insurance, Tanenbaum says, boutiques like Littler are pressured into taking low-margin EPLI work. “In a multidisciplinary practice, you can be more selective of the cases you take,” he says. While it’s far from an EPLI-only firm, Tice-Wallner says Littler isn’t avoiding that work either. Like investing in stocks, she says, Littler’s approach is practical, “balancing out our firm almost like an investment portfolio.” Maybe these are just natural growing pains. But if so, the 27-office, nearly 400-lawyer Littler may want to take a breather and keep an eye on its exits. Jennifer Fried is a reporter for The American Lawyer magazine, a Recorder affiliate based in New York City.

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