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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 by setting up shop in cities as far-flung as Dallas, Atlanta and Seattle. Today, with 27 offices and close to 400 lawyers, Littler is the biggest specialized 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. As of the summer, Littler had lost 18 of its 204 shareholders, 14 of whom had equity status and eight of whom were on the second-highest rung of the firm’s five-tier partnership. Many who left took decent books of business with them. Holly Williamson brought roughly $1.5 million in annual billings to Akin Gump Strauss Hauer & Feld, 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 over the 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 elsewhere, 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. Wendy Tice-Wallner, the firm’s managing director, says she’s not worried. She says Littler’s annual departure rate has been relatively steady over the course of her four-year tenure as managing partner, 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,” says Tice-Wallner, 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. Tice-Wallner also notes that the firm’s 13 new lateral shareholders, coming from a mix of regional and national firms, have been responsible for 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 in 2002 and three the year before. One positive explanation is offered by Mathiason, one of Littler’s patriarchs: Littler lawyers are more in demand. “The quintessential standard is a Littler degree,” he says. Among the shareholders who have left, however, the explanations are not nearly so benign. For all of Littler’s growth, the firm is still run by only a few, according to some former shareholders. “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. Like others who commented for this article, this lawyer would speak 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 the art of 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, are hardly unique to Littler. “The very nature of lawyers is that they like to have a lot of control,” says Tice-Wallner, 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 list. (The AmLaw 100 and Second Hundred are produced by The American Lawyer magazine.) 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 with 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 dismisses the comparison to full-service firms as one of 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 have resulted in anemic profits. Part of that result 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, boutiques like Littler are pressured into taking low-margin EPLI work, says Tanenbaum. “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. Littler’s approach is practical, “balancing out our firm almost like an investment portfolio,” she says. Maybe these are just natural growing pains. If so, Littler may want to take a breather — and keep an eye on its exits. Jennifer Fried is a reporter for The American Lawyer magazine, which is affiliated with California Employment Law . Her e-mail address is [email protected].

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