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At Heller Ehrman White & McAuliffe, partners have spent thousands of hours during the past year honing the fine points of the San Francisco-based firm’s strategic architecture. Strategic architecture? To understand this concept, take a piece of paper and draw three arrows emanating from one point, like equal slices of a pie. At the end of one arrow, write “Excellence.” At the end of another, “Clients.” And at the end of the third, “Innovation.” There. That, in its most basic form, is the original incarnation of Heller’s strategic architecture. Note: Heller’s strategic architecture is not to be confused with its core values, which are excellence, people, community, teamwork and one firm. If this all sounds West Coast wacky, ask yourself a simple question: How did your firm do on The American Lawyer’s “A List”? Heller ranked No. 2, thank you, behind only Debevoise & Plimpton in scores based on associate satisfaction, diversity, pro bono and revenue per lawyer. The 750-lawyer firm is justifiably thrilled with this ranking, which it markets at every turn. Heller takes its culture and its values very seriously. But it’s also fiercely determined to be highly profitable and competitive. That’s where the strategic architecture kicks in. Heller believes that immersing itself in intense, high-level soul-searching will help it see the way to becoming one of the top national firms, and a truly global law firm to boot. With this goal in mind, the firm has been evolving over the past six years. The results are tangible: Since 1999, Heller’s gross revenues have more than doubled — hitting $472 million last year. In revenue per lawyer it’s gained substantial ground on the competition, rising from 55th to 17th place. Profits per equity partner are up, too — from $470,000 in 1999 to $855,000 in 2004. Unlike the growth of some regional firms, such as Bingham McCutchen, Heller’s expansion has mostly been achieved without mergers. Heller has succeeded as a modest-sized, top-flight, litigation-oriented firm, with clients like Microsoft Corp., Merck & Co. Inc. and VISA International. It represents the four big accounting firms in myriad matters, including a defense of Deloitte & Touche for its role auditing the troubled Italian company Parmalat Finanziaria S.p.A. It defended McDonald’s Corp. in actions brought by vegetarians who had eaten the chain’s french fries, which they claimed were cooked in animal fat. And it represents Altria Group Inc. in several matters, including suits brought against cigarette counterfeiters. Not bad for a firm breaking its regional bonds. But Heller, which handed the reins to a new chairman last weekend, wants to leap to a higher level. Challenging national firms like Latham & Watkins and Jones Day won’t be easy. Although it has 13 offices, more than 70 percent of Heller’s lawyers are concentrated on the West Coast. It has no office in Europe. It’s still primarily known for litigation, and its corporate practice is heavily oriented to technology companies. And the firm is not itching for a merger. Will Heller’s values and strategic architecture be enough? Heller’s current position is rather impressive given where it was when Barry Levin took over as the firm’s chairman in 1999. The firm ranked a distant 73rd in the Am Law 100 profits per partner rankings. Levin, who was 44 when he took on the job, candidly recalls the challenges he faced then. “Heller was the last place you would ever talk about economics inside the firm,” he says. “We thought polite people don’t talk about economics in polite company. . . . Some people said, ‘My economics are fine.’ But it’s not about you. It’s about the institution.” Levin has the sort of rumpled face that could allow him to pass for the younger brother of Yankee manager Joe Torre. His manner is relaxed but direct. As a youth, he worked summers in his father’s kosher chicken processing plant in St. Louis. He has spent his entire career at Heller, starting in 1979 out of Northwestern University School of Law. “He’s very natural,” says retired partner Curtis Caton, who worked closely with a young Levin. “There’s no artifice about him at all. What struck me about Barry from the very earliest time was how practical he was. . . . He really was intuitively gifted in practical aspects of giving advice.” Levin was also practical about the firm’s future. He knew Heller needed some shaking up. So the year he became chairman, Levin decided to do something that raised more than a few eyebrows at Heller: He hired Strategos, a consulting firm that promotes high-flying ideas like strategic architecture. Levin liked the fact that Strategos doesn’t typically work with law firms. Heller prides itself on being different –some might say, better — than others, and this unconventional choice reinforced that notion. Heller’s chairman wasn’t quite sure how his partners would react. “It was a process that, to be honest, terrified me,” he says. “It was not a very law firm-like thing to do. People in firms are pretty cynical.” He adds, “It’s a process that left me with a few scars, but it was hugely valuable.” In short, the strategic architecture is a framework that helps Heller think about and discuss its strategy, and the core values are part of that strategy. The original architecture revolved around three points: doing cutting-edge work (excellence), forming deep relationships with clients, and pursuing client-focused innovation. One partner who asked not to be named summarizes Heller’s strategic architecture this way: “We want to be working on the coolest, most interesting, high-value matters for the coolest, most interesting, high-value clients.” He adds, “I don’t know if you need a strategic architecture to get to that point. But if you didn’t go through all that fanfare and brouhaha, then maybe you would be less focused on it. . . . Having everyone collectively thinking about what goals we aspire to, that is valuable.” “I’ll admit when I heard about the [strategic] architecture, I could not believe it,” says M. Laurence Popofsky, 68, one of Heller’s senior statesmen who served as co-chair of the firm from 1985 to 1992. When Popofsky joined Heller in 1962 after a Rhodes scholarship, the firm had 25 lawyers. He had been conditioned to believe that a law firm would thrive by doing excellent work. “If we were the best at what we did, the world would come to us, damn it,” he says. But those days are over, he admits: “It was obvious as the firm got bigger that that was inadequate as a sustaining philosophy.” A core team of eight lawyers worked with Strategos to survey Heller lawyers, staff and clients. They identified the firm’s strengths, studied the competition and made recommendations. “We felt it was important to step back and ask what we wanted to be in five to six years,” says Levin. The answer: a national firm with global reach. Reaching that goal required adjusting some fundamentals. “We had to change a lot of things,” Levin says. These changes included: � Focusing on areas of strength, especially antitrust, securities, and insurance litigation. � Redirecting lawyers away from “commodity” work, such as certain environmental work. � Becoming more explicit about the expectation that partners log 2,400 hours a year with 1,900 hours of that billable time. � Stressing the need to balance pro bono commitments with work for paying clients. � Getting tough with clients who weren’t paying bills promptly. Heller also decided to trim its client base. “We spend a lot of time thinking about how to deepen relationships,” Levin says. To that end, the firm created a managing partner for client relationships, Seattle partner Mark Parris. And to boost its profile, Heller recently hired a new chief marketing officer from Microsoft Corp. There’s nothing radically new here, nothing that lots of law firms without strategic architectures haven’t done. Levin agrees that these aren’t novel ideas. But he says the difference is that this intense planning has forged a collective commitment to Heller’s goals. Remarkably, the firm has suffered little turnover and few money squabbles throughout this realignment — which is also a credit to Levin’s leadership. “He has been able to keep the firm focused,” says Seattle partner Bruce Pym, who heads the firm’s corporate group. That’s not always an easy task at a firm whose Web site touts its “consensus-based management style.” Notes Pym: “He kept the firm directed in the face of a barrage of criticism, advice and comments from lawyers, all of whom have ideas of what he should be doing. He has the ability to deflect that and keep going.” Although Levin, now 50, is popular, this month his six-year run as chairman ended. The firm’s partnership agreement limits chairmen to two three-year terms. The most important thing is making decisions and moving on, and not being paralyzed with the decision-making process,” says Levin. Under his guidance, Heller has made some major moves very quickly. When Brobeck, Phleger & Harrison collapsed in 2003, the firm pounced on the chance to acquire six San Diego partners with a profitable chunk of high-tech business. That deal came together in 10 days. Later that year, Heller had to sprint to beat out two competitors to win the 60-lawyer Venture Law Group. Heller has nearly doubled its number of lawyers since 1999, mostly through individual hiring, not mergers. The VLG deal has been the exception. With this merger, Heller faced the challenge of integrating a band of fiercely independent iconoclasts who were used to mastering their own universe. Former Wilson Sonsini Goodrich & Rosati partner Craig Johnson formed the Venture Law Group in 1993 with the maverick idea that it would service only start-ups and venture capital firms. Like their venture capital buddies, VLG lawyers took stock in client companies and made piles of money. But by 2003, with the tech market in the tank, they essentially put themselves on the block. VLG was in the midst of talks with Orrick, Herrington & Sutcliffe and Morrison & Foerster when Heller swooped in. Normally, lateral partner candidates go through a slow, careful vetting process, meeting with at least 25 Heller partners. With VLG pushing for a decision, Heller expedited its process. Groups of VLG partners flew to various Heller offices to meet people at cocktail parties and individual interviews. The formal vote was taken in the space of four hours, and the result was unanimous, according to Levin. From first talks to signing, the deal took less than two months to complete. VLG lawyers say one selling point for Heller was that the high-profile San Diego tech lawyer Craig Andrews had just joined from Brobeck. One lawyer also notes that Heller struck just the right level of deference and respect in negotiations. “The other firms said, ‘You’d be tremendously additive to our already successful Silicon Valley business,’” recalls the lawyer. “The Heller guys said, ‘We have not achieved our objectives after 20 years. We want to give you the car keys and let you drive.’” Today, Venture Law Group operates as a practice group within Heller. The VLG lawyers were adamant about retaining their identity, and Heller was eager to take advantage of VLG’s cachet in the venture capital world. As a result, the building sign outside Heller’s Menlo Park office reads Heller Ehrman VLG, and carries VLG’s branding logo — a large acorn. Johnson, 58, had scaled back his practice before the merger, and he joined Heller as a consultant, not as a partner. “Heller is the nicest group of people I’ve ever worked with,” he says. The compulsively candid lawyer then adds, “It’s almost to the point where they’re too nice. They’re almost too afraid of taking hard positions. So we push them a bit. We’re sometimes a bit blunt.” He adds, “VLG comes with very strong DNA. We’re not just going with the flow.” That individuality became apparent this year. Nine partners have defected since February, taking with them three associates. The VLG group now numbers about 90 lawyers, and includes roughly 40 from the Heller side who did work for startups and venture capital firms before VLG joined. Lawyers from both sides insist their cultures were similar. But their business models certainly weren’t. VLG essentially charged discount rates to get startups in the door, then made a killing off their stock if they went public. Johnson’s group believed those clients would not pay Heller’s big-corporation rates. Heller, after much negotiation, gave the VLG lawyers the flexibility to apply lower rates to startups. “We all have to recognize the startup market is a little different,” says partner Mark Weeks, who is co-chair of the VLG group. Heller also had to decide how to handle investments in clients. Most big-firm partners view this cornerstone of the VLG model with suspicion. In the end, Heller continued a modified version of the practice used at VLG: The lawyer who brings in the client can make an individual investment, and the firm can take a share as well. The investment pool is open to all Heller partners, but Johnson says few outside the VLG group take the plunge. Levin confirms that a smaller percentage of Heller legacy partners take advantage of the pool, but says in total numbers Heller investors probably outnumber those from VLG. Despite the departures, the firm paints the combination as a success. In a 2003 interview, shortly after the merger, Levin predicted that the VLG group would bring in at least $30 million in revenue in 2004. The VLG addition was a step toward Heller’s goal of improving its corporate profile. In 2003 the firm added roughly 100 corporate lawyers, including 20 from a Hong Kong firm who do securities work on that city’s stock exchange. But most of the new corporate hires came from VLG and Brobeck and specialize in technology clients. As a result, more than half of Heller’s corporate lawyers focus on technology. Corporate leader Pym maintains that the firm isn’t overly concentrated in this niche. He notes, for example, that the firm is now doing significant litigation for Yahoo Inc., which came with VLG. To become a truly national presence, Heller needs to strengthen its corporate practice further — and it needs to grow in New York. This month, the firm is scheduled to unveil new offices in Times Square Tower that can house 245 lawyers, counting options for expansion. The firm currently has a little under 100 lawyers there. “Ultimately we would rather have empty offices than hire the wrong people,” Levin says. What’s the likelihood of a merger in New York? “Slim,” says Levin. “You have to find a group that’s culturally compatible. . . . And their practice has to mesh with what we do.” Levin knows that Heller still has a ways to go to realize its ambition. “Our average profits are not where they need to be today,” he says. ” But they look like a lot of national competitors.” Levin doesn’t expect to win those laterals by focusing on the bottom line. Instead, his focus is on Heller’s values. “ If you get [the values] right, the economics will change,” he says. Levin admits that may sound simplistic. Still, he notes, Heller has succeeded in bringing in lots of laterals and has seen very few departures. This week Levin was succeeded as chairman by his close friend, Matthew Larrabee, 49, the firm’s head of litigation, who is active in management. If there’s a difference between Levin’s and Larrabee’s plans for Heller, it’s nearly impossible to detect. “Barry and I have worked together side by side for six years,” Larrabee says. “To a large degree we’ve each shaped the other’s views.” Larrabee shares several qualities with his predecessor: soft-spoken, low-key and a Heller lifer. Since last year, Larrabee has been leading the effort to refine Heller’s strategic architecture and reexamine the firm’s goals. His team has interviewed more than Heller 100 lawyers. Last fall he endured a grueling month on the road traveling to all of the firm’s offices, including Hong Kong, to present the updated vision. In the new plan, Heller’s three arrows have been replaced by three overlapping circles. The circles represent the following goals: building leading global practices, investment in people, and client-centered focus. Larrabee says this new diagram reflects the firm’s shift to a more global focus. It also elevates the importance of training and career development. “We want to reinforce what we’ve been doing well,” he says. He says overseas expansion, especially in London, is a priority. Again, big mergers don’t seem to be in Heller’s plans. “I don’t have a sense we need to engage in a transforming-event merger,” says Larrabee. Does it really take arrows and circles to define a firm’s goals? Larrabee says he has no doubt that plotting out a strategic architecture has played a big role in Heller’s evolution. “I really believe the planning process and clarity is a central ingredient in our success,” he says. “When your firm has growth as an important part of its strategy, being able to explain what your vision is and the direction of the law firm is quite important. It distinguishes us from more law firms than you might imagine.” VLG’s Johnson expresses a bit of skepticism. “It’s mind-boggling to me the amount of time spent strategizing,” he says. Larrabee recalls the complaints five years ago when he led the initial exercise to create a strategic architecture. A typical partner reaction: “Strategos? Strategos? Who wants Strategos? Who wants three arrows and a diagram? We should be billing!” He continues, “If you’re going to build enduring institutions, you have to have a sense of where you’re going. I’m sorry, but that takes time and effort.” Now it’s different, he says: “There is an appetite. People want to know what the strategy will be.” Susan Beck is a San Francisco-based senior writer for The American Lawyer.

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