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McGuireWoods can trace its Virginia roots back to before the Civil War. But the firm senses that it will need more than its 171-year legacy to remain competitive in the 21st-century legal market. To that end, Robert Burrus, who has led the 686-attorney law firm for nearly 15 years, has opened offices from Jacksonville, Fla., to Pittsburgh, Pa., to Kazakhstan. But still, the Richmond-based firm has struggled to rise above its regional caste. McGuireWoods’ 1997 merger with Powell Goldstein � which would have created a 100-attorney D.C. office � fell through. Its New York office stands at 36 lawyers. And while McGuireWoods made a showing in its Tysons Corner, Va., office during the dot-com boom, it hasn’t made as strong a showing in its Washington location, which only has 30 attorneys. The firm’s latest frontier is Chicago. But even there, McGuireWoods’ foray into the Windy City has been stormy. The firm has lost clients and seen heavy attrition after merging with Chicago-based Ross & Hardies in 2003. In June it took another blow: Theodore Tetzlaff, the rainmaker McGuireWoods hired to build up the Chicago office, walked out the door, along with a nearly $9 million client. “There has been a lot of blood,” says Mark Jungers, a Chicago legal recruiter with Major, Lindsey & Africa. “They are likely to get smaller before they get bigger.” McGuireWoods’ efforts to transform itself from a regional law firm to a national player have likely been driven by the rapid growth of big-city firms such as Jones Day and Skadden, Arps, Slate, Meagher & Flom, which have more than 1,500 attorneys apiece. Competition from these mega-firms is putting increasing pressure on regional firms, like McGuireWoods, to expand in order to keep top-tier attorneys and blue-chip clients. Burrus believes Chicago offers the firm a chance to remain competitive � and points to a rise in overall firm profits per partner. He is bullish on the future of the office. “I fully anticipate it will become the largest office,” he says. “It’s a big town that has a potential client base.” Yet Lisa Smith, a legal consultant with Hildebrandt International, says the real test for a regional law firm is whether it can “compete economically” with larger and more profitable firms. And McGuireWoods faces a tough lateral market in Chicago. McGuireWoods’ profits per partner � at $605,000 � still lag far behind the city’s top players, such as Winston & Strawn with profits per partner at $985,000, or Sonnenschein, Nath & Rosenthal with $720,000. It also has steep competition from the more than a dozen outside firms � including Morgan, Lewis & Bockius and Holland & Knight � that have opened Chicago offices in recent years. The question for Burrus is whether the Chicago office, with all of its troubles, has been the right move to push McGuireWoods into the major leagues for good. THE FIRST HITCH Chicago may be key to McGuireWoods’ future today, but that was far from evident only a year before the firm’s move there. It was the summer of 1997 and Burrus, along with Atlanta-based Powell Goldstein chair Robert Harlin, called a special press conference in a K Street office building in Washington to announce their planned union. The merger would have created a more than 600-attorney law firm and instantly given two midsize players one of the largest offices in the D.C. market. But the two firms had trouble melding their diverse practices and clashed over who would ultimately control decision-making. Within a few months the deal was off. Soon after, Fort James Corp., a paper company and a major corporate client whose general counsel was a former McGuireWoods partner, asked the firm to follow it to its new headquarters in Chicago in 1998. It was not unusual � or unwise, consultants say � to follow a client, but the deal was short-lived. Two years later, Georgia Pacific Corp. bought out the client, and McGuireWoods lost all of that legal work. The firm was at a crossroads. It had no clients tying it down to Chicago and only 23 attorneys, but leaving a major market would look bad for a firm with global aspirations, according to law firm consultants. “We made the decision that Chicago was absolutely consistent with our goals,” Burrus says. “We wanted to be there, and to be there in the way we should, we needed to find additional lawyers.” Around that time, Theodore Tetzlaff, once the chairman of Jenner & Block’s executive committee, was looking for a change. He had been the rising star of one of Chicago’s most elite law firms, a rainmaker who had won favor among clients as well as among the city’s Democratic political establishment. A litigator by trade, he served as general counsel for Tenneco Inc. until the late 1990s. He was often in the spotlight, most notably during his more than five-year-long divorce case, which a 2001 Chicago Magazine feature called “the lengthiest, costliest and nastiest in the city’s history.” But in 2000, Tetzlaff’s rise to the top of Jenner & Block stopped. The firm reworked its management structure and replaced the executive committee Tetzlaff chaired with a policy committee � and did not vote Tetzlaff back into leadership. Tetzlaff was ready when McGuireWoods sought him out in 2001 to turn its Chicago office around, which by Tetzlaff’s estimate generated only $6.5 million at the time. (McGuireWoods declined to comment on financials.) “They were looking for someone to put them on the map,” Tetzlaff says. And the firm compensated him well for it: $2 million a year and an extra-large office, according to four former McGuireWoods attorneys and other Chicago attorneys. And at least on one occasion it picked up the expenses for Tetzlaff to fly on a time-share jet for company business. THE PERFECT MATE With Tetzlaff on board, the firm wasted little time staffing the Chicago office. By the end of 2002, McGuireWoods received a call from a headhunter at Mestel & Co. pitching a merger with Ross & Hardies. Ross & Hardies had been flirting with merger candidates for months. The firm’s largest practices � health care, litigation, and labor and employment � had trouble bringing in new clients with only 155 attorneys firmwide. And a handful of highly compensated partners nearing retirement age were concerned about whether Ross & Hardies would be able to cover the firm’s unfunded pension plan, according to former partners. With slightly more than $60 million in annual revenue, Ross & Hardies wasn’t extremely profitable when compared with Chicago’s biggest firms. But it was considered a collegial firm, with a small office in the prized New York market and a steady roster of clients, including Kraft Foods Inc. and American Standard Cos. Inc. McGuireWoods was sold. The merger, after all, would do more than just boost McGuireWoods’ head count and client roster. It would help the firm anchor another major business deal already under discussion. Tetzlaff and Mark McGuire, a McGuireWoods partner who’d come from Jenner (and who is not related to the firm’s founder), were in discussions with Peoples Energy over plans to outsource its legal department by sending its staff � and most of its business � to McGuireWoods. Under this plan, Tetzlaff would become Peoples’ general counsel and McGuire would act as general counsel to some of its subsidiaries. They had the connections. McGuire, for one, had worked with current CEO Thomas Patrick in Peoples Energy’s legal department in the 1980s. And the deal offered McGuireWoods, which was known for its utility work throughout the Southeast, a chance to land a strong Midwestern client in one of the firm’s key practice areas. The Ross & Hardies merger was the missing link. Its 123 Chicago attorneys would bring McGuireWoods’ office up to 175. And Ross & Hardies already did some work for Peoples Energy and had even sent over a few attorneys to start up the company’s legal department in the 1970s. “Clearly, without the merger, Peoples Energy would not have outsourced its legal department to McGuireWoods,” says Richard Greenberg, a former Ross & Hardies partner who now manages McGuireWoods’ Chicago office. Four months after the merger, the outsourcing deal, which yielded the firm $8.7 million in 2004, according to Securities and Exchange Commission filings, was complete. But it didn’t take long for the Chicago office to show signs of strain. Many of the Ross & Hardies crew defected, leading to a loss of about half the original 123 attorneys. By early 2005 the office’s overall head count had dropped to about 130 � and about 15 of those were new associates. Although firm leaders say the integration went smoothly, 10 former partners and attorneys familiar with the merger say there was an immediate culture clash between the two groups. Many found McGuireWoods’ Richmond-run administration alienating. Some felt that they were losing control over their clients to the new firm, and others had trouble holding onto clients because of McGuireWoods’ higher billing rates. “It was just a huge cultural problem,” says one former partner, who asked not to be named. “Ross & Hardies partners were very used to independence and being left alone to practice law.” Robert Pristave, a former Ross & Hardies partner who is now at McGuireWoods, says the losses haven’t hurt the firm, pointing out that nearly all of Ross & Hardies’ major rainmakers are still with McGuireWoods. And, Burrus says, the office’s revenue per lawyer has increased 23 percent since the merger � now on par with the firmwide average of $500,000. The relationship between Tetzlaff and the Richmond leadership also grew tense. Burrus says the two sparred over management style: Tetzlaff wanted to run the office his way, while McGuireWoods traditionally made most decisions by practice group. “That is a culture that is simply different than McGuireWoods’ culture,” says Burrus. In an interview, Tetzlaff downplayed any tension but said Chicago lawyers didn’t have enough say in management: “It was an issue of control.” By November 2004, Tetzlaff was replaced as managing partner of the Chicago office. Both Burrus and Tetzlaff say the change was part of a regular rotation, but several former partners at the firm say it was not voluntary. A few months later, Tetzlaff’s salary was cut by more than half, according to two former McGuireWoods partners and two sources close to the firm. “It has been clear from both inside and outside for a while that Ted was on his way out and that the firm was the one who was pushing,” says Jungers, the Chicago-based recruiter. The infighting bled into the firm’s dealings with Peoples Energy. In May 2005, Peoples Energy pushed Mark McGuire out of his post as general counsel of the subsidiaries. And, Burrus says, the company began to require the firm to send all inquiries through Tetzlaff alone, which clashed with the firm’s practice of dealing directly with the departments in the company. Burrus says this forced McGuireWoods to sever its relationship with Peoples Energy. Tetzlaff says there was no real change as to who controlled the account, because he had always been the general counsel. The problem, he says, was that the firm couldn’t meet his requirements. “I became in a position where I had to raise questions to my law firm about the quality and quantity and pricing of the representation of Peoples Energy,” Tetzlaff says. “It wasn’t exactly a comfortable position to be in.” Peoples Energy declined to comment on the details of the change. So in June, Tetzlaff, still general counsel, moved on to Chicago’s 108-lawyer Ungaretti & Harris. And Peoples Energy gave up on its outsourcing arrangement and decided to pull some of the legal staff in-house again. McGuire says he has not been told why Peoples Energy pushed him out. “It’s inexplicable to me,” he says. THE ROAD AHEAD Back at McGuireWoods, the Richmond leadership has tried to reassure the office. In May, Burrus and William Strickland, McGuireWoods’ managing partner, dropped by the Chicago office to rally the troops, promising that no one would be laid off because of the Peoples Energy loss. They also brought in client work from another office. (Burrus declined to say who the work was from but said it would more than make up for the loss of Peoples Energy.) Still, some former partners say there is some uncertainty inside the office. Firm leaders say the Chicago office is moving forward and has had some success. For one, the Ross & Hardies merger brought with it one of Chicago’s renowned health care groups and catapulted the office to the firm’s second largest. The move has also helped the firm double its profits per partner over the past five years � a figure that crossed $600,000 for the first time in 2004. “We’re going to grow in Chicago like any other office,” Burrus says, “by adding clients and, as we need them, by adding lawyers.” And that might not be it: The firm still has its sights set on California and Texas.
Emma Schwartz can be contacted at [email protected].

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