Thank you for sharing!

Your article was successfully shared with the contacts you provided.
When Washington-based Finnegan, Henderson, Farabow, Garrett & Dunner ditched its old office’s dark wood paneling and green carpeting for a more modern Northwest D.C. office on New York Avenue in 2005, the changing aesthetic represented more than just the need for additional space. The intellectual-property firm’s move was indicative of the cultural transformation it’s still undergoing. As a first-generation law firm, with most of its business tied to the top partners, Finnegan is trying to make the leap to the second generation, dealing with the reality that getting bigger also typically leads to creating a new class structure. That often comes in the form of a two-tier partnership, which includes nonowner, or nonequity, partners who do not have a voice in firm decisions. Although having two tiers is the norm today, with about three-quarters of The American Lawyer‘s AmLaw 200 already there, that wasn’t always the case. And until recently, Finnegan was the epitome of the old guard, with an all-partners-are-equal mentality that can still be found in firms like Covington & Burling, Arnold & Porter, and a few large New York firms. It wasn’t until 1998 that Finnegan named its first nonequity partner. Over the past decade, that group has slowly grown. Then last November, Finnegan partners debated recommendations made by the management committee to restructure the firm’s partnership agreement at its annual partner meeting. But old habits die hard. “There was a sense it wasn’t appropriate at that time to make a change,” says Richard Racine, managing partner of Finnegan, who declined to give details of the proposals and maintains that options are still under discussion. And despite the no-go vote, the firm met with its associate committee in early December to let them know it was considering lengthening the partnership track and formally changing the partnership so more associates would move into nonequity partner and counsel positions, according to more than a dozen current and former associates who were interviewed for this article. “The bottom line is that we’re making changes but haven’t figured it out yet,” a Finnegan associate says. KING OF THE IP FIRMS Finnegan is nothing if not a Washington entrepreneurial success story. Since the firm opened its doors in 1965, it has grown from a boutique to an IP powerhouse with 288 lawyers. Many are leading attorneys in the IP industry, including its name partners — four of whom are still practicing and billing at enviable rates — and partners such as IP litigator Charles Lipsey and patent lawyer J. Michael Jakes. And, it counts blue-chip clients like Sanofi-Aventis, Caterpillar Inc., Eli Lilly and Co., and GlaxoSmithKline on its roster. “One of the reasons that the firm has thrived over the years is that the firm has been extraordinarily sensitive in being fair both to existing partners and people coming into the firm as associates,” says Donald Dunner, a name partner who in recent years has deferred management decisions to Racine and Steven Moore, the firm’s executive director. “You’d be amazed at the level of discussion and quality of discussion when something like this takes place.” And in recent years, despite the demise of similarly placed firms such as Fish & Neave (swallowed by Ropes & Gray), Pennie & Edmonds (acquired by Jones Day), and the struggling Kenyon & Kenyon, Finnegan’s remained profitable. For the 2006 fiscal year, as reported for the AmLaw 200, Finnegan’s gross revenue jumped almost 16 percent to $272 million. The profits per equity partner also rose substantially to just over $1 million, an uptick of more than 20 percent. Nevertheless, recruiters and consultants say Finnegan may be feeling the heat to improve its profits per partner. “For boutiques — and that’s what Finnegan is, a very large boutique — they’re probably the best IP firm out there,” says one legal recruiter. “But they’re recruiting for talent against bigger general-practice firms.” CONTINUITY VERSUS CONVERSION Given its start as a small, home-grown firm, Finnegan’s always been known for its collegial atmosphere. And because of pressure to up the ante for those striving to become partner, the firm is massaging ruffled feathers. “I get the sense that they’re really trying to figure out how to treat people fairly,” says a former associate who left the firm as a third-year. “Everyone knows that a two-tier partnership makes sense for a lot of firms. But for Finnegan, this would be revolutionary. The notion of a partner being different is hard for some of those guys to accept.” And so, the rumor-mongering rages on in Finnegan’s hallways and at the water cooler. At the end of January, the firm continued its public-relations campaign, meeting with all associates at the practice-group level to answer questions about possible changes. “We discussed with our associates the broad aspects [of a potential revision],” Racine says. “As of now, we haven’t changed anything, though at the end of the day, who knows if we will.” The meetings with associates focused on formally lengthening the partnership track for an associate to make partner. (When it was founded, the firm set an eight-year course, with the sixth being the pivotal year). Since 1998, Finnegan has slowly added to its nonequity partner ranks. In 2005, according to the AmLaw 200, the firm had 18 nonequity partners out of 110. Finnegan reported that in 2006 the number of nonequity partners was 25. Last fall, about 25 associates were up for partner. When new partners were announced for 2007, four got the brass ring, moving directly to equity. Five others became nonequity partners, some after their ninth year, and three associates were named counsel, a rarity for the firm and a title typically reserved for laterals. As a result of informally slowing the time it takes to become equity partner, recruiters say, the firm has lost associates. In the last year, at least 15 associates have departed; the overall nonpartner head count increased by five lawyers in the firm’s D.C. office from April of last year through December, according to numbers provided by the firm for the 2006 Legal Times LT 150 and D.C. 20. And many associates who’ve recently left say the slowed partnership track played into their decision. Because a decision has yet to be made, many associates are waiting and trying to read the tea leaves about their future. Last Friday the firm showed its commitment to associates by increasing first-year pay to $160,000, from $135,000. “People are concerned that they might not make partner for 10 years,” says a current Finnegan associate. “It was explained that there’s not enough information at the eight-year mark and that the firm needs more time to evaluate an associate before making them partner. I’m sure that’s part of it, but it’s not the entire picture.” By increasing the number of associates who become nonequity partners, recruiters and consultants say, Finnegan is differentiating the business generators from the workers. And there remain plenty of other reasons for a firm of Finnegan’s size and profitability to embrace a two-tier partnership. “The firm might want to get a better look at associates, provide a career track for lawyers who don’t generate much business, allow people to have an alternative career track for those who can’t make the time commitment,” says consultant Peter Zeughauser, founder of the Zeughauser Group. “And of course, it can be done to improve profits per partner.” There are plenty of cautionary tales to be told when making partnership changes: Ten years ago, Howrey (then Howrey & Simon) was a litigation juggernaut that demoted eight partners to a fixed income and made another eight new partners nonequity members. At the time, Howrey had about 300 lawyers, and as a result of the turmoil, subsequent years brought a series of defections. “There’s always going to be winners and losers when you reallocate the wealth of a law firm,” says Avery Ellis, a recruiter at Mestel & Co. “And the winners are probably more important to a firm than the losers.” Because senior partners at Finnegan control much of its client base, associates and junior partners have a harder time moving laterally. Although well compensated, they are discouraged from business development, putting them in “gold handcuffs.” But recruiters also note that a two-tier partnership can be a good way to keep talent. “Some associates will see this as a good thing,” says another legal recruiter. “It will allow them to get the partner title and use it as a marketing tool. And for others, it’s a better lifestyle fit.” Which puts Finnegan’s partners at a crossroads, having to decide between continuity and conversion.
Nathan Carlile can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.