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Gene Takagi has long been interested in nonprofits. He has a master’s degree in nonprofit management and spent two years with the San Francisco SPCA, directing its medical and rehab divisions before going back to earn his J.D. But as an associate in Sheppard, Mullin, Richter & Hampton’s corporate department, he had a difficult time building a nonprofit practice. He didn’t have enough clout to draw large institutional clients, and many organizations couldn’t afford his big-firm rates. He did some pro bono work for the Museum of the African Diaspora, all the while keeping an eye on what he perceived as a large untapped need among the smaller nonprofits. At the start of 2005, after three years at Sheppard, Mullin, Takagi left to open his own firm. Turns out he hit a sweet spot. Slashing his rates from $280 to $150 at the time, Takagi says he has since gone from zero to 60 regular clients. Some of them include the Asian American/Pacific Islanders in Philanthropy, the Coleman Advocates for Children and Youth, and the California School Health Centers Association. Takagi handles corporate and tax matters, as well as formation, organizational structuring, risk management and mergers and acquisitions for nonprofits mostly with budgets of less than $3 million. The San Francisco-based solo expects the growth in his practice to continue. “Within two years, I’ll be looking for a part-time associate or to possibly merge my practice with other solos or partners,” Takagi said. A confluence of trends is filling Takagi’s sails. For one, the nonprofit sector is exploding. In California, the number of private foundations more than doubled in the past decade, while the number of public charities swelled by nearly 60 percent, according to the National Center for Charitable Statistics. And their wealth is growing. California private foundations owned about $34.9 billion in total assets in October 1997. That has since ballooned to $78.2 billion in September of this year. Also, the regulations are growing stricter � and more complicated. One example: California’s Nonprofit Integrity Act went into effect in 2005, requiring governance reform and audits for organizations with a certain budget. Silk, Adler & Colvin partner Erik Dryburgh said that the charities he serves are involved in more sophisticated transactions, and donors are giving more complicated assets. “That all translates into a need for more counsel,” Dryburgh said. ‘TONS OF INTEREST’ At Coblentz, Patch, Duffy & Bass, partner Cynthia Rowland heads the firm’s five-lawyer nonprofit practice. She reports “tons of interest” in the nonprofit arena from lawyers of all ages, but says that doesn’t mean recruiting is easy. Coblentz looks for lawyers who have a certain level of comfort with the Internal Revenue Code, Rowland said. The most successful hires are candidates with at least three years of tax training at a big firm. “It’s incredibly gratifying and wonderful to be involved with people who want to do good in their legal work as a specialist in the area,” said Rowland, who has an undergraduate degree in finance. “Not too many people are willing to do [the] three years of general tax work, which is not gratifying and wonderfully satisfying.” Silk, Adler has added people from larger firms such as Simpson Thacher & Bartlett and Proskauer Rose. The firm employed 12 lawyers in spring 2002. The addition of another new associate this November will bring the firm to 17, a roughly 40 percent increase. Founder Thomas Silk left the Brobeck firm in 1971 “to see whether I could only represent foundations and nonprofit organizations � and still pay rent.” In the 1970s, he largely represented religious and civil rights organizations. Later Silk traveled to the former Soviet-bloc countries, including Russia, to familiarize leaders there with U.S. nonprofit law. Today the firm counts Google Inc., Cisco Systems Inc., Oracle Corp. and eBay Inc. among its philanthropic clients. Silk crows about his firm’s prominent position in the field, but says things could change. “A large law firm might want to set up a department in this field and that would be detrimental to us,” Silk said. “Right now it’s at a place when all comers are welcome, because there’s more and more work, more and more complexity, more and more money and more media and public attention.” BIG FIRMS BEWARE But others don’t believe that the big firms will set a stake in this field, on the theory that nonprofit work is particularly suited to the smaller firm because of its rates. Many have created a sliding scale that takes into account the client’s annual budget. Takagi, for instance, charges his smallest clients $190 per hour and tops out at $210. Silk, Adler partners bill between $425 and $550. That firm also offers a “small charity rate” capped at $350 for organizations with less than $350,000 in annual revenues or total assets, Silk said. Yet Pillsbury Winthrop Shaw Pittman nonprofit group head Jerald Jacobs says his practice, employing four full-time lawyers, has more than doubled in the past five years in terms of billable hours and revenues. “We’re doing more mergers and consolidations, comprehensive governance reviews, affinity program transactions with outside vendors and other larger engagements,” Jacobs said. He declined to provide details except to say that at the end of last year, his group sent out bills to 200 clients. But even Jacobs doesn’t expect other large firms to jump into this area any time soon. Pillsbury keeps billing rates as low as possible, he said, with attorneys charging between $300 and $500, and adds that of the 1.3 million tax-exempt organizations in the country, most are run on a shoe string. “It’s a massive industry, but the vast majority of nonprofits cannot afford to hire outside counsel at all,” Jacobs said. Rather than hire more lawyers to handle the increasing workload, Pillsbury pulls lawyers from the firm’s other departments to help their four full-timers. Pillsbury’s clients � trade associations, professional societies and philanthropic associations �have needs that sometimes are no different from for-profit companies, and include real estate and employment matters. Lawyers, particularly those serving large, well-established nonprofits, say they expect the good times to continue rolling, even through economic downtimes. Coblentz’s Rowland said that while less money goes into nonprofits during recessions, she has not seen wild ups and downs in demand for legal services. “The institutional clients � the universities and charities and museums � are not so much affected,” Rowland said. “Their assets are invested conservatively and tend not to be rocked by this type of turmoil.”

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