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CHICAGO � Mayer Brown slowed repayment of departing partners’ capital investments in recent months as the firm faced unpaid client bills and an outflow of money tied to exiting U.S. partners. Last summer, Mayer Brown leaders changed firm policy to take up to six months to return departing partners’ capital investments � which can be hundreds of thousands of dollars per lawyer � instead of handing it back immediately, said former partners who asked not to be identified. The firm declined to comment, saying only that capital is returned in accordance with the partnership agreement. More than 20 U.S. partners have exited Mayer Brown during the past year, taking millions of dollars in capital contributions and exit compensation with them. While the firm might have expected some of the 45 partners it demoted to nonequity status last March to leave, there have also been unrelated defections of major money-making partners. Top partners who exited the firm during the past year include Alan Salpeter, who moved to Dewey & LeBoeuf’s Chicago office; Robert Ward, who left for Schulte Roth & Zabel in New York; and James Lidbury, who opened a Chicago office for Boston-based Ropes & Gray. Mayer Brown said it had 584 partners firmwide at the end of last year, up from 580 a year earlier, but declined to provide the net change in U.S. partners. Senior partners’ capital contributions are bigger than those of new junior partners. The firm, which was founded in Chicago, now stretches to Europe and Asia with about 1,800 attorneys, including 260 from a February merger with Johnson, Stokes & Master of Hong Kong. Last year, three new partners took over leadership of the firm. “The last thing Mayer Brown needed was a recession when it’s going through this restructuring,” said John Vishneski, a former partner who left for Reed Smith last year. The cash crunch comes as Mayer Brown faces financial pressures linked to a U.S. economic slowdown that is affecting all law firms. Demand for legal work associated with financial securitizations has declined industrywide, hurting a key practice area for Mayer Brown, said former partners. At the same time, the firm is shouldering new expenses to fight lawsuits over its work for a fraud-plagued former client, the now defunct commodities broker Refco Inc. Mayer Brown’s 2006 profits per partner rose to $1.14 million with 346 equity partners, compared to $955,000 with 427 equity partners in 2005, according to the most recent statistics from The American Lawyer, an affiliate of The National Law Journal. That put the firm in 56th place last year among the 200 highest-revenue firms. In light of general economic conditions, Mayer Brown Chairman James Holzhauer asked partners last month to step up collections, the firm said. While U.S. transactional practices have slowed this year, the firm said litigation “remains quite busy” and business in Europe and Asia is robust. “The firm is taking prudent steps in such areas as billing collections and expense control to maintain our financial strength,” the firm said in a statement. “Although some practices and offices are feeling the effects of the economy, others have seen double-digit increases.” Capital investments Shortly after the departure last June of Salpeter, who was among the firm’s top revenue-producing partners, the firm’s policy-setting committee switched to returning the capital investments in a six-month period. Most major firms return that money within two years, said Lisa Miller, a Hildebrandt International consultant. While changing to a six-month period isn’t “significant,” it is unusual that a firm changes its policy and suggests a focus on cash management, she said. In another sign of a cash squeeze, some former partners said the firm slowed special distributions of profits to partners earlier this year. The firm said it is “current” in its payments. “Earlier in 2008, we experienced a collections-related slowdown in cash flow, which appears to be behind us,” the firm said in a statement. “Recent cash flow is above our normal level.” The exit of Mayer Brown partners continued this month with the departures of Steven Gilford and two other partners to open a Chicago office for New York’s Proskauer Rose and the move by Bruce Gelman, formerly a tax partner at Mayer Brown, plus Thomas Geraghty and Joshua Hanna, to Kirkland & Ellis in Chicago. “They very much wanted me to stay,” Gelman said. Mayer Brown has hired U.S. partners, too, including white-collar criminal defense attorneys Bryan Daly and Charles Kreindler in Los Angeles and corporate attorneys Richard Leavy and Sterling Dorish in New York. During transitional periods when law firms are cutting partners, the costs of exit compensation and lingering overhead items sometimes drive up expense, said Peter Zeughauser, a Newport Beach, Calif.-based consultant whose firm has worked for Mayer Brown in the past. “It’s not infrequent for the short-term costs to be a hit on profitability,” he said. “Over the long haul, you save money.”

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