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Q: We are an Am Law 100 firm with a modestly strong technology and intellectual property practice, but we’ve never opened an office in a high-tech center. Now we’re considering moving into Silicon Valley. Is it too late? Have we missed the market? A: I believe that Silicon Valley is the second-most important legal market in the United States, surpassed only by New York. It certainly is not too late to enter that market. Even firms that have only recently moved into the Valley report that they are turning work away or referring it to other firms due to lack of capacity. The more vexing question is how to staff a new office in the Valley. Conventional wisdom holds that a new office should have at least one partner from an existing office and at least one lateral from the local market, and that all of the partners should have expertise in the core practice areas that the new office will pursue. For most firms, finding productive partners who are willing to relocate their practices is typically enough of a challenge, especially in markets where housing is expensive, as it is in Silicon Valley. But in the Valley, the greater challenge is recruiting local talent. Even firms with extraordinarily strong brand names have had to search long and hard for top Valley laterals. The competition for talent is simply too great. Leading Valley firms like Wilson Sonsini Goodrich & Rosati; Cooley Godward; and Brobeck, Phleger & Harrison are producing profits per partner high enough to fend off the vast majority of raiders. But even though the Valley has eclipsed San Francisco as the key market in the Bay Area, at least for transactional work, you may not have to open in Palo Alto, the Valley’s Ground Zero. Because of the office-space crunch in the Valley and the high cost of housing there, as well as San Francisco’s attractive cultural pull, clients and firms are now moving from the Valley into San Francisco. In other words, the Valley is oozing north into San Francisco. The bottom line is that you still may be able to catch the Valley wave by opening in San Francisco, where lateral talent is more readily available and housing, although certainly not cheap, is a bit less expensive. Q: We want to bring in one or more lateral partners in new, hot practice areas. To attract them, we’ll have to pay more than our compensation system would ordinarily permit. We must have these laterals to build core strengths in these practice areas, but we need to preserve our compensation structure as well. How can we do both? A: Steer clear of long-term financial commitments to lateral partners at rates that will bust your compensation system. Not only does it create significant dissension and morale problems among existing partners, it sets the firm up to be disappointed if the laterals don’t perform as expected. While strong due diligence can go a long way toward heading off the latter problem, it does not address the former. To avoid making a commitment that you’ll regret, don’t use partnership points to attract laterals. If you need to lure a lateral with a super-draw — that is, a larger draw than would be given to a current partner who has a similar book of business and same amount of experience — fund it with revenues that your firm has set aside in the managing partner’s discretionary fund or a bonus fund. The key is not to lock in the super-draw — or to hold off on committing to it until the lateral performs over the long haul at an agreed-upon “super” performance level. Q: Our firm prides itself on allowing its lawyers to balance their personal lives with career demands. Over the years, we have steadfastly refused to demand high billable hours from either partners or associates. As a result, our lawyers are happy with their lifestyles, but our profits per partner are lower than they are at many of our competitors. We think that we can continue to compete for talented associates on this basis, but we are uncertain. Must we join the “factory firms” and give up our lifestyles to remain competitive? A: It’s ironic, isn’t it? Low associate morale seems to correlate with high billable-hour demands (whether due to firm policy or client needs). Accordingly, the harder the grind, the lower the retention rate. The firms that need the most associates are least able to retain them, but those firms that are less voracious seem less attractive to laterals and fresh law school graduates. There is no “one size fits all” formula for attracting associates. Some want an adrenaline-driven practice full of huge and unreasonable client demands. Others want to work less and spend time raising their families. To succeed and grow in a booming economy that has an insatiable appetite for lawyers, most law firms are going to have to structure themselves to appeal to both. This means providing 24-hour-a-day support for the grinders and plenty of part-time and telecommuting opportunities for the lifestylers. Such firms will need flexible compensation and pricing systems that highly compensate the grinders but allow those who want to work less to take lower compensation or produce higher margins through alternative pricing. They will likely evolve into firms with a small number of equity partners who own the firm and maintain client relationships. There will be two types of candidates for admission to this group of partners: extraordinary grinders and “pricers” — people who are able to work less but price their work on a high-value-added, premium flat-fee basis. These firms will also need hybrid compensation systems that reward the profitability of work in lieu of or in addition to the number of billable hours expended. Although firms seem to be making progress in the area of flexible rewards for hours billed, nobody yet seems to have devised a formula for rewarding associates for the profitability of their work. Q: I am a fourth-year litigation associate at a large Wall Street firm. I would like to move into a transactional practice, preferably in intellectual property. I have spoken to my firm about making the transition, but they are not expanding the associate ranks outside of litigation. What are my options? A: If you’re willing to leave New York, your options are pretty strong. Most of the leading high-tech firms are short on intellectual property lawyers and many are willing to invest in retraining laterals with strong resumes. General practice firms with significant high-tech and emerging-company practices are retooling their own lawyers into IP from slower or commodifying practice areas like employment law. Demand for IP lawyers is particularly strong in the Silicon Valley-San Francisco Bay Area and technology pockets around the country. If you’re interested in making a move, pick one or more geographic markets you like and do a little research on the leading firms. Select a strong firm with a powerful brand name. Such a firm will be more likely to ride out a dip in technology work without layoffs, should a slowdown occur. Act fast, because your window of opportunity may be limited. For one thing, it’s impossible to know how long the current intellectual property boom will continue. Some pundits say it has a long future; others think it could end by the close of this calendar year. For another, as a fourth-year associate, you are still eminently attractive for retooling, and you don’t need a book of business to move. Both of those criteria will change with increasing rapidity over the next two years, so your best time to move is soon. Peter D. Zeughauser is a legal consultant in the Corona del Mar, Calif., office of ClientFocus. He is also of counsel at Claremont, Calif.’s Shernoff, Bidart, Darrass & Dillon. If you have a question you’d like Zeughauser to tackle, e-mail him at [email protected] or fax him at 212-481-8255.

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