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Gaining a stronghold in Silicon Valley should have been a snap for Shearman & Sterling. The fifth-largest U.S. law firm, Shearman is closely linked to the Valley’s investment bankers, and it’s had a San Francisco office since 1979. So it wasn’t lacking in local cachet — an obstacle for other out-of-town firms — when it opened in Menlo Park, Calif., in 1998. Despite its advantages, Shearman has struggled to grow in Silicon Valley, and it has been quickly overshadowed by more recent arrivals from New York. The Menlo Park team only numbers about a dozen, and the outpost has lost its two, full-time corporate partners in recent months. To compound the problem, its two leading corporate partners in San Francisco have bolted as well. They complain that the firm’s senior management neglected their offices and instead focused on expansion in Europe. Because it lacked the manpower, the firm hasn’t been able to crack the lucrative market for corporate transactional work and has instead fallen back on its ties to banks. Even Shearman’s new West Coast managing partner, mergers and acquisitions specialist Peter Lyons, acknowledges the firm is disappointed with its growth in Silicon Valley. As a result, the 850-lawyer firm has mobilized to shore up the flagging Menlo Park office. The firm is transferring Lyons from New York and is currently relocating two partners and a handful of associates to bulk up the Silicon Valley office. Shearman has leased a new 33,000-square-foot office building in Menlo Park to prove it means business. It’s also replacing the two corporate partners that quit the San Francisco office this summer. With its prominence in European markets like Germany and the U.K., Shearman has certainly proven it’s capable of ramping up quickly. Shearman launched its European growth plan in 1995. And partners from other, more successful New York satellites in the Valley say Shearman may be down, but definitely shouldn’t be counted out. Whether the team of transplants enjoys greater success than the team they’re replacing remains to be seen, however. “To some extent losing four corporate partners is a wake-up call, and they’ve shipped out some good people,” said Alan Denenberg, a former Shearman partner who joined the Menlo Park office of New York’s Davis Polk & Wardwell. Denenberg and other departed Shearman partners say what drove them away was senior management’s inattention that resulted in resources — like trained partners and associates — being diverted elsewhere. “In an age and time where numbers of lawyers are limited, generally you have to prioritize, and Shearman & Sterling just prioritized Europe higher,” said Denenberg. By contrast, Davis Polk & Wardwell; Simpson Thacher & Bartlett; and Skadden, Arps, Slate, Meagher & Flom — all based in New York — each started with a mix of transplants and lateral hires, and partners there say the Valley has been a priority for senior managers. The result has been a far higher profile in the Valley than Shearman’s. “Support and focus inside the firm is hugely important to being successful in this area,” said Kenton King, a senior Skadden partner in Palo Alto, Calif. In taking on the new post at Shearman, Lyons said he has a direct line to upper management. And he won’t be taking on management duties alone. Shearman is also relocating corporate partner Bruce Czachor from Toronto to co-manage the Menlo Park office. Czachor said the momentum for beefing up a West Coast presence is building. “It’s a combination of realizing as a firm we were focusing on expanding in Europe and Asia and not particularly focusing on the [San Francisco] Bay Area, and we felt that as a long-term strategy we need to expand in the technology area,” he said. The tag-team approach is a major shift for Shearman. For six years, William Hinman served as Shearman’s West Coast managing partner — spending the last two personally overseeing both the San Francisco and Menlo Park outposts. In addition, he continued his busy securities practice. Shearman’s Bay Area offices enjoyed a growth spurt shortly after Hinman took the helm in 1994. At the time, the San Francisco office had 22 lawyers, and he grew it to 45 by 1997. After that, the growth stalled. Hinman needed more senior staffers, either by getting more partners from New York or by having free rein to hire lateral partners from local firms. “I felt we had sort of stalled out, in part because of the firm’s emphasis on growth in Europe,” said Hinman, who left in July to join Simpson Thacher. He took with him Menlo Park-based corporate partner Kevin Kennedy. Hinman declined to detail whether he tangled with firm management or to reveal what prompted him to end a 20-year tenure with Shearman. What drew him to Simpson Thacher, he said, was the firm’s commitment to its Silicon Valley office. Launched two years ago with transplants and local hires, the office now has six partners and 19 associates. The fourth corporate partner to quit Shearman this summer was Christopher Dillon, a mergers and acquisitions specialist who joined Menlo Park-based Gunderson Dettmer Stough Villeneuve Franklin & Hachigian in June. For his part, Lyons sees rebuilding in Silicon Valley as a challenge, and he plans to recruit from local firms, on top of the lawyers that Shearman is relocating. The firm is also going to beef up its intellectual property and employee benefits teams so it can start catering more toward companies, in addition to its longtime investment banking clients. A top priority is improving the lines of communication between the West Coast team and the firm’s 14 other offices. Part of the goal is to leverage the firm’s expertise overseas when it markets to global technology companies in Silicon Valley or companies looking to expand globally. And the firm is looking to bring the West Coast office back into the firm fold, Lyons said. The firm’s management, he said, “probably should have turned their attention to the West Coast sooner than they did.”

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