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The hallmark is flexibility,” says Robert Sheehan, the executive partner of Skadden, Arps, Slate, Meagher & Flom. Sheehan is describing how to maintain a first-tier commercial law firm that can thrive in a changing business environment. He’s earned the right to hold forth on the subject. In 1999, according to The American Lawyer’s research, his firm of 1,322 lawyers became the world’s first to gross more than $1 billion a year. And it did so while earning stunning profits: an average of $1.6 million for each of its 292 partners. (The firm does not comment on our figures.) Skadden’s course in the 1990s was determined more than a decade earlier. In 1978 the firm had about 160 lawyers and grossed $30 million. Though those were robust figures for the time, about two-thirds of Skadden’s business rested somewhat precariously on the shoulders of its core specialty: corporate takeover contests and mergers and acquisitions. In 1979 Skadden consciously embarked on a diversification program designed to build an enduring institution. Joseph Flom, the firm’s cofounder and visionary, wanted a firm that, notwithstanding the whims of the business cycle, could always attract “upper margin work” — i.e., the most challenging, complex, important, and pricey assignments. Flom set about developing practice expertise in such areas as bankruptcy, traditional corporate finance, real estate, product liability, and, later, project finance. Flom and his successor, Peter Mullen, also decided to launch new offices in key hub cities around the country and, later, the globe. In 1980 Skadden hired managing consultant Earle Yaffa as the firm’s first nonlawyer managing director, to bring a professional businessperson’s eye to the task of law firm management. Despite Skadden’s dramatic expansion during the 1980s — by 1989 it had grown to 948 lawyers and grossed $517 million — it never merged with other firms. Instead, it typically cherry-picked a key partner from another firm, and then built a new practice group around that partner. (When opening its Chicago office in 1984, it took in five lateral partners — the largest number it has ever absorbed at one time.) Skadden’s disdain for mergers reflects the premium it places on preserving its culture. If you add an individual lawyer to a large firm, Sheehan explains, the lawyer will naturally adapt to the firm’s culture. But if you join two large firms together, you don’t know exactly which culture will prevail. When the recession of the early 1990s hit and deal work dried up, Skadden was hurt, but not crippled. The firm did contract modestly and, by 1993, profits per partner shrank to $690,000 — about 40 percent off its then-peak of $1.2 million in 1989. But the firm rebounded strongly the following year and has resumed steady upward growth since then. By 1995, Sheehan says, the firm focused on strengthening its high-tech practice, especially its business combination work for high-tech companies. It added a Palo Alto. Calif., office in 1998 — though Sheehan claims that the firm was, by then, already deeply involved in such work — and this year it opened an office in Reston, Virginia, as well. But Sheehan and Yaffa appear far less concerned about protecting their franchise from the nouveau riche Silicon Valley firms than from the steady and alarming encroachments of the mature and undeniably excellent British firms. If the Clifford Chance-Rogers & Wells merger proves to be a harbinger, Skadden’s longtime resistance to mergers will be sorely tested. Though Sheehan and Yaffa will not name names, they are clearly concerned about the prospect of a Cravath, Swaine & Moore, say, merging with a Freshfields, or a Davis Polk & Wardwell with a Linklaters. “If firms we compete with were to merge,” says Yaffa, “we’d have to think whether that puts us in a competitive disadvantage. Does that change the ground rules?” In other words: Flexibility is the hallmark. Related Chart: The Am Law 100 Am Law 100 Index

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