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Since January, J. Robert Barr has spent every Wednesday poring over records at the Newberry Library in Chicago. Barr — who has been an attorney at Sidley & Austin for 40 years — is not doing legal research. Instead, the 64-year-old attorney is tracing his family’s genealogy, slowly piecing together how his English and German ancestors became midwestern and eastern farmers in America. In the evening, Barr attends a class in medieval British history, also at the Newberry. The rest of the week, he goes into the office at Sidley as he always has. On some days, he readily admits, he leaves a little earlier than he used to. But no one minds. Since the start of the year, Barr has no longer been a partner at Sidley. Last fall, with no real warning, two members of the firm’s management committee sat Barr down to explain that he would be demoted. Then they gave him a letter detailing his new position: He could stay at Sidley, but he would lose the partner title and all equity in the firm. He would become an independent contractor, free to work fewer hours and see private clients, provided there were no conflicts with the firm. He would still be paid — albeit a salary that is about half of what he made as a partner. Or, if Barr felt they were making a mistake, he could go elsewhere. The changes would be effective January 1. “It was pretty much handed to me as, ‘This is the deal,’ ” Barr remembers. He had been thinking of retiring in the next couple of years, but the demotion accelerated his plan. He was asked to sign the letter if he agreed to its terms. He did so shortly afterward. Barr was not alone. In a major purge at the end of 1999, Sidley’s management team demoted about 35 partners. It was the first time in the firm’s 134-year history that it had carried out such a thorough and overt housecleaning. Overnight, founders of Sidley’s branch offices, partners listed in Who’s Who in American Law, and attorneys who had worked for the firm since the Eisenhower administration found themselves stripped of their equity stakes and professional identities. The majority of the partners demoted were over 50 years old; they were christened “senior counsel.” The remaining 15 or so younger partners became known as just plain “counsel.” All told, nearly 10 percent of Sidley’s approximately 400 partners were dethroned. At the same time, the firm also lowered its mandatory retirement age from 65 to a flexible 60-65. “This is a symbol of something that’s been building for a long time — a real change in the practice of law, at least at the large, national law firms,” says Barr, a former member of the Illinois House of Representatives who spent 30 years as the firm’s preeminent state tax law partner. “I think it’s fair to say, without being nasty about it, that a lot of it’s about money. It is about increasing earnings per partner.” The demotions were a particularly bewildering wake-up call for older attorneys — who had devoted years of their youths to Sidley, toiling under the expectation that partnership would ensure the kind of rock-solid job stability only a law firm or a university could offer. “Traditionally, when you became partner in a law firm, unless you did something that would get a judge impeached, and maybe not even then, you were pretty much secure,” says Henry Mason III, 59, who was demoted after 27 years as a partner at Sidley. “I think that whole situation has been steadily eroding. And this is another relatively dramatic manifestation of it.” When Sidley announced the demotions in October, it certainly was not the first (nor the last) time a prestigious law firm would rattle its members by acting more like a business than a club. Nor did Sidley carry out its “restructuring” in a particularly ruthless way. It was, however, remarkable that a firm such as Sidley made so many demotions so unabashedly. “The history of this place has never been to make as much money as you possibly can,” says one senior partner. Long known as one of the last genteel firms, Sidley was a place where profits did not trump civility — at least not in public. Name partner Edwin Austin insisted back in the 1930s that the firm should not charge “all the traffic will bear.” The edict still appears in the firm’s manual. It is also a point of pride at the firm that, during the recession in the early 1990s, when other firms were throwing lawyers onto the streets, Sidley didn’t lay anyone off for economic reasons, according to Charles Douglas, chair of the firm’s management committee. In recent years, the firm had grown into a massive operation, becoming the second-largest Chicago-based firm, with 900 attorneys worldwide. But it still retained a distinctly “above-the-fray” culture: In a 1998 American Lawyer survey of midlevel associates, Sidley ranked as the best place to practice law in Chicago. Associates applauded the supportive environment at the firm. And partners enjoyed a relatively forgiving, hybrid compensation system — neither completely lockstep nor eat-what-you-kill. But the firm’s numbers haven’t proved as buoyant as its morale. Sidley’s revenue and profits had increased significantly over the last two years — but not as fast as at other big firms. And its standing in the Am Law 100 rankings was beginning to slide: eighth nationwide in gross revenue for 1998, down from seventh the year before; and from forty-fourth to forty-eighth in profits per partner. A partner at another major Chicago firm says that although Sidley still has an “enviable” list of clients, the firm needed to do something if it was to continue its evolution from regional to national to international powerhouse. “Sidley’s been sort of fat and happy for a number of years,” this partner says. At around the same time, the firm came under new leadership. After five years as chair of the firm’s executive committee, 53-year-old partner Robert McLean died of cancer in the spring of 1998. The next spring R. Eden Martin stepped down at age 59 after ten years as chair of Sidley’s management committee. Thomas Cole replaced McLean, and Douglas took over Martin’s post. Privately, some partners say that it’s no coincidence that the demotions happened shortly after the ascent of Cole and Douglas. Both men were 51 at the time of the demotions, and both say that they felt strongly that the firm needed to ensure that it would remain competitive into the future. “The world changes,” says Douglas. “And an institution like this, which has been around for going on 134 years now, survives and thrives because it is able to adapt to the changes that take place. We’re looking forward and saying, ‘What type of institution do we want to leave behind when we turn the reins over to the next generation?’ “ The seven members of Sidley’s management committee make most of the decisions at the firm, with the approval of the 34-member executive committee — which means that almost no one else knows the sordid details of who is making what. The whole partnership never takes a formal vote on anything. Cole, who sits on both committees, came into the leadership role worried about the firm’s financial profile. “There was a disconnect between how good we are as lawyers, how good our stable of clients is on the one hand, and the financial results that get shown publicly on the other hand,” he says. His long-term concern was that the numbers “could ultimately affect future retention and recruiting and possibly even the way prospective clients would assess the firm,” Cole says. Although Douglas claims that the firm had not experienced any alarming turnover among associates or partners, he says he wanted to make sure it stayed that way. “The future of the firm is and always has been in the development of opportunities for the younger lawyers, all the way down to the youngest associates,” Douglas says. And, while he claims that numbers weren’t his foremost concern, he concedes that in today’s market, “no firm can turn a blind eye to the statistics.” But identifying the need for improvement was the easy part. Figuring out what to do about it took the better part of last year. As Cole puts it: “The problem was then how to address this issue in a Sidley-like way and still be a place that values quality of life.” By October 14, 1999, Cole had a plan. Armed with a 45-minute slide presentation, he and Douglas addressed their colleagues at the firm’s quarterly partners meeting in Chicago. Only a few of the 200 partners gathered in the firm’s conference center knew what Cole was about to say. The management and executive committees had unanimously approved the demotions. And, in private meetings in the weeks leading up the announcement, one management committee member had visited each of the unlucky partners, along with at least one member of the executive committee or head of a practice area. To ensure that Sidley would remain competitive into the future, the firm would adopt several new policies, Cole told the partners. All the changes were aimed at creating more opportunities for associates, giving them better training and feedback, and clearer assessments of their future. The most stunning announcement — that a group of partners, whom Cole did not name then or ever, would become senior counsel and counsel — did not spark any outcry in the audience. After the meeting, Cole was approached by another attorney at the firm. His colleague, a younger partner, congratulated him on giving the performance of a lifetime. Several days later, a 40-something partner ran into a partner in his fifties in the elevator and marveled aloud at how the firm was finally getting rid of the “deadwood.” The older partner turned and introduced himself: ” ‘Hi, I’m part of the deadwood.’ “ David Alan Richards cofounded Sidley’s New York office in 1982. Until three years ago, he also headed up the firm’s real estate group. He’s an affable man with a quick mind. And he’s only 54 years old. But last fall, his trajectory at the firm took a detour when he, too, got unexpected news from management. Although Richards has an impressive resume (he was past chair of the American Bar Association’s Real Property Section), he concedes he has less business than he did 10 years ago. When Richards talks about what happened, you can almost see his brain fighting to reconcile the contradictory impulses. Empathy on the one hand, disappointment on the other. “While I understand all the pressures the firm is facing to be competitive, I also was somewhat surprised,” he says. Nobody’s going to feel too sorry for Richards, of course. Like all Sidley partners, he made a lot of money by any objective standard (an average of $575,000 in 1998, according to American Lawyer’s 1999 per-partner profits statistics). And unlike some of the other newly minted senior counsel, Richards says he will end up with about the same income he had before — although he’ll get it through a straight salary as opposed to equity. He also has started seeing private clients. By April, he already had five of them. But the ordeal has forced Richards to rethink his notions of what it means to be a partner at a firm like Sidley. “It’s sort of extraordinary that a firm should announce that suddenly nobody’s got tenure,” he says. “It’s a milestone in the conversion of the practice of law from a profession to a business.” Theoretically, Sidley could have de-equitized partners without taking their titles away. The firm’s profits per partner still would have increased, since the rankings count equity partners only. And the de-equitized partners would have been able to hold on to more dignity and job marketability. In fact, another Chicago firm — Sonnenschein Nath & Rosenthal — executed widespread demotions around the same time as Sidley without revoking anyone’s title. Twenty-five people lost their equity, according to executive director David Schadler, but not the label. “It was internal only,” Schadler says. Cole says that Sidley’s management team considered allowing partners to keep their title. But he says he didn’t want to dilute the significance of the word “partner.” Currently, all Sidley partners have at least some equity. And while the firm has long had the title senior counsel, it has generally been reserved for a very small number of older partners who requested a change in status. Conversely, the firm could have also quietly tapped underperforming partners and let them know it was time to go. Or it could have reduced some of the partners’ equity, as it also does on a routine basis. Of course, those actions would not have sent such a clear message to the rest of the firm and the outside world. And Douglas speculates that motivating the remaining partners to create more opportunities for associates could be the main factor that drives up profits. Another former partner suggests that the firm’s executive committee could have made a vow of abstinence, refusing to accept any increase in earnings for the next two years. Then there would have been no doubt that the decision was for the good of the firm — and not for the good of a few, already high-grossing individuals. But the firm also needs to retain its high rollers. “The great partners are going to have to make more money, or it’s going to be like free agency in sports,” notes J. Ronald Trost, 67, a former member of the management committee who also became senior counsel this year after he requested a change in status. Cole stresses that the firm took great pains to leave members with their dignity in other ways. For instance, senior counsel can still attend partners meetings — if they want to. And the younger demoted partners were given six months to decide whether they wanted to become counsel; if not, they could retain the partner title until June 30 while they searched for other jobs. Partners who rejected the senior counsel option also could have asked to hold on to their partner titles while looking for new work, according to one partner close to the decision. But unlike counsel, they were not explicitly told of the option. Trost calls the firm’s execution of the demotions “elegant” and says he fully supports the firm’s goals and methods. “By and large, I thought it was inappropriate for the old guys to stay around when we had so much young talent around,” he says. And, he adds, “in two or three years, everybody here will say we should have done it ten years ago.” The impact of Sidley’s personnel shuffle has already been felt at almost all levels of the firm, attorneys say. A handful of demoted partners have already left. Others are evaluating their options. Partners and associates not directly affected by the demotions say that they, too, got a clear message: Pull your weight, or you’ll lose your heft. And that means the demotions achieved at least one goal, by jump-starting all the attorneys. “People feel slightly more vibrant about the world around them,” says a partner at Sidley’s New York office. “This has made people feel like they are responsible for their own fate.” Soon after the demotions took effect in January, the fervor to produce business became so intense that it started to cause problems. “Everybody’s got a gun or a knife at their back. Choose your metaphor,” says senior counsel Mason, dryly. At least twice, Sidley attorneys pitched their services to companies already represented by Sidley, according to another senior counsel at the firm. In response to this fit of overeagerness, the firm’s leadership sent out a memo gently reminding attorneys to check the client list before pursuing new business. There are early signs that the streamlining has also had the desired effect of freeing up cash to promote recruiting and retention. The New York partner, who requested anonymity, says that young partners who produce results have been compensated better in 2000 than in previous years. The partner speculates that the bigger checks were made possible by the demotions. Already this year, the firm has made 16 new partners. And Sidley also dived headfirst into the salary wars earlier this year, jacking up its starting salary almost 30 percent at all offices to the new standard New York/Silicon Valley rate of $125,000, plus bonuses. Although the firm obviously could not have predicted the pay raises, the demotions came at a convenient time. So far, partners say, there is little indication that the younger attorneys at the firm see any downside to the personnel changes. One senior counsel says that the associates and younger partners he’s heard from seem to realize that they, too, could get demoted one day, but they hope to make their millions and get out of the business before then. “As an associate moving up through the ranks, you do get some comfort from knowing that the partnership is strong,” says one associate at Sidley’s Los Angeles office who defends the demotions. Then again, he says, “if we thought this was a yearly thing, my morale would hit rock bottom, and I think that most associates’ would, too.” To say Sidley just targeted its older partners would be a stretch, since the demotions affected people at a range of ages and skipped over many older partners. Douglas rejects outright that age was a determinant factor. But age was not irrelevant, either. Most of the partners who got demoted were over 50. And, according to Cole and Douglas, all of the changes were meant to benefit younger partners. “When we laid this out to associates, they understood that the overall plan would create significant opportunities for them,” Cole says. For older attorneys, the demotions created unique opportunities and problems. For some, it was a welcome push in a direction they’d been meaning to take. “I spent the last 25 years practicing law,” says one partner-turned-senior-counsel. “Now I can spend the next ten years doing the stuff I really like doing in the law. I thank them for it.” But other older attorneys who had expected to work for many more years got blindsided. In addition to the financial losses, they face uncertain prospects in the job market. Sure, firms may be strapped for labor these days — but they’re looking for the fresh-faced, work-me-until-I-bleed variety. Age can be a handicap, even in today’s market. And, even if you jump the age hurdle, try explaining in a job interview how it is you misplaced the partner title. “There will be issues about whether the person works hard enough, whether they have business. It will raise questions that have to be answered,” says Kay Hoppe, president of the Chicago-based recruiting firm Credentia, Inc. At the same time, Hoppe adds, “what Sidley’s done, everybody in some form or another has had to do.” If an attorney has skills and business a firm needs, she says, the title change won’t be a deal breaker. “It’s a pretty sophisticated marketplace.” But even in this grand era of meritocracies, losing a title doesn’t improve your prospects. In January, one Sidley demotee in his fifties got a call from a headhunter about potential job opportunities. Deciding it was best to be forthcoming, the attorney told her he was no longer a partner. “It was like I had a communicable disease,” he says. The recruiter never called back. It will take a few years to assess the lasting effects of the demotions at Sidley. If associates get more interesting work and profits per partner increase dramatically, more and better recruits may be attracted to Sidley — and stay there. But some longtime members of the firm worry that it will never be the same. In making Sidley more competitive financially, the partners may have chipped away at what made the firm unique. Says Barr: “If I were a younger partner or a senior associate, I might be pretty nervous about what’s happened.” One former partner who left the firm in the last year says that the demotions suggest a larger shift in Sidley’s culture. “Sidley’s priorities were to have first-class lawyers, an amiable atmosphere, and to make a decent living. There is a sense [now] that some of these ideas aren’t ranked in the same way,” he says. “If they had been doing this when I was picking a law firm, I wouldn’t have picked Sidley. I had other offers for a lot more money, but that’s not what I wanted.” Cole denies that the demotions mark a change in Sidley’s philosophy. “The firm has not changed its attitude toward its partners,” he says. “We continue to have a culture of mutual support.” He declines to comment on the endless rumors that Sidley is considering a merger, other than to deny that the demotions had anything to do with such a prospect. “The overall program to increase the competitiveness of the firm was undertaken entirely independently of any thoughts we might have about a merger or acquisition of other firms,” he says. For now, many at Sidley still don’t know exactly who was demoted. “I don’t want to know,” says one younger partner. Even the firm’s Web site hasn’t yet come to terms with the changes. A category for “senior counsel” is sandwiched matter-of-factly between partner and counsel. But as of mid-May, clicking on this page opened only an error message.

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