Baker's Recipe

Tall and regal in a tailored suit, Christine Lagarde looks every inch the classic Parisian as she moves through the bustling lobby of the San Francisco Hilton. Colleagues hail the Baker & McKenzie chairwoman warmly, and she stops to greet them with her melodic, yet assertive, French accent and a cosmopolitan kiss on each cheek. It’s a tr�s chic touch for a firm rooted in roll-up-your-sleeves Chicago and with offices so ubiquitous that some deride Baker as “McFirm.” That’s exactly the image Lagarde and Baker partners want to overcome. “We need to make progress in explaining to the market who we are and how we can deliver client services,” Lagarde said. “There are assumptions we are spread out and inconsistent.” Once the only U.S. firm with offices around the globe, Baker’s domination of the international market has been its biggest attraction for both attorneys and clients. But it’s facing ever-greater competition in the global arena as firms merge across borders and others establish worldwide practices. In response, Baker is seeking to boost its brand name and erase the perception — disseminated by competitors — that the firm is a franchise operation. But Baker is also confronting a more pedestrian problem: how to pay partners and keep them happy. While Baker ranks second among U.S. firms in gross revenue, it is toward the bottom of the charts in profits per partner. Partners contend that Baker’s international culture is more important to them than the firm’s relatively low profits. However, Baker’s unusual compensation system, in which each office acts as its own profit center, has long been a sore point among partners and was a factor in recent defections from the firm’s San Diego office. NEW INITIATIVES In San Francisco for an annual partnership meeting earlier this month, Lagarde said 2,700-attorney Baker is hiring market researchers to survey existing clients about their views of the firm. The goal is to improve the firm’s external image. “This should help us define our brand strategy so we can be perceived as what we are — a firm — and not a bunch of offices around the world,” said Lagarde, who took over as chairwoman last November. The firm’s 604 partners in 61 offices also adopted a “professional development manifesto” focused on building consistency among offices. Targeted at associates, the plan seeks to standardize practices, such as associate training, evaluation and mentoring. “In some offices or some countries, professional development is not necessarily a big thing,” but use of technology is, Lagarde said. Or, she added, there may be a family-like “cozy relationship [among attorneys] in one country and in another it is less friendly.” The firm also is revising one element of its partner compensation structure by making its eight U.S. offices one financial unit. Lagarde said the change, which was initiated three months ago, will take about three years to fully implement. Currently, there are four components to compensation: individual client generation and billings; office profitability; profitability of associates within an office; and firmwide revenue. Partners say the first two factors make up the lion’s share of compensation. It’s the focus on individual partner and office performance that has rankled some partners. “The formula has served Baker well by localizing risk so each office is a profit center,” said Thomas Shoesmith, a former Baker partner who now heads up Cooley Godward’s international practice. “But it also doesn’t encourage, and often discourages, both teamwork and execution of firmwide strategy.” David Doyle, who left Baker’s San Diego office in April to join Morrison & Foerster, is also critical of Baker’s financial model. “With an emphasis on individual offices, it’s not always possible to take the large view and use it to strategically grow a practice or offices that from a long-term strategic view you would like to,” he said. A 12-year Baker veteran, Doyle said he left the firm in part because of its compensation system. Five other partners have left the San Diego office in the past year, including two who went to Morrison & Foerster with Doyle. While the San Diego office has gone through some turmoil, the San Francisco and Bay Area offices have been stable, together losing only two partners in the last year, one of whom retired. Timothy Tosta, a partner in Baker’s San Francisco office, acknowledged that certain people in the firm are seeking to reformulate compensation. “It’s meeting with some acknowledgement of the need for change and some resistance,” he said, noting that some partners in the Bay Area make five times what others do. A SINGULAR CULTURE Baker contends that its status as an international firm affects its position in Recorder affiliate The American Lawyer magazine’s annual survey of the 100 highest-grossing firms in the United States. While the firm ranked second last year, with gross revenue of $818 million, it came in at number 72 in profits per partner. Baker’s figure of $485,000 lags behind that of other Chicago-based mega-firms Mayer, Brown & Platt and Sidley & Austin, which respectively had profits per partner of $695,000 and $575,000. Edward Burmeister, managing partner of Baker’s San Francisco Bay Area offices, argues that the firm’s profits per partner are not 100 percent equivalent to that of other U.S. firms. “It’s not totally apples to apples,” since Baker is two-thirds non-U.S. lawyers, he said. For the current fiscal year Baker had gross revenues of $940 million, a 15 percent increase over 1999, and profits per partner of $591,150, a 22 percent increase. “We’re not on average making as much as Brobeck,” he said, but “depending on where you are in the firm, you may or may not be doing better [than] local competition.” Other partners contend that money isn’t everything. “You don’t choose Baker because [it offers] the maximum money or maximum local status,” Tosta said. “People are drawn to it that have a unique outlook on the world.” Baker has always been a melting pot of different cultures. Founder Russell Baker began his career in Chicago in the 1920s. He first gained experience in Latin America and Europe as legal counsel to the pharmaceutical giant Abbott Laboratories in the 1940s. In 1949, he formed a partnership with Chicago trial lawyer John McKenzie and set out to build a global practice. The firm established its first foreign outpost in Venezuela in the 1950s. Over the next two decades Baker averaged one office opening per year. With 61 offices in 35 countries, it now has more offices and more lawyers than any other U.S.-based law firm . Partners regard the firm’s great diversity as one of its key assets. And they say Lagarde is well suited to leading the firm. “Christine always struck me as a person of great dignity and grace,” Shoesmith said, adding that her post “needs to be a diplomatic seat, like that of [United Nations Secretary-General] Kofi Annan.” With a few exceptions, Baker has established its outposts with homegrown attorneys who hired local lawyers. “No one yet has been able to emulate our model,” said Jonathan Kitchen, chairman of the litigation department Baker’s San Francisco and Palo Alto, Calif., offices. While competitors have acquired firms in other countries, “they have not achieved what we’ve done, which is to grow a partnership.” With offices from Tokyo to Budapest to Rio de Janeiro, Baker handles all international aspects of a client’s business. Its strong suits include international tax, global equity services and international trade. Accounting firms are now Baker’s biggest competitors. Yet law firms are increasingly expanding onto Baker’s turf, particularly British firms that have grown through cross-border mergers, such as Clifford Chance’s January merger with New York’s Rogers & Wells. U.S. firms are also building a global practice, including those without any foreign offices, such as Cooley and Wilson Sonsini Goodrich & Rosati. Baker believes, however, that its decades-long experience in foreign markets gives it a leg up. “Working together across so many countries doesn’t come easily,” Lagarde said. “No other U.S. firm has our experience.”