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Last December, the partners at San Francisco’s McCutchen, Doyle, Brown & Enersen received a two-page memo from the firm’s executive committee that spelled out the firm’s partner compensation, bonuses, profits for 2001 and projected income for 2002. Not everyone was thrilled with the year’s outcome: Although the firm’s profits were higher than in 2000, some partners who had pulled in less than the firm’s minimum billable hours — 1,850 — did not receive bonuses. That’s standard procedure at many firms, but it reflects a big change for 323-lawyer McCutchen. In the past the billables minimum had not been strictly enforced. The get-tough policy on bonuses wasn’t the only change at the firm in 2001. By the time the year-end memo hit partners’ desks, the firm had already decided to reduce the equity stakes of a few older partners and converted their compensation to a mix of salary and equity. Also late last year, about a dozen junior equity partners had their shares in the firm reduced, making them only partial equity partners. Management says that such measures will help boost McCutchen’s reported profit per equity partner on the Am Law 200 survey and put it on a more even playing field with competitors. But there’s another motivation as well: McCutchen wants to merge. In the past four years, the firm has flirted with as many as three dozen suitors, mostly Am Law 100 firms with big East Coast offices. By all accounts, McCutchen is a very eligible firm. To any potential union, it brings a strong reputation in litigation — just over half of its lawyers are litigators — and a growing intellectual property group. But like most bachelors, McCutchen isn’t perfect. Its corporate practice is modest — the firm covets strong finance and tax departments — and its reach is largely confined to California. Many of its partners feel they need to expand into the New York and Washington, D.C., markets. The 119-year-old firm is also a bit set in its ways. McCutchen is a merger virgin with a strong culture of consensus that its partners fear putting at risk. Simply put, the firm is reluctant to commit. Management may shed dead weight and suitors may be politely entertained. But there’s no rush. “We’ll only [merge] once,” says former chair James Hunt. “We want to do it right [but we] don’t need to be aggressive about it.” Last year, McCutchen came close to marrying. The firm, led by Hunt, spent months talking merger with Washington, D.C.-based Piper Marbury Rudnick & Wolfe, the only firm with which McCutchen has reached exclusive negotiations. Had the two firms reached an agreement, the combined groups would have been a full-service firm with offices in a dozen cities — one of the nation’s 15 highest-grossing firms, and one of the top five by head count. But the deal fizzled last summer. In the end, says new McCutchen chair Donn Pickett — an affable 49-year-old litigator with a round face and glasses — “there just wasn’t enough chemistry.” Or enough commitment. Once an Am Law 100 mainstay, McCutchen peaked at 73rd place in 1991. Last year the firm ranked at No. 102 among The Am Law 200, with gross revenue of $143 million. Although McCutchen’s revenue and profits have grown steadily over the past six years, the firm didn’t keep pace with its neighbors. Silicon Valley firms passed McCutchen, which, despite its IP expertise, did not become a technology player. Missing the tech boom, of course, doesn’t hurt quite so much this year. Litigation specialist McCutchen is reporting a 9 percent increase in profits per equity partner, from $550,000 in 2000 to $600,000 in 2001. By contrast, profits per equity partner at the tech-dependent Brobeck, Phleger & Harrison of San Francisco dropped 44 percent in 2001, to $660,000. But even among litigation-focused firms, McCutchen’s growth in the late ’90s was comparatively slow. Like McCutchen, Heller Ehrman White & McAuliffe is a San Francisco firm with a big litigation practice, and its revenue increased by more than 146 percent between 1991 and 2001, as compared to a 74 percent increase for McCutchen. It helps that Heller has almost twice as many lawyers as McCutchen and, unlike McCutchen, has offices in New York and Washington, D.C. A merger with an East Coast firm, the thinking goes, could put McCutchen on a similar footing. On paper, Piper seemed to fit the bill. Legal consultant Bradford Hildebrandt, who works with both firms, made the introductions in late 2000. Piper had been formed a year previously through the merger of two Am Law 100 firms, Chicago’s Rudnick & Wolfe and Baltimore’s Piper & Marbury, and it had decided early on that expansion into the West Coast was critical. The firm does bankruptcy and corporate work in California for such clients as WorldCom Inc.; Lockheed Martin Corp.; and automotive companies, as well as transactional work in the state for large real estate firms. But what Piper really needed was a stronger litigation arm. “We’d like to be more involved [in California],” says Francis Burch Jr., one of Piper’s co-chairs. “There have been lots of occasions where we’ve had to work with local counsel.” (Piper does have a small Los Angeles office of five lawyers it picked up from the dissolved Troop Steuber Pasich Reddick & Tobey in January 2001.) McCutchen was an attractive candidate. “Their calling card is their litigation practice,” says Burch. McCutchen’s rainmakers include David Balabanian, who represents clients such as the politically powerful Fang family, owner of the San Francisco Examiner newspaper; Mitsui & Co. (U.S.A) Inc.; and J.P. Morgan Chase & Co. McCutchen’s appellate practice is also strong — partner David Heilbron represents General Motors Corp. in its product liability appeals across the country. Piper was also impressed with McCutchen’s environmental practice, which legal recruiters rated among the nation’s top three in a survey published in The American Lawyer in October 2000. That McCutchen has only a modest business group — 20 percent of its lawyers — didn’t seem to pose a problem to Piper. “We were already talking about … developing a business and technology plan on the West Coast,” says Burch. McCutchen “would’ve given us an opportunity to improve [our] position.” But at McCutchen, not everyone was happy about the prospect of a merger. Lynn Pasahow, one of the firm’s best-known IP litigators, had long thought that merger talks were too distracting. At the time, he says, he wondered, “Why would we put a lot at risk to change the firm? We’re a very successful firm doing what we’re doing.” Pasahow, who wanted to focus his practice on technology, left the firm in mid-April with another partner, J. David Hadden, for technology-focused Fenwick & West, a Palo Alto, Calif.-based firm with average profits per equity partner of $800,000 — far greater than McCutchen’s. But McCutchen’s then-chair, Hunt, liked the idea of building on the Piper-Rudnick merger. “There was the initial appeal of putting the third leg on the stool,” says the 59-year-old commercial litigator. The firms’ average profit-per-equity-partner figures in 2000 were about equal — $550,000 at McCutchen; $560,000 at Piper. Hunt liked Burch and his co-chair, Lee Miller. By April 2001, leaders of both firms had discussed possible client conflicts and how their practice groups would merge. They also took some time to get to know one another’s culture. Culture is a big deal at McCutchen. As is the case at many midsize firms, McCutchen’s partners enjoy the comforts of smallness. They know all of their partners by name, and their mentor relationships with associates are strong. McCutchen partners dole out a bottle of wine or $50 to all associates who take the time to fill out forms evaluating partners on their mentoring skills. The prime rule of McCutchen’s liberal-leaning clubhouse is clear: no money-grubbing fiends allowed. McCutchen’s partners’ resumes are studded with pro bono awards. “Our slogan,” says Los Angeles-based environmental partner James Dragna, is, ” ‘We make money, and we give it away, too.’ ” Civil litigator Beth Parker, for instance, took a leave of absence from the firm to work at a public interest law firm called Equal Rights Advocates for more than two years. Now, back at McCutchen, she represents the Planned Parenthood Federation of America Inc. in litigation matters. Among Am Law 200 firms, McCutchen ranks sixth in its commitment to pro bono work, and it ranks highest among California firms. (Firms are ranked according to their average pro bono hours per lawyer and the percentage of lawyers with more than 20 hours of pro bono work per year.) The firm’s lawyers also maintain strong ties to the Democratic Party and do considerable government work. Partner and former firm chair David Andrews, for instance, recently returned to his practice after a stint as legal adviser to Clinton administration secretary of state Madeleine Albright. Before that, he, like several other McCutchen partners, had worked at the Environmental Protection Agency. The firm does bar work, too: At least five former California state bar presidents are McCutchen partners. Some McCutchen partners say they fear that a merger might jeopardize McCutchen’s diversity-friendly, collegial San Francisco flavor. “That’s who we are,” says Balabanian. “That’s not up for grabs.” But others say the devotion to culture is overblown, an excuse to close the door on talks with potential merger candidates who demand more billable time from partners. One former McCutchen partner says the firm “is self-congratulatory about [culture]. But the choice isn’t between being McCutchen or being the Taliban.” Pickett says that McCutchen’s search for a merger partner with high profits and a strong commitment to pro bono isn’t just wishful thinking. “We kind of want to have it all — a profitable firm that does good,” he says. Piper, which ranks in the top third of The Am Law 200 in pro bono rankings, passed McCutchen’s do-good test and its profitability standards. But managing the combined firm promised to be a stumbling block. “We would not do a deal unless we had a significant, meaningful role in management,” says Hunt. Piper had even raised the idea that McCutchen’s leader would be a third chair of the fully merged firm, at least for a year or so, according to one McCutchen partner. Mary Cranston, the chair of Pillsbury Winthrop — which was formed last year through the merger of San Francisco’s Pillsbury Madison & Sutro and New York’s Winthrop, Stimson, Putnam & Roberts — says that as an outside observer, she was concerned that McCutchen was getting into an already troubled relationship. “Piper [had] not fully jelled, themselves,” she says. “Three chairmen? I don’t think so.” In April, just two weeks after Pasahow left for Fenwick & West, McCutchen’s partners met at a resort near Pebble Beach, outside Monterey, Calif.; the firm has held its annual meetings there for as long as anyone can remember. On Saturday, after breakfast, the partners crowded into a large hotel meeting room. At the time, the executive committee had been meeting with a few potential merger partners, including Houston’s Baker Botts and Piper. It was time for the partners to choose which deal they wanted to pursue. As usual, the McCutchen partners met in a town hall-style meeting. Hunt made a presentation about Piper’s strengths and weaknesses. Then he asked the partners to form a circle for discussion. The mood was pleasant enough, though as was the case at many McCutchen meetings, everything was open to debate. Hunt, who knew that to make the merger work he would have to build consensus, had been meeting for months with practice groups and individual partners to discuss the firm’s plans. “Hunt, bless his heart, said, ‘We’ll talk this out as long as we need to,’ ” recalls McCutchen partner Neil Shapiro. There were obvious differences between McCutchen and Piper, many superficial, that would have to be ironed out. For one thing, McCutchen at the time had a one-tier partnership; Piper had a two-tier system. There were also some client conflicts, though apparently none that threatened to be a deal breaker. Near the end of the meeting, the partners voted by a show of hands to continue talking with Piper and stop all the other discussions. It was not unanimous — McCutchen partners say nothing at the firm ever is — although the majority of partners voted yes. But just two months later, at the end of June, the talks fell through. Pickett won’t comment on why the deal didn’t happen, except to say there were a variety of reasons. But clearly, McCutchen could not get enough of its partners to rally behind the deal. Some sniffed at Piper’s insurance defense practice and feared that it might depress McCutchen’s profits, or at least its pride. The fear was that Piper just didn’t “match up to our standards and quality,” says one partner. (Hunt strenuously disputes the suggestion that this was the reason the merger fell apart.) There was resistance within Piper, too: Pockets of partners there didn’t support the merger. “It wasn’t like we woke up or they woke up and thought, ‘Oh, my God, this practice group doesn’t fit,’ ” says Piper co-chair Miller. “ At the end of the day, there were too many logistical problems putting [it] together.” The failure of the negotiations with Piper left McCutchen without a mate or a strategy. Ex-partner Hadden, who left with Pasahow, says it was McCutchen’s ambivalence that made merger talks with any firm a risky bet. “There was an overall sense of uncertainty about the direction of the firm,” he says. “There were so many divergent options being considered. It implied that there wasn’t a real plan.” After the Piper talks broke up, Hunt was tired. He realized that he’d spent so much time on the deal that he had neglected his day-to-day duties as chair. It was July, halfway into a bad year for many law firms, and instead of focusing on finding a new merger partner, he turned to cutting costs. By September, he concluded that he didn’t have the heart for another round in the merger game, so he stepped down, passing the baton to Pickett, his designated successor, about a year early. Pickett continues to talk to candidates, and still hopes to merge, but he says that McCutchen’s situation is far from desperate. There have been “scores of firms that have expressed interest in us,” says Pickett, and the firm’s partners simply don’t feel the need to market themselves to other firms. It’s clear that despite McCutchen’s fine-tuning of its partnership tiers, and its gradual shift toward holding partners accountable for billing the minimum hours, the firm will only go so far to become more enticing to potential merger partners. Says Hunt: “We can’t package ourselves to look better.” It’s a far cry from the aggressive approach that many firms take toward attracting merger mates. For instance, at the former Pillsbury Madison & Sutro, partners saw profits dropping and some key colleagues moving to more profitable rivals in the late ’90s, so it took decisive action. “We started aggressively hiring in certain market sectors like energy and technology,” with an eye toward marketing those strengths in a merger, says Cranston. “We didn’t wait for the opportunity to come to us. We went out to it.” Pillsbury hired a business consultant who helped the firm plan for several different scenarios. Pillsbury also targeted New York, and “marched through firms” looking for the right candidate, Cranston says. Although she describes McCutchen as “truly one of the best merger partners left in California for an East Coast firm,” Cranston says that McCutchen’s democratic style could be holding it back. “It’s an old-fashioned partnership,” she says. “Very consensus-based. As the marketplace changes, that style has had its challenges. They’ve continued with existing strengths, but [have] not invested in new areas.” Pickett holds out hope for the right merger candidate, but McCutchen is “not going to merge for the sake of merger,” he says. “We’ve proven our patience.” There’s no arguing with that. But the question remains: Is there anyone out there who is right for McCutchen?

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