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Daniel Schlessinger’s Friday afternoon was now shot. The managing partner of Chicago’s Lord, Bissell & Brook, Schlessinger had just gotten word that a former associate was threatening to sue the firm over her exit a year earlier; Schlessinger had to try to head it off. Everything on his to-do list — preparing for a partners’ speech on Monday, a quick trip to the Los Angeles office on Tuesday and Wednesday, and an executive committee meeting set for Thursday — would have to wait until the weekend. “It’s all part of the managing partner’s life,” he sighed. No need to convince David Heleniak of that. While Schlessinger was dousing fires in Chicago, Heleniak — the senior partner at New York’s Shearman & Sterling — was hopping across Europe and the United States. One day he was in London, the next he flew to Paris. A day later he took a train to Brussels and then drove to Dusseldorf that afternoon. Then it was back to the U.S. for more office-hopping. At each stop, he talked about international growth, including Shearman’s new outpost in Rome, and various firm triumphs. But the trip was overshadowed by world politics and economic uncertainty. Sluggish capital markets have taken their toll on the firm, contributing to a decline in income of at least 30 percent and the unceremonious axing of roughly 90 associates last year. Schlessinger’s and Heleniak’s firms couldn’t be more different. Lord Bissell has 340 attorneys and focuses on insurance work; it’s the sort of firm that pundits once predicted would be history by now. Shearman & Sterling is a venerable 1,148-lawyer behemoth that has built an enviable European franchise but must now balance long-term strategy against a profit squeeze. But Schlessinger and Heleniak have something in common. Both took the helm at their respective firms last year; they were two of the new managing partners and chairs installed by at least 45 Am Law 200 firms last year (See related chart). Among the firms making changes: � San Francisco’s Brobeck, Phleger & Harrison and Dallas’s Jenkens & Gilchrist, where incumbents stepped aside after challenges to their leadership. � Tampa, Fla.’s Holland & Knight, where managing partner Bill McBride’s gubernatorial ambitions led to a changing of the guard. � Philadelphia’s Cozen O’Connor, where routine title-swapping threw name partner Patrick O’Connor back into a role he’s held before. � Washington, D.C.’s Hogan & Hartson, where natural progression up the management ladder put J. Warren Gorrell Jr., in the chairman’s seat. � Los Angeles’ Sheppard, Mullin, Richter & Hampton, which installed San Diego employment lawyer Guy Halgren as its leader. � Denver’s Holland & Hart, Boston’s Foley, Hoag & Eliot and Atlanta’s Alston & Bird, where Anne Castle, Michele Whitham, and Pinney Allen, respectively, became their firms’ first female leaders. � New York’s Coudert Brothers, which tapped British partner Steven Beharrell as chairman, becoming the second Am Law 100 firm to be led by a foreigner. As a group, 2001′s new firm leaders are younger than their predecessors, with sizable books of business and plans to return to active practice when their terms are over; even at the august New York firms, management is no longer the last stop on the road to retirement. Most of the leaders got a tough introduction to management by serving on compensation committees. What better way to get to know your partners than by deciding whether Joe gets the extra dough he wants to buy that new catamaran — and dealing with the consequences? Many also share an aversion to gadgetry: Cell phones and laptops are ubiquitous, but BlackBerrys and Palm Pilots aren’t. Secretaries, it turns out, still keep the trains running on time. Together these new leaders are facing one of the most challenging business environments in years. “This is a position to which I had never aspired,” admits Richard Odom, who became Brobeck’s new chairman after a tumultuous year in which Tower Snow Jr., who spearheaded the firm’s aggressive push into the technology sector in the late ’90s, lost the confidence of key partners. Now Odom is wrestling with trimming Brobeck’s partnership and reducing the firm’s high real estate costs. Above all, these chieftains are determined. William Durbin Jr., the new president of Dallas’ 570-lawyer Jenkens & Gilchrist, ascended to power — and says that, as a rainmaker, he took a pay cut — after he indicated that he would challenge David Laney, who had been the firm’s president for 11 years. Laney chose to step down rather than wage a campaign. “In my judgment, it is better to take direction than no direction at all,” Durbin says. “If you make a mistake, cut your losses and move on. Standing still is suicide.” Sounds like a page straight out of Management 101. Have lawyers finally shaken their reputation as lousy managers? If lawyers had a knack for the balance sheet, the maxim goes, they would have gone to Wharton. Spectacular blowups in the ’90s, such as that of Shea & Gould, seemed to prove the point. But law firm consultants and veteran managers insist that today’s law firm leaders are savvier and quicker to respond to financial crises than ever before. Governance structures are vastly more sophisticated than they were a decade ago; in some cases they mimic corporate America’s model of chairmen, CEOs and boards of directors. Many firms now hold regular elections for their leaders and impose term limits on them. The change isn’t confined to the managing partner’s office. At the practice-group level, the job of leader now doesn’t necessarily go to the biggest rainmaker or the most senior partner. Today’s practice group leaders are held accountable for the group’s results, much as the CEO of a corporate business unit is. And throughout large law firms, nonlawyer managers play bigger roles than ever before, serving on executive teams and pulling in partner-size incomes. The evolution was largely unavoidable. Am Law 200 firms are vastly bigger than they were a decade ago, and competition is fierce, as blue-chip clients consolidate more work into fewer hands. So it’s no wonder that culture and communication are at the top of many agendas. For O’Connor, that means stamping out what he calls the “we-they” culture that separates Cozen O’Connor’s Philadelphia home base from the rest of the firm’s 17 domestic offices. Allen concurs: “It’s one thing when you walk down the hall and see your partners every day,” she says. “It’s very different when you’re in the kind of [large, multioffice] firm that Alston & Bird is today.” If that sounds a little tame, consider Joseph Dilg. As the new head of Houston’s Vinson & Elkins, Dilg is steering his firm through the Enron disaster. And then there’s Cooley Godward’s Stephen Neal, who took the reins last year, when the full force of the technology implosion was hitting. A firm that just a year earlier couldn’t find enough bodies to do the work did a 180-degree turn, slashing costs and cutting a handful of partners and about 85 associates. No matter how much law firm leaders borrow from corporate-style management, law firms are still partnerships, and that translates into special challenges for managing partners and chairs. As Richard Gary, the longtime head of New York’s Thelen Reid & Priest and its predecessor firm, Thelen, Marrin, Johnson & Bridges, notes: “The job is all about relationships.” That means huge investments of time. Almost every new leader talks about carving out time to tend to his or her own clients; citing the rigors of the job, few have managed to pull it off. Look at Shearman & Sterling’s Heleniak, for instance. Unexpected daily interruptions and the need to keep a far-flung partnership working on the same page amid a profit slump allow for much less client contact than the mergers and acquisitions specialist would like. In the five-year period ending December 31, Shearman added 547 lawyers, nearly doubling its size. Like such rivals as New York’s Skadden, Arps, Slate, Meagher & Flom and Sullivan & Cromwell, Shearman has grown quickly in Europe — 30 percent of its lawyers are now there, a fourfold increase since the end of 1996. Shearman now ranks among the top U.S. corporate shops in Europe, and even the firm’s competitors grudgingly acknowledge that Shearman has an enviable franchise there. In March the firm opened a three-lawyer office in Rome, after expanding into Munich and Brussels the previous summer. To Heleniak, those moves are key to Shearman’s long-term global branding strategy. But to some partners, the latest European expansions were ill timed at best. At least 40 percent of Shearman’s revenue comes from its capital markets practice, so Shearman was hit especially hard by the worldwide slowdown in that area. Average profits per partner at the firm plummeted by more than 25 percent in 2001, to less than $1 million, according to one current and one former partner. The ex-partner left for reasons unrelated to the firm’s international push but says he is worried about growth for growth’s sake. “Shearman & Sterling doesn’t analyze opening up an office [by] sitting around and crunching a lot of numbers to figure out if it should be in Munich,” says the former partner. “It just has a bunch of clients who say it would be good to be in Munich.” While acknowledging that Rome was the last new office that Shearman will open for a while, Heleniak adamantly defends the new offices. For one thing, he says, following your clients isn’t a bad business strategy. For another, he adds, it wasn’t expensive to launch the small Italian office, which required little space and few technology hookups. The hardest part, he says, was convincing partners to relocate. The recession made that job easier. If partners aren’t terribly busy where they are, Heleniak explains, the firm can afford to shift them around. Still, Heleniak recognizes the need to maintain grassroots support at this early point in his tenure. The need for better communication was driven home late last year, when the firm bungled a round of associate layoffs. On a Friday afternoon in late October, Shearman sent a cryptic e-mail to all associates announcing vaguely that a number of them (10 percent, or roughly 90) would be leaving “over the next few months.” The handling of the announcement enraged associates. Now Heleniak talks about hosting lunches just for associates. His communications staff sends out daily e-mail alerts about firm goings-on, and Heleniak says he hopes to meet face-to-face with each of the firm’s 225 partners this year. “Our offices outside of New York are, in their own right, powerful forces,” he says. “I can’t simply have them phone in. I’ve got to get on airplanes and really get to know my partners.” While Heleniak touts the idea of geographic growth, Brobeck’s Odom can’t pull back fast enough. Seeking to stabilize his 750-lawyer firm, Odom — a commercial and product liability lawyer — has been cutting associates and staff and easing out unproductive partners. He also has about 185,000 square feet of unused Silicon Valley office space that he needs to lease, thanks to the firm’s unfortunate decision two years ago to build a new facility in East Palo Alto, Calif. Caught off guard by the severity of the high-tech implosion, Brobeck’s average profits per partner plunged to $660,000 in 2001 from $1.1 million in 2000. Snow had put the brakes on extraneous spending, but refused to pink-slip associates, even while rival tech firms did. Snow’s plea to the partners: Suck it up through the short term because, when the tech sector turns around, the firm is poised to become a world leader. Then came the Sept. 11 attacks. “The partnership panicked,” says one Brobeck partner. Two camps emerged, one seeking to stay the course as a tech firm, and the other, championed by Odom, pushing for Brobeck to return to its roots as a general practice firm servicing Fortune 500 clients — a more staid operation, but one that’s far less volatile. Says Odom: “We’re going back to the way things were.” Odom reshuffled the firm’s management; among those who were removed are Michael Torpey, who headed Brobeck’s securities litigation group, and Karen Johnson-McKewan, who led the firm’s San Francisco office. Odom oversaw a $7 million buyout of 83 associates and then, in a series of layoffs earlier this year, axed about 55 more. Most painful has been the reduction in the size of the partnership. Since the start of the year, at least ten Brobeck partners have been moved off equity or asked to leave altogether, and Odom has not ruled out the possibility of future partner or associate cutbacks. Veteran managers who instituted cuts in the recession of the early ’90s describe a wrenching, mistake-prone process. The challenges, they say, aren’t so much legal or economic as they are cultural. Partners whose friends got the boot became angry. Some worried that they were next in line. Moving a block of partners to nonequity status can do more harm than good, says one former leader of an Am Law 100 firm, who speaks from experience. “In most cases you end up with a whole bunch of partners who are unhappy, and that ends up pervading the system,” he says. As painful as it may be, this former firm leader says, the better strategy is to part ways with nonperforming partners altogether. “If you don’t deal with [deadwood] head-on, it’s going to hurt even more,” he says. “When it was all done, we had some young partners who said, ‘What took you so long?’” Partners in Lord, Bissell & Brook might be asking themselves the same thing. Just a few years ago the firm was a legal industry dinosaur, a target of predictions that the profession was on the verge of a consolidation that would leave them out in the cold. A 325-attorney, multistate operation like Lord Bissell — the thinking went — was too small to give blue-chip clients the one-stop shopping they would want, but too big to offer specialty services at high rates. What’s more, Lord Bissell’s core practice had long been in insurance work, an area where rates were declining to unsustainable levels. Throughout the late ’90s, such predictions seemed to be on the mark. In 1997 Keck, Mahin & Cate — a rival Chicago firm that was about the same size as Lord Bissell — went under, in one of a series of collapses of insurance defense firms. The next year, Lord Bissell’s revenue declined by $5 million, to $105 million, knocking the firm out of The Am Law 100. Everyone, it seems, was anticipating a wave of law firm mergers. Worried about missing a potential lifeline, Lord Bissell developed a survival strategy in 1998 that centered on finding a merger partner. It boosted its billing rates, on average, by 10 percent and stepped up its collections efforts, hiring a professional collections staff and installing better billing software, improvements that allowed the firm to cut its collections cycle from six months to less than four. To lessen its dependence on low-margin work, Lord Bissell built up its general corporate and intellectual property practices and abandoned medical malpractice work. The initiatives paid off: Between 1998 and 2001, Lord Bissell’s average profits per partner rose $150,000, to nearly $490,000, according to firm management. When Schlessinger, a business litigator, took the helm last June, partners were breathing easier, even though many management consultants still anticipate an industrywide consolidation. After spending years primping for a merger mate, the firm now feels that perhaps it can go it alone. Says Schlessinger: “I’m not convinced that a merger is what we need.” Consensus-building. Downsizing. Positioning. Bean-counting. If you’re getting the idea that firm management these days is a grab bag of roles and responsibilities, you’re right. What it’s often not about, it seems, is lawyering. And that leads to an inevitable observation: Lawyers were trained to practice law, not study spreadsheets, so why not hand those CEO jobs off to seasoned MBAs? The answer has more to do with the profession’s parochialism than it does with sound judgment. Despite all the attention paid to firm governance and all the hiring of nonlawyers as finance directors and other top executives, lawyers are insular by nature and they care — a lot — about control. Indeed, Shearman’s Heleniak dismisses outright the idea that law firms should be run by nonlawyers. “That’s not something you’re going to see at Shearman & Sterling anytime soon,” he says. “This is not yet General Motors.” Heleniak isn’t necessarily off the mark, says Lisa Smith, a Washington, D.C.-based consultant for Hildebrandt International. “There’s no right model for law firm management,” she says. The only constant, she says, is change: As firms continue to grow and expand geographically, firms’ structures will continue to evolve, more to meet specific circumstances and challenges than to fit a preconceived management model. Gary, the Thelen Reid chair, says that management is actually easier under stress than it was when money flowed freely. Gary recalls that when he took over the firm in 1992, Thelen Marrin was mired in the California recession and on the brink of collapse. Partners gave him carte blanche to take drastic steps necessary to keep the firm afloat. He seized the opportunity, slashing the number of associates and partners, shuttering costly offices, and clamping down on expenses. If Gary is right, hard times and unprecedented challenges may be ready to propel us into a golden age of innovation in law firm management. New firm leaders, are you listening? Related Chart: The New Leaders: A Sampling

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