Baker & McKenzie Is No. 1

If Baker & Mckenzie needs a motto, this one might do: We’re not tourists. The firm’s chairwoman, Christine Lagarde, explains from her home in Paris. “When a plumber crosses the border,” she says, “he remains a plumber. When a lawyer crosses the border, he becomes a tourist. But when our lawyers cross the border, they are not tourists.” Lawyers crossing borders have brought Baker & McKenzie more success than Russell Baker could have imagined when he founded the firm 53 years ago. It has been No. 1 (based on number of lawyers) all 25 years that The National Law Journal has surveyed the nation’s largest law firms. No other firm even finished every year in the top 10. Though it was born in Chicago, which is still its largest U.S. office, 83 percent of its 3,246 lawyers now work abroad. Worldwide, Baker boasts 64 offices in 35 countries. For the first 10 years of the NLJ survey, the firm had more attorneys abroad than the rest of the firms surveyed combined. It still has more than a quarter of the total. This year Baker achieved two milestones. It broke the 1,000-partner barrier. And, according to a survey by The American Lawyer, a sister publication of the NLJ, it earned $1 billion in gross revenues. A variety of sources, including consultants, a client and present and former Baker attorneys, praise the firm for its vision, innovative model and ability to meld a diverse group of lawyers. But several of these sources also note Baker’s ongoing struggle, particularly in the United States, to manage what they describe as a balkanized collection of offices lacking uniform quality and run by largely autonomous partners. “They were built on a vision decades ahead of its time,” says consultant Peter Zeughauser of The Zeughauser Group. “And the profundity of the vision is evidenced by their size. It was a hugely successful idea.” Lots of firms talk about global strategy these days, but which ones does the firm consider competitors? “None, I would say,” answers Lagarde, not even mentioning the world’s largest, Clifford Chance. “That’s very arrogant,” she adds. “But we are a different beast. “For many years we were regarded as a black sheep,” looked upon “with contempt,” she continues in her unaccented English. American lawyers didn’t understand why anyone would want an office in Rome or Milan, she says. The firm’s current client list includes Levi Strauss, BP, Avis, Cisco, Microsoft and Sony, she adds. The driving force behind the firm’s pioneering vision was a most unlikely source. According to a history of the firm by former partner Jon Bauman, Russell Baker was born in 1901 and grew up on a Texas farm and a New Mexico ranch. Though his parents insisted he stay home and work, he was determined to get an education. HUMBLE ORIGINS He worked his way through high school and the University of Chicago, where he earned undergraduate and law degrees. “Why or how the idea to become a lawyer became a fixed purpose with me, I am unable to say,” he later said in a speech at a summer associates’ luncheon. “I had never had any contact with lawyers or with the law.” He started his own firm partly because he didn’t have the blood lines or connections to get a good job at an established one. The spirit of the underdog and a dislike of pretense never left him and formed the identity of his firm. Baker brought something else to the table. At college he’d been influenced by professors who were internationalists. By the early 1920s, Baker was already thinking globally. His first opportunity to put his vision into practice was representing Abbott Laboratories. In the 1930s, the Chicago-based pharmaceutical company began exploring international markets, and Baker found himself traveling the world. It wasn’t until 1949, however, that he hooked up with trial lawyer John McKenzie and declared his venture an international firm. His goal wasn’t size; it was to build a firm with lawyers everywhere and, as Lagarde might put it, no tourists. The role of McKenzie and the litigation department he headed was to pay the bills until Baker’s effort took off. It didn’t take long. Baker researched tax advantages U.S. companies could enjoy by expanding overseas. The tax practice he established in the process proved one of the firm’s core strengths — and remains one to this day. In 1955, Baker opened its first foreign office, in Caracas, Venezuela. By 1959, it had offices in New York, Washington, D.C., and four more foreign cities — and had expanded from four to 30 lawyers. By 1978, according to the first NLJ survey, it had 434 lawyers, or 2 percent of the entire list. Since then it’s outgrown the list: it’s up to 3 percent of the total 108,318 lawyers. Though Baker still towers over the field, the international numbers alone suggest the field is catching up. “Baker & McKenzie had a tremendous model,” says Robert Hillman, a law professor at the University of California at Davis. “But there are a lot of firms that can provide comparable global services today.” Not only are there more international firms, he says, but clients are more sophisticated, and in many countries they can choose among quality indigenous firms. The general counsel of Abbott Laboratories, Baker’s oldest client, confirms this assessment. Other companies may choose Baker for its “one-stop shopping,” says GC Jose de Lasa. “For us, maybe at the beginning it was like that.” But now Abbott is more sophisticated and uses a variety of firms. “On most occasions, you want to pick the individual and not the firm,” he says. “It’s a tribute to them that we continue to use Baker.” QUALITY CONTROL Another problem Hillman points to is quality control. While Baker “has a large collection of world-class lawyers,” he says, “the larger you are, the more difficult it is to standardize the quality of services.” Again, de Lasa agrees: “They consistently do good work throughout the world. But occasionally we haven’t been as satisfied in some countries as others. Quality control is an issue, and I’m sure the firm is aware of that.” This criticism is more often voiced about the U.S. offices. Former partners cite considerable turnover in New York and San Francisco. Two who requested anonymity agree there are “pockets of excellence,” as in Washington, but they describe the firm as balkanized. “In some respects,” says one, “it’s a partnerships of offices. The cohesion that’s needed to take it to world-class status is not there. Christine Lagarde is a world-class person and [U.S. Managing Partner] John Conroy is world-class. But to get the firm there, you need to almost force people to behave a certain way.” Both lawyers fault the firm’s “eat what you kill” compensation structure under which partners generally retain most of what they earn, sending 25 percent to the firm to cover common costs. “There’s no monetary incentive to get along with anyone but your clients,” explains one. In comparing Baker’s revenue to other firms’, Baker was second this year behind New York-based Skadden, Arps, Slate, Meagher & Flom, even though it is almost twice Skadden Arps’ size, according to The American Lawyer‘s survey of the country’s 100 most profitable firms. Baker’s profits per equity partner of $560,000 was little more than a third of Skadden Arp’s, and placed it No. 54 on the Am Law 100. “A lot of people leave for more money,” says one of the former partners, who includes himself. The other partner says a problem at least as big is the disparity in compensation — even among lawyers in the same office. Offices do have the freedom to tinker, and some share compensation, introducing an element of performance review. But the benefits are never shared firmwide. And the downside, these lawyers say, is that Baker offices and even practice groups compete against each other. The structure can hamstring offices seeking to hire lawyers who demand compensation guarantees. It can take a year to get funding, one says. Conroy, the U.S. managing partner, acknowledges problems. But much of this criticism has been or is being addressed, he says. In developing recent strategic plans, the firm has taken a long look at itself. Money is now budgeted annually to facilitate hiring, Conroy says. New partners include Plato Cacheris, Richard Rudder and Robert DeJoy and most hiring is accomplished in three months, he says. But the big change, says Conroy, is the integration of all North American offices and practice groups. Within a year, offices will no longer be profit centers. Revenues will be shared and compensation will include discretionary review. What they don’t want to change is the empowerment of partners. “In our firm, that has so many people speaking so many different languages,” says Lagarde, the third non-American — and first woman — to chair the firm, “each partner is valued as much as any other. And each has an equal vote.” “It’s as much their firm as management’s firm,” adds Conroy. And that’s as much of a core value as “We’re not tourists.” Related chart: Global Presence