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As soon as Duane Morris gets as big as it can, it turns around and gets bigger. In 1997 the Philadelphia-based firm had about 225 lawyers. By 2002 it had doubled in size. Today Duane Morris has 550 lawyers, and by 2007, firm chair Sheldon Bonovitz vows, the firm will nearly double again, reaching 1,000 lawyers. Growth like this usually comes by way of mergers. But Duane Morris has stuck to a retail strategy: hiring only solitary partners and small groups. From October 2002 through September 2003, the period covered in our fourth annual lateral partner survey, Duane Morris made 47 lateral partner hires. That ranks it sixth on our list of the most acquisitive Am Law 200 law firms for that year. Since we started the laterals survey, Duane Morris has ranked among the top 10 acquirors three out of four times, accumulating a total of 138 new partners while losing 28. The largest group Duane Morris swallowed throughout the four years appears in this year’s survey: a seven-partner group from San Diego’s Luce, Forward, Hamilton & Scripps, along with nine associates and one of counsel (only partners are counted in our survey). Other lateral-hiring leaders in our survey usually take bigger bites out of the market. The No. 1 slot this year, for example, went to Reed Smith, which acquired Oakland, Calif.’s Crosby, Heafey, Roach & May; the No. 2 to McGuireWoods, which acquired Chicago’s Ross & Hardies. Other firms grew substantially by swooping in for the remainders of some notable dissolutions: Morgan, Lewis & Bockius took in 62 lateral partners in our 12-month survey, most from the collapse of Brobeck, Phleger & Harrison (which topped our departing partners list); Nixon Peabody took 23 partners from Boston’s Hutchins, Wheeler & Dittmar; and Piper Rudnick took 16 from Boston’s defunct Hill & Barlow. Duane Morris’s tactics are rare, but not unique. Greenberg Traurig, for example, also used small-group hiring to rank in the top ten. Given how aggressive and persistent Duane Morris has been about it for years — and how expensive and time-consuming a strategy it is — we decided to look at how this particular firm pursues this tack, and to ask the obvious question: Has it been a winning strategy? Or, to put it another way, how much of its cherry-picking has been fruitful — and how much has been the pits? Some lateral-hiring leaders dream of grabbing lucrative niche practices. Others plot to establish beachheads in New York or Los Angeles or Chicago. And Duane Morris? It simply wanted to plant its flag in as many large cities as it could while expanding its list of practice groups. In the past six years, it’s done just that, opening 12 offices, including ones in Atlanta, San Francisco, San Diego, Chicago and London. And from its vast cache of laterals, it has built practice groups it never had before, from intellectual property to health care. All that hiring requires the outlay of a large amount of capital. Because a new partner will typically leave work-in-progress at the previous firm, a few months will go by at the new firm until new bills go out and collection is made. “You may not have cash flow for two to three months,” says Ward Bower, principal at Altman Weil Inc., the legal consulting firm. Growing by merger doesn’t deliver the same hit to receivables. “When you bring on a firm intact, you bring on an income stream,” says Jay Zimmerman, chairman of Bingham McCutchen, which has grown aggressively through mergers. To grow fast, Duane Morris dipped into a big cookie jar. Thanks to the firm’s historic mix of contingency-fee work and traditional hourly billing, it used the proceeds of a large fee award, about $25 million, paid out over two years. The fee came from representing the state of Pennsylvania in tobacco litigation. Still, the investment is enough to make the average partner think twice before reaching for his wallet. Duane Morris spends about $7 million each year on growth, Bonovitz says. That adds up to about $50,000 per equity partner per year. Although most of that investment is in start-up costs — supporting new partners — the firm has spent about $10 million over the past five years on recruiters’ fees alone. “Headhunters love us,” says Bonovitz. And then there’s the time required to manage this kind of growth. Office managing partners are responsible for bulking up their own offices. Many are constantly on the prowl for new lateral candidates. They must reach out to headhunters, respond to their calls, and be around for interviews. “Fifty hours a month [on lateral hiring] would not be outrageous,” says Charles Whitney, managing partner of Duane Morris’ Atlanta office, which has grown to 22 lawyers since opening in 2000. Once a regional office vets a candidate, the potential lateral meets with practice group heads, often via videoconference, and comes to Philadelphia to see the headquarters. Bonovitz himself interviews every lateral candidate forwarded by a regional office. Most of the partners who are selected by the regional offices are eventually hired, says Bonovitz. Bonovitz’s imprint on the firm is ubiquitous. A 66-year-old tax partner who has spent his entire legal career at Duane Morris, Bonovitz, who is known as Shelly, handles everything from lateral hiring to interior decorating. Under his direction, most Duane Morris offices have acquired an extensive collection of contemporary abstract or “outsider” art, some of which comes from Bonovitz’s personal collection. Each firm office is outfitted and designed to look alike: blond wood, same furniture, similar art motif. When Bonovitz took the reins in 1998, Duane Morris was in a typical midsize trap. Most of its lawyers resided in Philadelphia, and so did most of its work. “As a full-service regional firm, we were too small to compete with larger firms that had more depth and more specialization, and we were too big to compete on fees. And that’s a death wish anyway,” says Bonovitz. Shortly before Bonovitz took over, the firm identified two markets where it needed to gain a foothold. It started in New York with two refugees from the now defunct Shea & Gould, and began to cobble together an office that currently numbers 70 lawyers, handling everything from tax law to IP and corporate finance. In Washington, D.C., it grabbed the remains of Metzger, Hollis, Gordon & Alprin, an energy law boutique, giving it a presence in regulatory work. These hires were a start. Bonovitz wanted to go much further and faster. Although the firm flirted with two potential mergers, Duane Morris ultimately shied away from them, Bonovitz says, to preserve its culture. The firm’s growth, he decided, would have to come piecemeal. If the first choices — New York and D.C. — were strategic, other selections were more scattershot. Unlike many firms, which often spend years plotting their moves to new cities, Duane Morris opened offices more or less on a whim. Take its move to Houston, in 1997, when Bonovitz was still in the management wings, serving as vice-chairman. “We had a great associate who moved to Houston,” recalls Bonovitz. He wanted to open an office there. “We said OK.” That was that. The associate has since left the firm. The Houston office is still there, with four lawyers. When Duane Morris sought a health care partner who lived in Bangor, Maine, it established an office there to house him. It opened an office in Chicago after a call from a headhunter. “I was thinking about Chicago, and a recruiter serendipitously brought us an opportunity of a group of 10 to 12 people,” recalls Bonovitz. Last year Duane Morris moved into San Diego when a headhunter called to offer a 14-lawyer insurance industry group from Luce Forward (three other partners followed a month later). A Pittsburgh office was born after a recruiter offered up a group of three corporate partners from the Pittsburgh office of Pepper Hamilton. Another partner made the move from that city’s Buchanan Ingersoll. Even the integration of so many new partners is done with a minimum of ceremony at Duane Morris. There’s no glitzy welcome mat for newcomers. They’re simply handed a bulky book on the firm’s operations and sent through a computer orientation. How well each new partner blends his or her practice into the firm’s mainstream depends on the other lawyers and staff helping them sort things out. Last year the firm did set up a partner-to-partner mentoring program in the trial practice group, which it hopes to expand firmwide at some point. And that’s the extent of what might be called a growth strategy at Duane Morris. No elaborate plans that map out every move of the chess game, in every city and practice, for years to come. No protracted, PowerPoint-heavy strategy sessions. Just an almost pure improvisational approach, a Duane Morris signature in everything else that it does. While the firm does have both a partners board and executive committee to develop overall strategy, it takes pride in never calling a partner vote. The firm, founded on Quaker traditions, operates on a “Quaker consensus” — partners simply discuss an issue until they have come to an understanding. Once there is consensus, however, the strong-leader syndrome kicks in again as Bonovitz articulates the decision and carries it out. Says John Reed, the head of Duane Morris’ 15-lawyer Wilmington office: “The firm is very deferential to Shelly. He has a lot of power, and the reason he has a lot of power is that he doesn’t abuse it.” So when Bonovitz said “grow,” the firm grew. And, thus far at least, Bonovitz has not faced any major opposition within the firm over opening new offices — perhaps because Duane Morris has sought to preserve its cultural roots all the while, say current and former partners. “There’s a certain Quaker mentality [at the firm], and I think [Bonovitz] tries to stay true to that,” says a former partner. Bonovitz has made good on his promise of geographic and head-count growth. But what about the bottom line? Since ascending to The Am Law 100 in 2001, the firm has consistently ranked in the lower quartile of profits per partner. In the most recent Am Law 100 and 200 reports, covering fiscal 2002, the firm’s profits per partner of $445,000 ranked it 90th out of the top 100 and 144th out of 200. The profits have increased, but not spectacularly: up 10.3 percent in 2001, 3.5 percent in 2002. Revenue per lawyer — an indicator of productivity and the quality of the firm’s work — has been relatively flat: Duane Morris has ranked no better than 80th out of 100 for three years running. Its RPL in last year’s report was $485,000. Pro bono can’t be blamed for soaking up the firm’s profits and energies. Duane Morris consistently ranks near the bottom of our annual pro bono scores, based on hours of free legal work performed and the number of lawyers handling at least 20 hours per year. In the most recent pro bono scorecard, it was 97th out of 100 firms. As Bonovitz himself admits, the firm’s expansion has cut into profits. But he says the firm doesn’t lose candidates because of that. “We turn that into a positive selling point” by finding people who want to join a growing firm, he says. Says Alan Klein, a product liability partner who joined Duane Morris last year from Hangley Aronchick Segal & Pudlin, a Philadelphia litigation boutique: “In the short term you lose money, but in the long term, there’s a gain. People feel [the expansion] is successful.” Those long-term prospects, however, are clouded by another potential pitfall: poor leverage. Associate hiring has not kept pace with lateral-partner hiring, and thus many offices are top-heavy: The Boston, D.C., and New York branches each have more partners than nonpartners, and the Atlanta office has a ratio of about 1:1. Poor leverage means diluted profits, but Bonovitz says the firm’s extensive hiring of nonequity partners offsets the need for associates. On the plus side, Duane Morris now boasts a true general practice. While it had virtually no IP capacity five years ago, it now has 50 IP lawyers, and handles U.S. IP work for Taiwanese companies Taiwan Semiconductor Manufacturing Company Ltd. and AU Optronics Corp. In the past it handled health care work for Philadelphia-area clients; now its 28 health care lawyers include 13 in the Philadelphia area and 15 scattered in Chicago, Atlanta, D.C., New York and Maine. While its insurance coverage work was negligible just a few years ago, it now has more than 100 lawyers at the firm who handle that plus reinsurance work. Bonovitz is particularly proud of Duane Morris’ role handling asbestos litigation for Ford Motor Co. across the country. In November, Duane Morris recruited Darrell Grams from his in-house post at Ford to act as national coordinating counsel for asbestos litigation for Ford — and, yes, to open yet another office for the firm, in Detroit. But no matter how often its partners talk about the firm’s “national footprint” — a phrase they toss out with little prompting — Duane Morris still lacks many marquee names, the kinds of specialists with multimillion-dollar books of business who make lots of headlines — and big profits. Only 28 of the 138 partners it has hired in the past four years have been from other Am Law 100 firms. Says the managing partner of one national law firm: “[Duane Morris] is picking up regional lawyers.” And even where sheer bulk matters, the firm isn’t quite there yet. In Atlanta, says office head Whitney, the firm needs about 75 lawyers to be a true force. The firm aims for a like amount in Boston. It currently has 22 in Atlanta, and 29 in Boston. So has the strategy worked for Duane Morris? Measured in dollars and national prestige, the firm has achieved only minimal success. But it continues to attract a steady flow of converts — some with blue-chip clients in tow. To date, it has not suffered major departures or culture clashes. While its growth is to some degree uncalculated, Duane Morris has inserted itself into almost every important legal market in the country. It has grown far beyond its regional, midsize identity. If what matters is surviving and remaining independent — and not necessarily conquering the elite realms of the business — it has succeeded. Over the next three to four years, Bonovitz says, Duane Morris will focus on expanding existing offices. He adds, “We have no proactive strategy to open new offices. But he admits that, as always, he might not resist a good opportunity, whether that means opening in a new city or acquiring a new practice group: “We would be reactive.” The lateral hiring binge continues.

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