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Despite last year’s abundance of law firm megamergers, including the creation of 2,700-lawyer DLA Piper Rudnick Gray Cary effective this month, a strong contingent of midsize practices are eschewing the consolidation trend with one simple business plan: They’ll need to be smarter, cheaper, bolder and friendlier. Whether it was Wilmer, Cutler & Pickering’s merger with Hale and Dorr or Perkins Coie’s pairing with Brown & Bain, last year saw a total of 47 law firm couplings. The consolidations in 2004, most of which occurred in the first quarter, represented a 34 percent jump over 2003, according to Hildebrandt International’s Merger Watch. Hopes of more work, improved resources and broader practice depth spurred most of these deals, with the newly created entities touting better service as the benefit to clients. But amid the merger bustle, many midsize firms say such a move is not for them — at least not now. At the same time, they recognize that continuing to get quality legal work and maintaining independence will require some scrappy maneuvering. “When Chrysler and Mercedes merge, we’re not going to get those kinds of calls. We realize that’s a cost of staying our size,” said Douglas Husid, co-managing partner of Boston’s Goulston & Storrs. With strong real estate, corporate and bankruptcy practices, the firm has 179 attorneys, but now finds itself in a legal community where firms of its size are dwindling. In November, Boston’s Ropes & Gray merged with Fish & Neave, a New York intellectual property boutique. Also last year, Boston’s Goodwin Procter joined forces with Shea & Gardner in Washington, in addition to the merger between Wilmer, Cutler & Pickering and Boston’s Hale and Dorr. FOCUSED PLAN Plenty of sophisticated work is available for firms the size of Goulston & Storrs, Husid said, but capturing that slice of the market takes a focused business plan. “You have to be deep into what you do,” he said. “You can’t be all things to all people.” Los Angeles-based Manatt, Phelps & Phillips, with 310 lawyers, also is following such a strategy, concentrating its practices on key areas including entertainment, health care and technology. Managing partner Paul Irving acknowledged the benefits that big size gives some clients, especially if they need “large teams on the ground” for high-stakes cases. But he said a merger does not make sense right now for his firm, which has eight offices, including New York, Washington and Mexico City. “We rarely hear from our clients, ‘We wish you were another 200 lawyers bigger,’” Irving explained. “We have yet to find a compelling reason to make that move.” The midsize firm that offers services in a few concentrated practice areas is situated “betwixt and between” the current legal market, said David Wilkins, a professor at Harvard University and director of the school’s Program on Lawyers and the Professional Services Industry. The key, he said, is to strike the right balance between breadth and focus. “You have to find something you’re really good at that distinguishes you from either the bigger competitors or the boutique competitors,” he said. Besides special expertise in a few particular practice areas, he said, smaller firms can set themselves apart from bigger firms with their knowledge of local court procedures and contacts with other lawyers and business leaders in a given community. Wilkins, who runs Harvard’s business strategies program for law firm leaders, identified an evolution in the relationships between corporate clients and their outside counsel. He noted that although big corporate clients in the past often relied on dozens of different firms to meet their legal needs, which, in turn, led to law firm consolidation, those clients today may be returning to a “relationship-based” agreement with outside counsel, one based on hiring a lawyer, not a law firm. And that’s good news for midsize law firms, he said. “Clearly there is caution about the idea bigger is necessarily better.” That is not to say that midsize firms are not interested in expanding. But a midsize firm’s strategy for expanding organically, as opposed to getting larger by merging with firms in target cities, can be tricky. The particular challenge for smaller firms, wherever they choose to expand, is doing so while operating with less capital than their bigger competitors. A smaller money pot can make the timing of when to expand all the more critical. The best plan is for firms to find the point where they can successfully anchor a new office to a client base they already have, with an eye toward bringing in new business, said Paula Alvary, principal of Hoffman Alvary & Co. The law firm consultancy served as advisers in the mergers of Wilmer, Cutler & Pickering with Hale and Dorr, Ropes & Gray with Fish & Neave and Heller Ehrman White & McAuliffe with the Venture Law Group. Allen Matkins Leck Gamble & Mallory has followed such an approach in California. Twenty-five years ago, the firm had one office in Los Angeles and one in Orange County. With a focus on real estate and litigation, it now has four other locations in California and 215 lawyers. Expansion has been “conservative,” said John C. Gamble, managing partner of Allen Matkins’ San Francisco office. “You have to be opportunistic,” he said. “You find an engine to motivate you to look to a new region versus saying, ‘I’ve heard this is a hot market. Let’s go open an office and see what happens.’” But the burdens that midsize law firms face in vying for work are more complex than just identifying when and where their services fit in a stratified market. To provide those services, they have to retain top talent, which means competing with the high salaries and big-name clients of the huge firms. Many midsize firms say they are able to keep pace with compensation at big law firms, at least for their younger lawyers. Manatt Phelps, for example, starts its lawyers at $125,000. But even if compensation differentials broaden among more seasoned attorneys, smaller firms often boast firm “culture” as a selling point. “I think there’s a tremendous appeal to having a broadly recognized, large brand, but there are many lawyers who don’t want to be in a firm with partners who don’t know each other,” Alvary said. A firm’s culture can include its method of mentoring associates, its pay structure and even the allocation of office space and furnishings. And though it also may include a firm’s expectations about billable hours and client origination numbers, attorneys who choose to stay with a smaller firm because of its culture usually are not doing so based on the amount of work they are expected to perform, she said. “The choice isn’t necessarily ‘lifestyle,’” she said. “It’s usually one of how much influence a partner has.” Having a say as to the practice areas the firm will focus on, the amounts partners and associates will be paid and which clients to pursue, and participating in other important law firm business, can go a long way toward creating job satisfaction, she said. NO DEPARTMENT HEADS One of the biggest advantages in fostering partner satisfaction that Goulston & Storrs has, according to Husid, is a management structure that includes an absence of department heads, or even defined departments, and a subjective compensation system. In addition, the firm gives no origination credit. Instead, attorneys are “rewarded based on their contribution to the firm as a whole.” “A very big part of it is your availability to your partners,” Husid explained. “It makes for much better client service.” Allen Matkins follows a more traditional model that “helps sustain the sense that people have autonomy in their practices,” Gamble said. But, he added, its lawyers also operate as part of a team. “It relates to how they perceive their role, that they’re not relinquishing everything to a corporate model that dictates to them what their career will be like,” he said. Retaining talent is one thing, but recruiting it brings a different set of challenges for midsize firms when going up against the likes of White & Case or Latham & Watkins. Many midsize firms rely on lateral moves by lawyers who have tired of megafirm lawyering. But size alone may not lure even the most disenchanted associates from large firms. In the case of New York-based copyright and trademark boutique Fross Zelnick Lehrman & Zissu, the 50-lawyer firm snags promising associates, in part, because of its high-profile client base, said partner Mark Engelmann. Fross Zelnick’s clients include Ikea, Speedo, Pizza Hut, Keds and Lego. “It’s attractive to associates,” Engelmann said. But the recruiting task can become more difficult when smaller firms want to entice graduates straight out of law school. Most students typically are uninformed about law firms other than a top few well-known names, said Wilkins, the Harvard professor. “The big names have the big advantage,” he said, adding, however, that times may be changing. “[Law students] are very nervous about their careers and most nervous about going to some place where they’ll be ground up. Then, the question is where they go,” he said.

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