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Just before Christmas 2003, Howrey Simon Arnold & White got a huge present from partner Alan Wiseman and the team of lawyers he was leading in a class action against several tobacco companies. The gift: a $65 million fee award from a settlement in the case. It was the single largest payment to Howrey in its 49-year history, and it made for a very merry holiday for the more than 1,300 lawyers and staff at the firm. Everyone, from janitors to the managing partner, got a big bonus. And, largely on the strength of the fee award, 2003 profits per partner hit the million-dollar mark for the first time. “It was a huge, huge victory,” Wiseman says. Howrey Simon was on a roll. Even without hitting the tobacco jackpot, the firm had seen grosses climb 125 percent over the previous five years. It had pulled off a successful merger between D.C. stalwart Howrey & Simon and Texas-based IP specialist Arnold, White & Durkee, and had transitioned from solid regional player to a national litigation firm with 500-plus lawyers in 11 offices around the globe. That was 2003. In 2004, Howrey Simon headed back toward earth. It didn’t have tens of millions in tobacco fees to dole out to partners, associates and staff. And though management took pains — at least publicly — to say that 2003′s performance was a one-time only event, some senior associates were angry that they did not receive a profit-sharing bonus for 2004. Partners, too, have lighter pocketbooks: Profits per partner have slipped from the post-tobacco-fee high of $1.09 million to $775,000. The firm acknowledges that it missed its revenue projections by 6.5 percent last year. And grosses in 2004 slid by $34 million, to $352 million. The lost bonuses and profit slippage come at a critical moment for Howrey. The firm has an aggressive strategy to grow its ranks by 175 lawyers in the next two years. At the same time, it has been reining in costs, dumping underperforming lawyers and paring eight diverse practices down to three core areas: intellectual property, antitrust and global litigation. But attracting top-tier laterals and retaining associates and partners may prove challenging. Profits are down, competition for rainmaking litigators is fierce, and the firm’s cuts and bottom-line strategy have some current and former Howrey attorneys grumbling about the firm’s hard-charging culture. For their part, Howrey’s top managers dismiss those concerns and say they are simply doing what any business in their position would do: focusing on the strengths that have made them successful. Trimming practices and lawyers is simply part of that task. “We have no regrets and no apologies because we think we got the right results,” says Robert Ruyak, the firm’s managing partner. “We did it empathetically. We didn’t cut them off at the knees.” Regrets or not, Ruyak and his partners face a tough question: Can they keep the momentum going — or was the slip after the tobacco award a sign of more problems to come? AVERTING DISASTER For Ruyak, at least, it’s a much easier question than the one he and fellow Howrey partners faced in the 1980s, when antitrust litigation all but dried up during the Ronald Reagan administration. That was a disaster for Howrey, which was then just an antitrust boutique. And Ruyak, now 55, is part of the generation of Howrey partners — which includes antitrust co-chair John Briggs, global litigation chair Mark Wegener and intellectual property chair Alan Grimaldi — who helped pull the firm back from the brink. To do that, Howrey added commercial litigation to the mix and sold that expertise to a few of its longtime antitrust clients. Commercial litigation is now the centerpiece of Howrey’s global litigation practice. “We all found a way to survive,” says Briggs. The firm’s third specialty — intellectual property — didn’t take off until Howrey’s merger with the 100-lawyer Arnold White in early 2000. At first there was some shake-up. Arnold White’s 40-member Austin office opted out of the merger. And the firm’s small Minneapolis and Chicago outposts were let go, leaving only Houston and Menlo Park, Calif. Also, some partners from Howrey’s D.C.-based IP team left shortly after the union. Still, the merger appears to have been a boon. In the first year, firm revenues shot up to $241 million — a 40 percent increase. The merger added blue-chip clients like Merck & Co., the Intel Corp. and the Shell Oil Co. Some longtime Arnold White clients, like Monsanto Co., even took advantage of the combined firm’s new expertise in antitrust. Although there was little mixing between the Washington and Texas personnel, Arnold White attorneys have two seats on the firm’s executive committee. Five years later, IP has overtaken antitrust and global litigation, representing 40 percent of the firm’s revenue. And after taking the 22-attorney litigation boutique Clements, O’Neill, Pierce, Wilson & Fulkerson, the Houston office is up to 100 lawyers. Ruyak, who led the firm through the Arnold White merger, has been at Howrey’s helm for six years. In person, he comes across low-key and seems a bit taken aback by questions about the firm’s reputation for having a tough culture. But Ruyak acknowledges the firm is aggressive when it comes to its financial goals, which are planned in five-year increments. Those plans have meant cutting lawyers and practices that don’t make enough money or aren’t cost-efficient. In the last year, Howrey encouraged a half-dozen underperforming attorneys — partners and associates both — to leave the firm. Another half-dozen patent prosecution lawyers have exited as the firm sheds it lower-billing patent prosecution work. A handful of consumer protection attorneys have trickled out of the firm this year as well. The firm has also been slimming down its regulatory practices. In February, a five-person environmental regulatory group went to D.C.’s Wiley Rein & Fielding. The firm had previously let go of its international trade practices as well as its regulatory attorneys in government contracts and energy. In the last five years, Howrey has also reduced staff that was duplicative, Ruyak says. It has been renegotiating all of its leases to consolidate excess space. And with increasing pressure from clients and competitors to keep costs down, Howrey brought consultants — economists and engineers — and staff attorneys, who oversee large-scale document discovery, in house. Those staff attorneys — who are full-time Howrey employees, but not on the partnership track — bill at 20 percent to 30 percent less than associates, Ruyak says. As Ruyak sees it, the cuts add up to better business for both the firm and its former attorneys, who are able to go to places where their practices may be better supported. LEAVING THE FOLD That point may not be clear to everyone. For some associates inside Howrey, the cuts and partner departures were inadequately explained by management and created confusion and morale issues. “All of a sudden, there’d be a partner you knew who’d been there for 10 to 15 years and you’d see this blue [packing] box in front of their office that they’re leaving,” says Schonette Walker, a former Justice Department lawyer who left Howrey in September 2004, after working as an associate at the firm for three years, and is looking to go back into law after a few months as a stay-at-home mom. “And you’re like, what is going on?” In the last year, high-profile departures included Thomas Nolan, a rainmaker and architect of the firm’s Southern California offices, who went to the Los Angeles office of Skadden, Arps, Slate, Meagher & Flom; Q. Todd Dickinson, the former Patent and Trademark Office chief under President Bill Clinton, who exited Howrey to oversee intellectual property for General Electric Co.; former hiring partner Richard Ripley, who went to Bingham McCutchen in January to build its antitrust practice in Washington; and Mark Schildkraut, one of the firm’s top government antitrust partners, who announced earlier this month his departure to head Heller Ehrman White & McAuliffe’s antitrust practice in Washington. Howrey declined to provide numbers about its partner or associate attrition rates. But by at least one measure, Howrey has had difficulties hanging on to partners who join the firm. A recent survey by Legal Times‘ sister publication The American Lawyer on lateral partners shows that roughly one-third of the 95 partners acquired by Howrey from October 1999 to September 2003 have left the firm. That is the fourth-worst lateral retention rate in the country. The departures also fed the belief among some associates that making partner — and staying there — was increasingly a long shot. The firm has a two-tiered partnership track: Tier one is non-equity; tier two is full equity. And, like many big firms, Howrey has been keeping a tight rein on the tier-two ranks, stretching the partnership track to about 12 years. Of the 17 attorneys promoted in the partnership ranks this year, only six reached the full equity. And all of those six had already been tier-one partners. Current and former partners also describe a demanding environment where competing interests and office politics add to the stress. “They are an in-the-trenches litigation firm, and that carries over to the management side,” says one former lateral partner who asked not to be identified because of continuing relationships with people at the firm. “There is a sense that if you’re not in antitrust or IP, you’re not a real lawyer.” The former partner says it’s sometimes difficult for outsiders to integrate into the firm, because Howrey partners have long-standing relationships with the clients. A new partner isn’t likely to get in on that work, the former partner says. Ruyak and other partners — current and former — brush off negative characterizations about the firm as the feelings of a few disgruntled people. They say information was readily available about departures and the firm’s finances, and they point to the quarterly partner, associate and staff meetings held to provide financial updates. “I don’t know any firm that gives financial information to the staff,” Ruyak says. And some emphasize the firm’s efforts to boost associate retention, including a summer “boot camp” to introduce potential associates to life at a litigation firm. Yet Sean Boland, vice chair of Howrey’s antitrust group, acknowledges this much: Howrey’s specialty focus can make it difficult for some laterals to break in. Boland joined the firm from what was then Collier, Shannon, Rill & Scott in 2000 with 24 other attorneys. He says that Howrey’s fast-paced culture has led a few of the attorneys who joined with him to leave. “There are trade-offs,” says Boland. “When we get these very tough cases, we work very hard on them. There are some people who would rather do counseling work, have better lifestyles and fewer hours. Others want to work on the cutting edge.” But a hard-charging culture may be exactly what clients want from a litigation firm. According to David Snively, deputy general counsel for Monsanto, one of Howrey’s top-paying clients, the firm has the people that he knows will get the job done. “We’re a very demanding client. I will say that in all candor,” Snively says. “We expect spectacular results, and we work people at great intensity on very complex matters. We recognize the toll that that takes. It really requires the best possible skills by the best people all the time, and they deliver it.” NEXT STEPSOn the client side, the aggressive business plan and culture does appear to have worked. According to numbers from the firm, the top 93 Howrey clients pay at least $1 million a year, and 16 of those hit between $5 million and $17 million. For a litigation shop, which tends to see clients on a one-time basis, Howrey has developed a sizable list of long-term clients, including the Anheuser-Busch Cos., Exxon Mobil Corp., Caterpillar Inc., and H.J. Heinz Co. Howrey managers are now in the midst of embarking on a new five-year business plan. They are looking to lock in long-term billing deals, like a recent five-year contract with Unocal to oversee 120 environmental cases. Those kinds of arrangements could help insulate Howrey from major revenue fluctuations like the one that occurred after the tobacco settlement. And, of course, the firm is also looking to increase lawyer head count from 525 to 700 over the next two years. This time, Ruyak says he’s looking in Chicago, on the West Coast, in Europe and, eventually, in Asia. Because of Howrey’s focus on three discrete practices, Ruyak says it’s unlikely that Howrey will do a major merger. He says the firm plans to continue targeting laterals in growing areas like corporate responsibility, insurance recovery, and among IP lawyers with a biotechnology and chemistry background. For now, the firm is focusing on a sizable caseload. Among its ongoing litigation: defending Ford Motor Co. against a series of class actions; representing MeadWestvaco in a price-fixing case against the packaging and office products company; and going to bat for Schering-Plough in continued class actions stemming from a Federal Trade Commission antitrust case. In the last week alone, the firm scored two major victories for clients: For Schering-Plough, it won an appeal in the 11th U.S. Circuit Court of Appeals, reversing the FTC’s antitrust ruling; and it helped win Department of Justice approval for the merger of National-Oilwell Inc. and Varco International Inc. — two leading U.S. companies in oil drilling equipment. And then there’s Wiseman. He is wrapping up another piece of the tobacco litigation: R.J. Reynolds Tobacco Co. is expected to finalize a $33 million settlement later this month. Howrey’s payday out of the settlement should be about $15 million, Wiseman says. It’s a healthy sum, no doubt. But the firm does not have another big contingency case on the docket. At least not yet.

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