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If any law firm could stake a claim to being cosmopolitan — even exotic — it’s Coudert Brothers. The New York firm was in Paris a decade before the Eiffel Tower. Fluent French, Japanese and Russian echo in the hallways of its 21 offices. And although it has never been the highest-paying firm, Coudert has always been a little chic — perhaps even tres chic. But the glamour is fading fast. The firm, which over 150 years built its reputation by expanding internationally, is rapidly contracting. During the last two years, Coudert’s head count has slid from 630 to 550 lawyers, the firm has shed offices, and tried — and failed — to merge with Cleveland’s Squire, Sanders & Dempsey. Coudert faces a litany of troubles: Bigger international firms have moved into the space the firm once had largely to itself; it grew too fast in California but not fast enough in New York; and revenues and profits are lower than those of competitors — making it difficult for Coudert to snag top laterals or a merger partner. In its D.C. office, the number of attorneys has dropped by 40 percent, the managing partner just jumped ship, and a rainmaker was disbarred for misconduct involving a client, the Lockheed-Martin Corp. Compounding Coudert’s issues, current and former partners say, is the firm’s culture, which may be too democratic for its own good. Coudert relies on a single-tiered partnership where each partner is consulted extensively on firm decisions — making it tough for the firm to act quickly on business issues. And, the partners say, Coudert’s management seems to have been swept up in the firm’s globe-trotting history, while losing sight of the bottom line and its most profitable office: New York. “It seems to me that the firm is paying the price for having waited too long to respond to the competitive threat of other firms coming into their space,” says Tara Giunta, the former D.C. managing partner who left in late March to join Paul, Hastings, Janofsky & Walker. “They had the franchise, and they sat and watched while other firms overtook them.” For their part, Coudert’s managers acknowledge that the firm is struggling. They say they’re working to trim underperforming practice areas and refocus on the firm’s traditional strengths, which include cross-border mergers and acquisitions and international tax and customs counseling. “We’ve had some rationalization the last year and a half,” says New York-based firm chairman Clyde Rankin. “I call it pruning. That happens from time to time with law firms.” Yet the question remains: Are the problems too deep to fix? The firm must remake its culture — without completely alienating its remaining rainmakers — and boost profitability if it wants to compete for top laterals or consummate a merger. “The world has changed a lot in the past 10 years. The bigger U.S. firms have rapidly expanded in Europe and the Far East,” says Steve Nelson, a legal recruiter and consultant in the Arlington, Va., office of the McCormick Group. “As a result, the position of firms like Coudert Brothers has eroded.” Coudert’s profits per partner slipped from $475,000 in 2002 to $420,000 in 2003, according to The American Lawyer‘s annual survey of law firm finances. Firm managers say revenues and profits dropped again in 2004, though they declined to provide data. The sliding partner profits may be a tough pill at a firm where compensation for top partners pales in comparison to other New York-based firms. Partner salaries at Coudert start at $225,000. A single point is worth $10,000, and Rankin says that no one partner earned more than 80 points — or $800,000. The numbers make it tough to attract top laterals in million-dollar markets like New York and to retain rainmakers who could see their compensation double at rival firms. “It’s a very equitable arrangement,” says a former partner. “[But] there may have been some people who felt they could have made a buck more elsewhere.” Part of the issue is Coudert’s client base. Though it focuses on transactional work, Coudert has little presence among Wall Street’s big investment banks and is rarely involved in high-end, cutting-edge deals, current and former partners say. “Relatively speaking, they lack depth in their corporate representations,” says another former partner. Rankin says the firm may not have a lock on top Wall Street deals, but he says the firm has a wide client base and that its bread and butter is doing work for international corporations like automakers and soft drink companies. “We may not represent them at home,” Rankin says. “But work comes to us when these companies look overseas.” Among the deals the firm recently helped close: U.K.-based Orient-Express Hotels Ltd.’s acquisition of St. Petersburg, Russia’s Grand Hotel Europe, and sales of coal-mining operations for Germany’s RAG Coal International AG. SEEKING A SQUIRE Under Rankin’s predecessor, David Huebner, the firm sought to reverse its declining fortunes by pursuing a merger with Squire Sanders. By July 2004, the firms had signed a term sheet and were entering the due diligence phase. By some accounts, key partners were spending a quarter of their time meeting on the details of the merger. But the work failed to pay off: By October, talks had ended in a decision that Rankin says was “mutual.” Through a spokesperson, Squire Sanders declined comment; Huebner, traveling in Malaysia, could not be reached. In some ways, Squire Sanders would have made an interesting match for Coudert. With more than 12 offices overseas stretching from Bratislava to Rio de Janeiro, it also has emphasized international growth, and the combined firms would have boasted an unmatched global reach. But at Coudert, the pact generated strong opposition. One issue: A Squire Sanders deal wouldn’t help shore up what many saw as a critical weakness — lack of heft in New York. Coudert has 106 New York lawyers; Squire Sanders has fewer than 20. Rankin, who replaced Huebner as chairman in February, says he objected to the merger for that reason. “I’m not sure mergers are a cure-all,” Rankin says. “You’re merging cultures, different philosophies. Law firms are prideful groups.” Prideful — and perhaps a little slow to make a move. Coudert’s single-tiered partnership is driven by consensus. Each partner has a full vote in major firm decisions. Compensation recommendations, for example, are made by committee, which are then distributed to the full partnership. The need for input from partners in offices from Kazakhstan to Indonesia can make tough decisions even tougher. Indeed, some former Coudert attorneys say the firm’s collegiality has hampered its ability to trim underperforming partners and offices. Says Giunta, the former D.C. managing partner: “The management is working assiduously to move the firm back on firmer footing, but from my perspective it’s not going aggressively enough to give me comfort that I should stay there.” Current and former partners point to the firm’s ill-fated California adventure as an example of how slow decision making can hurt the bottom line. Attempting to capitalize on the boom in Silicon Valley, Coudert expanded to three offices in the San Francisco Bay area in the late 1990s. But it did so too late to gain much benefit from the dot-com boom, and it held onto the offices long after the tech market tanked. The firm finally merged its Palo Alto and San Jose offices into one San Francisco outpost in January. “We did not do well in Silicon Valley,” Rankin acknowledges. Expansion into other regions also has met an unhappy fate. Since 2000, Coudert has closed offices in Denver, Munich, Bonn, Montreal, Ghent and Hanoi. The closures were coupled with the slide in head count. Coudert says the decline is, in part, a matter of choice — that it is trimming its ranks of underperforming lawyers. “There are some people who were asked [to leave], and some people who could see the writing on the wall,” says Richard Dean, the new managing partner of the D.C. office. But not all of the decline has been by design. In the last two years, D.C. head count has slipped from 37 to 22. Part of the drop is intentional, with the firm slicing members of the underperforming project finance team. At the same time, however, top-billing white-collar defense lawyers in the office also left. Then there’s the case of Michael Calabrese, a partner who joined the firm’s D.C. corporate practice in 1999 after a stint as deputy general counsel for Lockheed Martin. Calabrese built a strong practice and represented Lockheed. But after an internal probe by Coudert last year, Calabrese was accused of misconduct in his work with Lockheed. While the exact nature of the allegation is unclear, he left the firm and was disbarred in October. Coudert declined to comment about Calabrese. “There’s a set of things I did that I paid for,” says Calabrese, who adds that he’s considering a suit against the firm. Calabrese declined to describe the exact nature of the firm’s complaint against him. Despite setbacks in D.C. and elsewhere, Rankin says the firm is working to correct mistakes, shore up practices and tweak compensation structure. While he is tight-lipped about whether the firm will consider another merger, he says Coudert plans to bring in more laterals, particularly in commercial litigation and corporate work. The work has already begun on compensation. Last year, Rankin says, Coudert began handing out bonuses to top-producing partners, albeit modest ones. And the firm will continue to prune unproductive partners. Yet Rankin was reluctant to provide specifics about how the firm would turn itself around. He says, generally, that Coudert needs a more unified business approach to help cross-sell more across practice areas. “We’ve had some setbacks,” Rankin says. “They will be corrected.”

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