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The test of success for many regional law firms has been their ability to expand nationally. But facing challenges such as the ho-hum morale of some partners, the integration of firm cultures and the demands of clients, many of these former midsized operations have learned that along with the push for a broader presence come some formidable growing pains. Bulking up attorney ranks is one thing, but keeping profits per partner robust, key attorneys satisfied and clients loyal is a balancing act of sorts, these firms say. And while they tout carefully orchestrated strategic planning on their part as a reason for national growth, they also say that expand-or-expire market forces have required them to spread their reach or lose much of their business. “If I were a Wachtell, [Lipton, Rosen & Katz], I wouldn’t be doing what I’m doing,” said Frank Burch, joint chief executive officer of DLA Piper Rudnick Gray Cary. Referring to his firm’s need for expansion compared with law firms well entrenched in New York’s lucrative transactional practice, Burch says that the consolidation of clients and the mergers of competing law firms have forced his once regional firm to go global — and quickly. “We realized that the regional law sector was a very dangerous place to live,” he said. Merging last year with London’s DLA and California firm Gray Cary Ware & Freidenrich, the 2,850-attorney firm is among the largest in the world. It is an enormous jump from six years ago, when Piper & Marbury, originally based in Baltimore, had 369 lawyers. Some of Piper Rudnick’s bigger offices now are located in London, Chicago, Washington and Palo Alto, Calif. Competition from consolidated law firms, along with clients looking to winnow their outside counsel lists, has prompted several regional law firms to learn the national and international ropes relatively quickly. Reed Smith; Greenberg Traurig; Holland & Knight; Sidley Austin Brown & Wood; and Chicago’s Mayer, Brown, Rowe & Maw are now among the top 20 firms in The National Law Journal 250, the annual ranking of law firms based on their number of attorneys. By these firms’ accounts, the road to the big show has been mainly a smooth one, and their profits-per-partner numbers appear to reflect steady financial growth. For example, DLA Piper Rudnick reports that its profits per partner for the combined firm rose to $885,000 in 2004 from $605,000 in 2001. Greenberg Traurig says its profits per partner increased to $985,000 last year from $690,000 in 2001, and Reed Smith reports its profits escalated to $663,000 last year from $400,000 in 2001. (The 2001 numbers were from The American Lawyer, an NLJ sister publication.) But no expansion is painless, consultants say, adding that the ultimate proof of their strategies’ success may be years down the line. Eighteen months to two years is the typical time frame to gauge whether a firm’s expansion into a new market will work, said Joel Henning, vice president and general counsel for Hildebrandt International, a law firm consultancy. In DLA Piper Rudnick’s case, it may take longer for the dust kicked up from its rapid growth to settle as clients and partners adjust to the changes. Burch acknowledges that some observers say the firm has become too big too fast. His response? Remain focused. “We’re not going to waste any time worrying. We’re going to take all our energy and get people working together as fast as we can,” he said. However, he concedes that if he were practicing at another firm observing Piper’s expansion from the outside, he could have a similar reaction. “I might well say, ‘They’re biting off an awful lot at one time,’ ” Burch said. He describes the firm’s strategy as calculated, but also one that incorporates a seize-the-day approach. So far, at least, it appears to be working. He expects revenues this year to exceed $1.6 billion. SUCCESS FACTORS During the two-year period after regional firms make an expansion push, they should regularly study several “critical success factors” to determine a new office’s progress, Henning said. Those factors include the quality of work that the new office or group is acquiring, the quality of services the new office or group is providing, and whether the addition is garnering business from new clients, he said. Other factors include the degree of the connection that the new office or group feels with the firm as a whole, he added, noting that a related issue is the number of lateral defections as the composition of the firm changes. For Herbert Frerichs Jr., a “big international firm” was not for him. The mergers and acquisitions attorney left DLA Piper Rudnick’s Baltimore office in January and went to 260-attorney Philadelphia-based Saul Ewing. “It wasn’t the same place,” said Frerichs, adding that his clients were better suited to a regional platform. A certain degree of lawyer shuffling is expected with growth, say industry observers. Reed Smith, for example, gained 234 partners from 1999 to 2003, according to The American Lawyer‘s March issue. The firm lost 43 of the more recent hires from that group, for a churn rate of 18.4 percent. Other churn rates for that period at regional-turned-national firms included Holland & Knight, with 25 percent, Piper Rudnick, with 20 percent, and Greenberg Traurig, with 18.1 percent. Like Piper Rudnick and others, Reed Smith said its steady proliferation from its regional roots was client-inspired. Amid slumping revenues and dwindling opportunities in the Pittsburgh market, Gregory Jordan became firmwide managing partner in 2001 with an aggressive plan for the firm, which now ranks 17th in the NLJ 250. During his managing partner tenure, the firm has grown from 687 attorneys to about 1,000, with revenues surging to $500 million in 2004, a 100 percent increase, Jordan said. Major expansion under his leadership has included the firm’s merger with London-based Warner Cranston and its merger with Crosby, Heafey, Roach & May, which had offices on the West Coast. The firm recently opened an office in Munich, Germany, as well. The impetus for Reed Smith’s first international move was its need to provide more services to Mellon Financial Corp., a key client, Jordan said. But in addition to pleasing existing clients, regional expansion can work only if the firm can expand an office beyond one-client status, he said. Although Jordan maintains that all of the firm’s expansions have been successful ventures, he said that he learned some lessons along the way. “We learned to pay attention to our own learning,” he said. For example, one smart move has been to transplant experienced partners when a firm opens a new location. Having a partner relocate to an opening office underscores the firm’s serious commitment to its new endeavor, Jordan said, and it strengthens the connection between the mother ship and the outpost. “It sends a message to your own people,” he said. A strong connection between partners is one reason that Greenberg Traurig has grown to nearly 1,350 attorneys, said Cesar Alvarez, chief executive officer of the firm, originally based in Miami. It ranks eighth in the NLJ 250, with its bigger offices in New York, Miami, Chicago, Washington and Los Angeles. Lateral hires account for the vast majority of his firm’s expansion, he said. With a heavy emphasis on litigation, Greenberg Traurig has banked on making its services available to big-ticket clients who need litigators in a variety of locations. It also focuses on corporate, real estate and tax law, among other practice areas. Alvarez is adamant that Greenberg Traurig’s culture is truly distinct from that of his competitors — a common claim among many firms asserting that they have different and better work environments that keep partners from leaving. He calls it a “lack of bureaucracy” at his firm that has allowed it to expand quickly. “Committees are wonderful for two things: conveying information and getting input. They are not good decision-making bodies,” Alvarez said, adding that he is in charge of determining compensation. The firm operates under a blind system in which each attorney’s pay is confidential. It also has what he described as a streamlined approach to giving attorneys answers when they have questions. “If someone wants to negotiate an alternative fee, it’s a matter of one phone call here,” he said. NEW YORK PRESENCE Like most other regional firms that have burgeoned to national stature, Greenberg Traurig has a large contingent in its New York office, a key component to its growth strategy. As more clients have consolidated and brought business to the lucrative New York market, law firms see a Big Apple presence as critical to their mission of keeping them. In addition, having a New York office seems to confer a certain status on firms, a kind of “if I can make it there, I’ll make it anywhere” phenomenon. But making it there is not so easy. High overhead costs and fat salaries cut into revenues. In addition, the capital markets arena is a “tough field to crack,” said Jordan, with Reed Smith. Wachtell Lipton and a number of other top Wall Street firms that dominate corporate transactional work year after year can charge top attorney fees and thus keep profits per partner high. But regional players entering the city appear realistic about the New York market. Reed Smith’s approach is to remain focused on real estate investment and make headway into private equity work. Greenberg Traurig, which last week added to its New York office former Fulbright & Jaworski partner Hal Hirsch, is intent on transactional work with emphasis on reorganization and corporate restructuring. At least one regional firm that is pushing into the national market rejects the notion that a New York office is essential. Detroit-based Dykema Gossett, which now has 350 attorneys and about 50 lobbyists following its merger last year with Chicago’s Rooks Pitts, plans to concentrate on Midwest work instead of the typical approach of looking to the coasts for the biggest money. In addition to several offices throughout Michigan and in Chicago, Dykema also is located in Los Angeles and Washington. Its strategy is heartland growth. “We believe that there will be a role for a dominant firm to focus on the business needs in the very vibrant commercial centers in the Midwest,” said Rex Schlaybaugh, chief executive officer of Dykema Gossett. Eighteen months after the merger with Rooks, Schlaybaugh boasts of no defections. He added that the “tremendous pressure” clients are under to cut costs also is helping his firm’s business plan. “We think that pressure fits well with our strategy to be a dominant Midwest-focused law firm,” he said.

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