Schmidt will assume the chairman role from R. Steven Kestner, who has held the position since 2004 and overseen head count growth from 580 lawyers to 906 lawyers in 2017. During that time, gross revenue has risen from $275 million to $647 million.
Schmidt, like his predecessor, will have no set term limit as he serves at the pleasure of a 15-member policy committee, of which Schmidt has been a member for the past five years. The policy committee formed a nominating committee that conducted more than 150 individual interviews with partners about Baker & Hostetler’s next leader, ultimately settling on Schmidt. He was unanimously elected by both the policy committee and the partnership, Kestner said.
While Schmidt has spent his entire professional career in the nation’s capital, he is an Ohio native from Cuyahoga Falls, just a one-hour drive south of Cleveland, where Baker & Hostetler is headquartered.
“When ultimately I received the news from the policy committee, it was just extraordinarily exciting,” Schmidt said Thursday. “I have such a strong belief in what a terrific, solid law firm we have. And I think we have such a bright future that I couldn’t help but be thrilled to be asked to be part of its future leadership.”
Schmidt will take the reins of an Am Law 100 firm in a legal market much different than the last time Baker & Hostetler saw a change to its top leadership. At that time, law firms were headed into one of the strongest four-year growth periods before the Great Recession.
But Baker & Hostetler largely avoided any financial hardship in the wake of the recession, as it began one of the largest legal matters of the past decade when bankruptcy and restructuring partner Irving Picard, who joined the firm in December 2008, was named the trustee of funds recovered on behalf of victims of Bernard Madoff’s massive Ponzi scheme. That work, through last September, has generated a recovery of nearly $13 billion on behalf of victims and about $925 million in legal fees for Baker & Hostetler.
The 906-lawyer firm has grown its gross revenue by 93 percent since 2009, bucking the industry with yearly growth rates as high as 17 percent from 2011 to 2013. That growth, however, has tapered off in recent years. In 2016, gross revenue grew 1.4 percent, and last year it rose 0.7 percent, to nearly $647.1 million, according to early data from ALM. Profits per partner rose 3.7 percent in 2017, to $1 million.
Schmidt said Baker & Hostetler has been out front of a “rapidly evolving” legal market and broader business environment, advising clients on issues ranging from blockchain to artificial intelligence, having been one of the first firms to adopt ROSS Intelligence in late 2016. He said the firm has proved itself to be “rock solid” financially with no debt.
One issue a leader of an Am Law 100 firm may face in the next few years is recruiting talented lawyers, as the pool of law school applicants and graduates has dwindled. Schmidt said he expects a very competitive market for talent in the coming years.
“The practice of law in a lot of ways is a business about attracting and retaining talent,” Schmidt said. “We have to recognize that and we have to make sure that we are competitive in getting to that talent. I think we will focus on that and prioritize it. And I think we’re definitely up to the challenge because we offer a good platform for growth and a favorable culture.”
Schmidt joined Baker & Hostetler in 2004 after three years as a partner at international accounting firm KPMG. He also served three years as a legislation counsel in the U.S. Congress for the Joint Committee on Taxation.
His current practice involves advising multinational corporations on large tax matters, including cross-border planning and controversy work. Schmidt’s clients include large private equity firms, as well as companies in the high-tech, hospitality and oil and gas sectors. He oversees a practice of about 70 tax lawyers that he said has grown 24 percent since he took over leadership of the group in 2008.
Kestner said it has been an honor to lead Baker & Hostetler for more than 14 years. He will continue to practice as a corporate partner when he steps down from the chairmanship role in January 2019.
“I feel great about turning things over to Paul,” Kestner said. “I think he’s got the experience, the judgment and the temperament to continue to guide the firm. [He has] the leadership style and the commitment to doing the best job we can for our clients every day. That’s what has propelled us forward.”