(Illustration by Jon Rienford)
When longtime Bingham McCutchen chairman Jay Zimmerman gave his end-of-year reckoning at the annual partner retreat in Bermuda last October, he didn’t mince words. After riding the recession to record profitability and revenue, the firm had seen demand tapering since 2012. Billings were down by a quarter. Meanwhile, costs were up: In 2013, for a second year, the firm had sunk $11.5 million into its new back-office center in Lexington, Ky., shaving $80,000 off average equity partner earnings. And about a dozen lateral partners holding guarantees would have to be fully compensated, leaving remaining partners to absorb the brunt of profit declines.
For those who’d been paying attention to Zimmerman’s monthly financial reports—the 795-lawyer firm is fully transparent about finances and individual compensation—the news wasn’t unexpected. Several high-value litigation and restructuring matters had ended and hadn’t been replaced. The surprise, however, was that the pain would not be shared equally among its 298 partners. Though almost everyone would take some of the hit, partners whose practices had slowed the most, or whose bills had been heavily discounted, would not see their final 2013 distribution—25 percent of total compensation, to be paid out to partners in May or June of the following year. Reductions ultimately ranged from $50,000 or so, typically for junior partners, to roughly $500,000 for partners at higher tiers, according to former partners. (Partner compensation ranges from about $500,000 to $3.5 million, according to a former partner.) “The real issue was partner performance,” says one, asking not to be identified. “There just wasn’t enough work.” After the meeting, partners began to jump ship. Twenty-eight left between October and mid-April, joining 34 who had departed earlier in 2013, according to data collected by The American Lawyer. (According to the firm, four of those retired; the firm also added 20 partners during the same period.)
Protected in Hard Times
Until last year, Bingham seemingly could not lose, even in the depths of the recession. Its cross-border insolvency and litigation lawyers were much in demand, with Bingham one of only seven among the 30 most profitable Am Law 100 firms to increase profits per partner in 2008. Profits per equity partner continued to rise in 2009 to 2011, and would have edged up in 2012 but for the investment in the back-office center.
Now, after a bracingly bad year—PPP dropped 12.7 percent, to $1.475 million, falling to 44th from 30th—the firm is undergoing a top-to-bottom review. A new managing partner position was created last fall to handle day-to-day management, and a well-liked 50-year-old corporate partner, Steven Browne, was elected to fill it. Three management veterans have also been recruited to work with Zimmerman, who just turned 60, on everything from business and recruitment strategies to leadership succession planning and financial oversight. And, belatedly, according to several former partners, the firm is more assertively edging out less productive partners—although no lawyers have been fired, according to Bingham. “We’re not in ‘turnaround’ mode,” says Anthony Carbone, 57, the administrative partner and New York office head. “What we’re doing is fixing things that we could do a bit better.”
In a sense, Bingham was a victim last year of its remarkable recession-era success. Engagements on behalf of Anadarko Petroleum Corporation and Mitsui & Co. Ltd. in the Deepwater Horizon oil spill multidistrict litigation, for example, raked in $30 million to $40 million in billings in 2010 and 2011, two partners estimate, but ended by 2013. So did a multiyear effort for Olympus Co. Ltd. in a $1.7 billion accounting fraud investigation, an engagement that spanned crisis management, corporate governance, claims litigation and securities and financial regulatory issues, including working to keep the company’s stock from being delisted from the Tokyo Stock Exchange. The firm’s remarkable $1.3 billion copyright infringement jury verdict in 2010 for Oracle Inc. against SAP AG also ended in mid-2012 (with a $306 million settlement).
Bingham’s global restructuring practice also cycled through a number of major matters. Its work as counsel to a group holding $24 billion in Icelandic bank debt slowed to a trickle last year, and by 2012, matters for private placement noteholders in the $1.8 billion Quinn Group insolvency and for bondholders in the restructuring of Japan’s consumer finance giant Takefuji Corporation had both ended.
Several former partners, speaking on condition they not be named, say the tidal wave of work during the recession allowed Zimmerman, unlike leaders at rival firms, to avoid weeding out less productive partners and practice areas. “Bingham is a very Bostonian firm. It’s not New York. It’s very collegial,” says one. “What that meant was that there were partners not performing. You can afford to be that way when things are going well—but not when things are not. My feeling was perhaps they should have been more confrontational and aggressive.”
“We maybe have been a little nicer than other firms,” responds Carbone, a tax partner who joined the firm in the 2001 merger with New York’s Richards & O’Neil. But last year, he says, the firm began doing more aggressive pruning. “We’ve made a conscious decision not to try to be big and less profitable,” Zimmerman says; as part of that strategy, “we continually balance our practice groups depending on client need and where we see the market going.” Bingham had 150 lawyers working on financial institutions litigation and regulatory matters, accounting for roughly 20 percent of the firm revenue in the 2008 to 2009 period. That practice, which had become Bingham’s largest, was “clearly too large,” Zimmerman says; the firm has sought to align it with its offerings in corporate, tax, restructuring and funds, which each account for about 10 percent of revenue. The firm is also focusing less on large financial institutions and more on hedge fund, private equity and investment fund clients.
Out the Door
The biggest challenge, say current and former partners, may be perceptions within and outside the firm in the wake of so many departures. Overall partner head count has tumbled by 12 percent to 298, the firm’s lowest level since 2008, the year before Bingham merged with 120-lawyer McKee Nelson.
The firm’s management declined to comment on individual departures. But losses included at least a dozen well-respected, longtime partners, some in leadership roles. In one significant departure, an 11-lawyer New York–based securities enforcement and regulatory group, headed by Neal Sullivan, went to Sidley Austin; it included Susan Merrill, former enforcement chief at the Financial Industry Regulatory Authority. Also on the financial institutions securities litigation side, the firm lost Peter Obstler, a San Francisco–based securities litigator leading JPMorgan Chase & Co.’s defense in at least three dozen consumer class actions. (Bingham “remains committed to our financial institutions practice,” Zimmerman responds, noting the recent hire of Daniel Budofsky, a derivatives expert, from Davis Polk & Wardwell.)
Partner losses went well beyond the financial institutional securities, regulatory and enforcement practice, however. They included a London litigation star, Natasha Harrison, who launched Boies, Schiller & Flexner’s London office; she was among a handful of partners sent to a Harvard Business School leadership boot camp in recent years. Also gone: energy and project finance cohead Tara Higgins, who went to Orrick, Herrington & Sutcliffe; real estate cochair Kenneth Lore, to Katten Muchin Rosenman; and senior investment funds partner Robert Leonard, to Proskauer Rose.
In California, wider personnel losses have hurt morale, say two former partners from the firm’s five offices there. From a high-water mark of 288 lawyers in 2009, the firm’s presence in the state numbered 203 in early April, according to the firm’s website; 20 partners, including several prominent ones, have left since January 2013. Among the best known: Marshall Grossman, who led Alschuler Grossman into its 2007 merger with Bingham; he left for Orrick in January. According to a former partner, Grossman, now 75, was among the highest-compensated West Coast partners until recently. Departures also included three San Francisco litigators who left for Sheppard, Mullin, Richter & Hampton; that group included Bingham executive committee member Raymond Marshall, one of a few dozen legacy McCutchen, Doyle, Brown & Enerson partners.
Rival firms are now seeking to take advantage of Bingham’s perceived vulnerability on the West Coast. “Every major law firm out there [in the state] is gunning for Bingham,” says a Bay Area recruiter who recently placed a Bingham lateral.
The firm remains committed to the state strategically, responds Carbone; Bingham brought in five IP partners in Santa Monica last year, for example. But litigation is suffering the largest dip firmwide, and since most of the firm’s litigators are on the West Coast, the impact there has been greatest, he says.
Even partners who say the firm has made a few recent missteps are quick to give Zimmerman credit for a strong record of accomplishment: Overseeing 10 mergers and establishing 14 new offices, he transformed a firm once heavily reliant on Bank of Boston into a global player. “Jay did a phenomenal job in assembling a top-drawer, top-flight firm with a bunch of market-leading practices,” says Michael Sherman, a litigator who left this spring for L.A. corporate boutique Stubbs Alderton & Markiles. “But not everything works out all the time.”
And the time for such aggressive growth strategies has passed. “Everybody’s taking stock,” says global restructuring cochair and London managing partner James Roome, who has built his office to 51 lawyers. “It’s strategically difficult to grow in a retrenching industry. We would love the world of 2004 again, where we could merge, grow and lev-erage our strengths up. The problem is that doesn’t play so well past 2008.”
In early April, as the firm was considering its next steps, it appeared to be getting some welcome tail winds. Demand has picked up across the board since October, according to Carbone, and the firm was projecting an uptick in profitability this year. New matters include advising virtual reality company Oculus VR Inc. in its $2 billion acquisition by Facebook Inc.; representing UBS AG, a creditor in the Detroit Chapter 9 bankruptcy, with regards to a soured swaps deal; and advising a major creditor in the contentious bankruptcy of wireless broadband provider LightSquared Inc. The firm’s tax disputes lawyers are handling a high-value matter for Amazon.com Inc. involving transfer pricing; and demand is up in litigation generally, according to the firm.
Meanwhile, expenses were expected to decrease this year. The Kentucky center won’t drag on profits in 2014—though cost savings may be another year or two away—and remaining multiyear guarantees to laterals have now expired, says Carbone.
Bingham will also continue to invest in select practices. Browne, the managing partner, says that targeted areas for lateral acquisitions include the global funds practice, which advises both registered funds and private equity and hedge funds; those same clients, in turn, are expected to continue to drive the global restructuring, M&A, and financing work globally. Corporate work will be a focus generally, especially in the tech and life sciences area. In the past year, Bingham has added several partners, including Davis Polk’s Budofsky, White & Case investment funds partner Christopher Wells in Tokyo, and DLA Piper partner Richard de Bodo in Los Angeles, who will cochair the firm’s IP practice.
The firm’s ability to lure veteran lawyers like these suggests that Bingham remains attractive in spite of its recent difficulties. “It’s not an ultra-male, hard-charging culture,” says Roome. “We’re more inclusive, and there’s a lot of mutual respect. During a period of transition, I really hope those values are preserved.”
Additional reporting by Brian Baxter and Chris Johnson.