One year after Morgan, Lewis & Bockius gambled on explosive growth with the addition of 750 lawyers from failing Bingham McCutchen, the firm’s finances are stable and it is once again debt-free, according to chair Jami Wintz McKeon.
On the anniversary of the Bingham deal, we caught up with the frequent-flying, Blackberry-toting McKeon for a detailed update on the firm’s progress. In McKeon’s 13 months as chair, Morgan Lewis’ head count has increased by a third, from 1,338 lawyers to 1,900, making it one of the largest non-verein firms based in the U.S. McKeon, 58, described how the 140-year-old firm has handled its unprecedented expansion—including its merger with an 80-lawyer Singaporean firm—and explained her plans to grow further.
According to McKeon, Morgan Lewis has posted basically flat profitability in the fiscal year that ended Sept. 30, (The firm ranked 12th in average profits per partner in 2014, with a PPP of $1.61 million.) It has already paid off any short-term debt and covered all the onetime costs associated with the Bingham acquisition and its March merger with Singapore’s Stamford Law Corporation, she said. On Jan. 1, the firm will cede Bingham’s Kentucky back office center to a client, McKeon said, shedding another expense.
Am Law Daily: At this time last year, you had just become chair of Morgan Lewis, you were in the middle of inking the Bingham deal, and you were negotiating the merger in Singapore. How does this Thanksgiving compare with last year’s?
Jami McKeon: I said to [former Bingham managing partner] Steve Browne that this will be an incredibly relaxing Thanksgiving week compared with last year. For me, cooking is a hugely relaxing thing. Last year, 50 people were coming over for Thanksgiving, and I was doing most of the cooking at the same time as we were closing the deal with Bingham. I was on the phone all that weekend. The deal ultimately closed at 12:01 a.m. on Monday the 24th.
ALD: How has the double-barreled expansion impacted the firm’s books this year?
McKeon: We took a very, very slight, almost negligible, hit on profits this past fiscal year, when you take into account all our investments this year, but we’re predicting an “up” year next year. We did have to advance some things, but we paid off all that short-term debt by the middle of the year. We ended the fiscal year debt-free and we don’t anticipate this year being any different.
Most significantly, we’re outperforming what we expected results to be and what we told people they would be. If you take out the one-time costs, we would have been significantly up. Very few people would have predicted that in the space of 10 months, we could get everybody in the door, manage the transition and still come out ahead.
ALD: Last fall, you were negotiating with Bingham at the same time that you were negotiating with the Stamford Law Corporation. Why did you decide to do both deals at once? How did that go over with your fellow partners?
McKeon: [Stamford managing partner] Suet-Fern Lee and I met on a video call last September, and—both of us would say this—we both knew right away that we were likely the right partner. I was so convinced of it that even though we were in 24-7 discussions with Bingham at that point, I got on a plane and went to Singapore.
The good news is that the leadership of Bingham and the leadership at Morgan Lewis also recognized that Singapore was a critical place to be. Even though we were all doing something very large with Bingham, instead of thinking we can’t bite off two things at once, people actually saw the reverse—that these two things together would create a global powerhouse.
Increasingly, Singapore is viewed by key clients as an Asia hub. But most firms that have gone there have found it very daunting and not financially advantageous. They’ve had to get limited law licenses, they can’t practice local law. Ours is the first full merger. Nobody else had done that before. How did we do that? It’s a combination of others not figuring out how you could do it but also having the right partner.
ALD: In the past year, the firm added lawyers in important markets such as London, Singapore, Boston and Texas. Where should we expect to see Morgan Lewis opening or expanding next?
McKeon: When I took up the reins as chair last October, I didn’t start off saying I wanted to do a big domestic combination. So if you’d asked me a year and a half ago whether we would have been among the largest firms in the United States, I would have said, probably not.
That said, I don’t expect that you’re going to see us open anywhere in U.S. But we’ll continue to grow domestically in areas where clients need us to grow. And I’m not expecting any whole firm acquisitions, because outside of Bingham and Stamford we’re not historically the type of place that does whole-firm acquisitions.
Internationally, we’ve grown tremendously in London. We’re going to keep growing in London. If you look at the 10 lawyers we brought in in London in the last 6 months, I don’t think they’d have come over without our acquisitions in Asia. And we will have more growth in Asia. Exactly where though, I can’t tell you.
ALD: What about elsewhere in Europe, or in Latin America?
McKeon: We’ve long had a strong M&A-based presence in Germany. We could expect to see growth there. In Latin America, our clients are looking for advice in those areas, but they’re not clamoring for us to be there yet.
ALD: How did you convince your fellow partners that the two consecutive acquisitions weren’t too risky, given the conservative management philosophy of the firm?
McKeon: Part of it is you have to have the kind of culture where people look at what’s best for the firm long-term, instead of looking at how they could wring every last dollar out year-to-year. As you said, it’s always been a very careful, very well-run firm, and we don’t get out ahead of ourselves.
When we looked very closely at the transaction with Bingham, we projected out what the investment cost would be. Everyone unanimously voted in favor of it, recognizing that they would make a small investment this year for the greater good.
We only pay ourselves out of our profits. We don’t promise people things for next year or two years down the line. We’re on the point system. All the points rise and fall together. We’re also a well-capitalized firm. Every partner contributes capital. It’s not as high as some firms are but it’s strong. Everyone contributes, even income partners.
ALD: How did you integrate all of the new lawyers?
McKeon: A hundred different ways. We use a buddy system, and every single person who joins us gets a buddy, from the most senior partners to mailroom staff. In places where we had common locations, we appointed a co-office managing partner from each firm, and we did the same thing in practice groups. We don’t usually do that—we don’t have co-chairs and we’re not big on titles—but for this one year, we did it. So there were probably 50 people around the firm who were automatically linked because they were either co-leading a practice group or an office. Also we did videos with every one of our new partners and published five every day.
We had a two-to-three day orientation meeting in March in Washington, postponed due to a January blizzard, for all new associates and all new partners, bringing in the legacy Morgan Lewis leadership and a number of other partners and associates from around the firm. We added three seats to the 18-member advisory board, filling them with Bingham people, and added Steve Browne to our three-person management committee. Fern Lee became a member of the advisory board when another partner left.
Clients have responded. At a time of convergence, clients are looking for a firm that can serve their integrated global needs. And we’ve had thousands of new matters where the client either hadn’t tapped us for that kind of matter or it was a new client altogether.
ALD: When the Bingham deal was finalized, you noted that a small number of partners would be at the firm only temporarily. Data from ALM RivalEdge does show that about 25 of 244 lateral partners who came over have now changed firms, most within the first five months. A dozen in the Singaporean group also appear to have departed. We are told that there were financial incentives baked into the deal to keep people in place through the next fiscal year.
McKeon: The new laterals do have financial incentives to stay. But in the world we live in today, people will always be able to get more money if they go out and look for it. That’s not a risk I’m particularly concerned about though. The larger you are, the more you have to assume that departures will happen.
We treated our Bingham and Stamford lateral partners the same way as we have treated every lateral partner over the years. We set their compensation for remainder of the year they join us and the entire following year. That’s to give people a transition year. It takes a while to ramp up. There were people who wanted special deals. When we wouldn’t give it to them, they went somewhere else and I think that was a good choice for everyone involved.
ALD: What is the firm doing with Bingham’s massive back-office center in Lexington, Kentucky?
McKeon: We already had a back office in Philadelphia, and honestly, we looked at it and we found that the team that we have there was just as efficient and economically viable. We just didn’t need the Lexington facility. In fact, there is a company, a client, which I can’t name, that’s taking over that facility because they needed it. The hand off takes place this coming January.