Mayer Brown future up for grabs as competing visions vie for dominance
Mayer Brown is moving through a turbulent period defined by a high-stakes restructuring. Can the firm fulfil its global ambitions?
Mayer Brown is moving through a turbulent period defined by a high-stakes restructuring. Can the firm fulfil its global ambitions?
Mayer Brown is somewhere between the west of its youth and the east of its future.
To the west is Chicago, the firm’s founding city, where a powerful vanguard resides. That includes a majority of its 13-member policy and planning committee, final arbiter on all decisions that matter. To the east is London and Paul Maher, the Anglo-American law firm’s formidable 47-year-old vice chairman.
Between the two, of course, sits the Washington DC office, which can not be blamed for wanting to keep its head down. That is because relations between the firm’s major power bases have become somewhat frayed.
In interviews, more than a dozen current and former partners described an ongoing struggle for power over the past year as the June retirement of longtime chairman Tyrone Fahner neared.
At 64, Fahner, according to firm rules, was required to hand over his leadership spot. To replace him, Mayer Brown unveiled a three-headed chairman’s office. The ruling triumvirate features two litigators, Chicago’s James Holzhauer, the de facto chairman and previous general counsel of the firm, and Washington’s Kenneth Geller, the vice chairman. Then there is London’s Maher, also a vice chairman and an M&A specialist.
For many within the firm, the divided leadership was an untenable idea. “You can not have three chairmen,” says a former Mayer Brown partner. “It has never worked in the history of US business.”
It is an arrangement that has raised eyebrows among some partners, who have questioned how a three-way leadership split will work on the ground. But for those who see the relationship in terms of jostling for power, there is a sense that Maher holds a clear advantage.
“Maher is younger, hungrier, tougher and more energetic. And the other two are not businessmen,” says a former partner from the New York office. “What people fear, especially in Chicago, is that he does not understand the US market and the culture and legacy of Mayer Brown.”
For their part, Holzhauer, Geller and Maher laugh off the idea there is any power-struggle between the three. “The feeling was that we are one of the largest firms in the world, and we need to increase our leadership bandwidth,” Geller says. “No threats were made by Paul. I can tell you, as one of the people in ‘the three amigos’, there is no tension.”
The transition at the top has come during a bumpy 18 months, which saw the loss of at least 20 partners from the firm’s New York office as well as this spring’s de-equitisation of 45 partners (with many cuts, sources say, coming in Chicago, especially among the litigation, environment and labour practices – the Washington office was spared). Current and former partners say the firm is also dealing with flagging profits in several offices, including New York.
A critical report by bankruptcy examiner Joshua Hochberg, a Washington partner at McKenna Long & Aldridge. alleges that Mayer Brown helped to move bad debt off a client’s books. The case involves the bankruptcy of Refco Inc, a brokerage firm that imploded in 2005 amid charges that the company manipulated its financial statements.
Refco has so far seen Mayer Brown named in suit filed in July by Thomas H Lee Partners, which acquired a controlling stake in Refco in 2004 – alleging that the law firm failed to inform it of the true state of its finances. And last month, Refco trustee Marc Kirschner named Mayer Brown among a host of advisers and bankers as part of $2bn (£1bn) claim on behalf of the company’s creditors. Mayer Brown is contesting both claims.
“It is a really sad story,” says another former New York partner. “There is still a tremendous amount of talent. But people got fed up with Chicago and all of the dead weight in that office.”
As if matters were not bad enough, in May, high-profile litigation partner Alan Salpeter left the firm. After a 35-year run, Salpeter landed at the Chicago office of LeBoeuf Lamb Greene & MacRae. Over the past five years, Salpeter was Mayer Brown’s highest-paid partner, thanks largely to his handling of institutional clients such as Ernst & Young and the Canadian International Bank of Commerce. His departure followed that of New York litigator Dennis Orr, then Mayer Brown’s second-highest-paid rainmaker, who left last year with a group of three other partners for Morrison & Foerster.
Rumours swirled that Salpeter’s departure meant the loss of a $30m (£14.9m) book of business. But Mayer Brown says it has retained nearly all of Salpeter’s clients.
“Leaving the firm was about bigger, broader issues – it is not compensation,” Salpeter says. “It is the lack of including people. Why didn’t the firm’s management go to the biggest business generators and ask about these big decisions? They are not being inclusive.” Salpeter adds that the amount of business he took to LeBoeuf is still in flux.
Still, even with the bad news, Geller points out that 2006 was Mayer Brown’s best financial year ever in terms of both gross revenue and profits per partner. And even with the departures, the firm has more than 1,350 lawyers at its command worldwide.
Where smart people practise
Historically, Mayer Brown is characterised as a place where smart people can practise complex law at a high level. It is not for lack of talent that the firm’s partners have left. It is for lack of leadership, those close to the firm claim.
Some trace those difficulties to the 2002 merger of Mayer Brown & Platt with London’s Rowe & Maw. But current partners and four former partners say that it goes back to the chairmanship of Fahner. Criticism of his leadership was considerable, though none of the current or former partners interviewed would do so publicly.
“Ty was at the helm for the integration, success and mergers of this firm, and to not give him his due is wrong,” says Hector Gonzalez, a partner in the New York office and member of the policy and planning committee. “He was a very strong leader who knew this institution and its people.”
The animosity toward Fahner was concentrated in the New York office. Many former partners say his lack of stewardship in recent years allowed the New York office, filled with combative personalities, to spin out of control. “Fahner is a nice guy, he is well-meaning, but he did not do anything to exercise strength and vision,” says a current Mayer Brown partner.
Fahner was travelling when contacted for this article but wrote by email about the New York office: “Our management is making changes that some may consider difficult, but we view as essential, in taking that office to an even higher level.”
The firm says its New York presence is around 210 lawyers, though several former partners put that number lower – well below 200, which has left open an abundance of empty office space.
Reasons for the recent partner defections vary. Some were client-driven; some were seeking better pay – the profits per partner in 2006 were just above $1m (£496,000), an underwhelming figure in the Manhattan market; and others were looking for relief from the recent turmoil at the firm. But all are tied in some manner to the growing pangs of an international law firm.
Last September, the firm replaced Thomas Vitale, who had a three-year run as head of the New York office, with Brian Trust, a bankruptcy lawyer who joined the firm six years ago and is well-liked. But that move has not stanched the flow of departures nor, recruiters say, the number of CVs coming out of the office.
Geller does not deny that New York’s profits have dropped, though he maintains that the firm no longer looks at revenue by office: “For a time it was the most profitable part of our firm. These things come and go in cycles. We have certainly one of the largest and best European platforms to offer clients in New York and that is how we plan to grow the office.”
In this respect, Mayer Brown can also certainly point to continued growth of the business, with the firm in 2006 seeing its revenues grow by 11% to drive fee income to $1.087bn (£540m), keeping it comfortably within the top 10 largest US-based law firms.
Aside from the tail-off in New York, former partners also point to the handling of a suit earlier this decade by the firm’s management as another indication of uncertain leadership. Mayer Brown was sued in late 1999 in connection with its representation of a now-defunct Oklahoma company, Commercial Financial Services (CFS). The company marketed bonds supposedly backed by credit card receivables. When the company defaulted on $1.6bn (£794m) in bonds, bondholders accused Mayer Brown of securities fraud. Partners say Mayer Brown settled the suit confidentially in 2005.
Holzhauer says emphatically that partners in the firm who were involved with the settlement handled it with appropriate care. “Anything about CFS is a big red herring,” Holzhauer says. “We have told them the impact it had on the firm’s bottom line and that the liability was within our insurance coverage.”
But the four partners who have left the firm say the settlement was never fully disclosed to the partnership and that rumours have been left to fester in the halls of Mayer Brown as to how high the number went.
Getting the stock up
But it was this year’s very public de-equitisation of dozens of partners that put the firm squarely in the public eye. Most firms cleave unproductive partners from their ownership stake in the way the Colts left Baltimore – quietly, and, if possible, in the dead of night.
In an earlier time such a large move against partners would have been unprecedented. Instead, many industry watchers wondered what took so long. Chicago rivals Sidley Austin and Sonnenschein Nath & Rosenthal de-equitised partners in 1999, nearly a decade ago.
“The three of us in the office of the chairman do believe that while we have got a robust practice, we were becoming a little concerned that our profits per partner were lagging behind firms that we regard ourselves as equal of, and others, modestly, that we are superior to,” Maher says. “When you look at Latham & Watkins and Sidley, they are not materially stronger than us – but their profits per partner look better.”
He is right. In 2006, Mayer Brown’s profits per partner were $1.1m (£546,000). Those figures, however, are well behind Mayer Brown’s Chicago brethren such as Kirkland & Ellis, McDermott Will & Emery and Sidley Austin. The decision to de-equitise was approved unanimously by Mayer Brown’s 13-member management committee. But sources say it was Maher who pushed the hardest for the move. “The board agreed unanimously on the decision to de-equitise,” Geller says. “This was a hard decision we all came to.”
Still, critics latched on to the public manner in which Mayer Brown went about removing partners. In a newspaper interview earlier this year, Holzhauer went so far as to say the demotions and firings were necessary because “we want to drive our stock price up”.
It was honest and, from a public relations standpoint, disastrous, say many current and former partners.
“In retrospect, it is one part I regret,” Geller says. “We talked to a consultant, and he told us the names of several law firms that had de-equitised. They did it very quietly. We should not have done it as publicly.”
Still, Geller maintains that a more cold-eyed approach to firm management is long overdue, given the competition the firm faces in the international market.
“We are an undervalued asset,” Geller adds. “We have tremendous talent. We have key locations in every part of the globe. But we have allowed ourselves over the last 10 years to become a little flabby in the way we manage ourselves.”
Indeed, the question on the lips of many Mayer Brown observers is not whether Holzhauer and Geller have been too ruthless but whether they have been ruthless enough, a talent many believe Maher would have no trouble exhibiting.
A former partner puts the matter bluntly: “When Maher takes over, there is going to be a lot more bloodletting. He will have to fire half of Chicago and get rid of Los Angeles. He fired colleagues in London to get down to a very talented core. And that is what he will do with Chicago.”
Not everyone thinks that is a bad idea.
“If you are a smart businessman in Mayer Brown’s world, you are evil,” says a former New York partner. “He is a great thing for them.”
A version of this article first appeared in Legal Times, a US sister title of Legal Week.More news, deals and comment on Mayer Brown
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