Nobody lives forever — not even Tom Boggs.
The legendary lobbyist, the man who wrote the book on government relations, turned 65 last week. Right now, Thomas Hale Boggs Jr. says he has no plans to leave the firm, Patton Boggs, he helped build into a powerhouse.
But a future without Boggs has been on the firm’s mind for some time. The firm has held meetings to discuss the matter. To many people in Washington, Boggs and his firm are synonymous, despite the 400-odd other lawyers and lobbyists who work there.
Under Boggs, the firm was a pioneer among Washington law firms in combining the art of lobbying with the traditional practice of law. Today, it’s grown to become the largest lobbying practice in the nation’s capital — and that’s not counting the $150 million the firm generates from corporate transactions, litigating civil disputes, and other, lower-profile types of lawyering.
Despite its size and revenues, Patton Boggs remains enormously reliant on the talents and connections of a single, aging man known for his love of thick steaks, Cuban cigars, and gin gimlets. Boggs, by his own admission, is responsible for 20 percent of the firm’s $213 million in annual revenue — making him perhaps the biggest rainmaker in Washington’s elite bar.
“A phone call from Tom Boggs can be worth months of litigation,” says Andrew Rosenberg, a lobbyist who spent eight years at Patton Boggs.
So when Boggs turned 65, on Sept. 18, the birthday was not just a personal milestone but a reminder to the firm of the mortality of its chairman. Other firms have survived, even thrived, as legends aged or passed on. Akin Gump Strauss Hauer & Feld has weathered the twilight years of Robert Strauss, and Williams & Connolly has prospered since the death of Edward Bennett Williams 17 years ago.
Boggs isn’t working as many hours as he used to, and he says when it’s time to go, his departure will not mean the dissolution of his namesake. “If I dropped dead tomorrow, I think the firm would go on all right without me,” Boggs says.
But Patton Boggs is facing a particular challenge as it grapples with the transition from being “Tom’s firm” to an institutional brand. Three former partners and other lawyers with ties to Patton Boggs say merger efforts that would have placed the firm in key markets such as New York were complicated by the firm’s unique compensation system, which rewards pitching new clients but can discourage cooperation between partners.
Stuart Pape, managing partner of Patton Boggs, calls the compensation system a strength, though he adds the firm will continue to tinker with it. He also says the system was a selling point rather than a hindrance during at least one merger discussion. “A lot of people are attracted to the objectivity of our compensation system,” Pape says.
EATING WHAT YOU KILL
A law firm’s office culture is, in many ways, part and parcel of how it chooses to compensate its partners. At Patton Boggs, that culture is highly individualized.
|(A + 0.7895B) X Profit Margin = Partner Compensation
A = Dollar value of partner hours billed and collected
B = Dollar value of partner’s attribution shares
Profit Margin = Varies by year. Typically around 35%.
Compensation for equity partners at Patton Boggs is determined by a formula which has an entrepreneurial bent that differs substantially from many large law firms.
The first variable is a straightforward dollar measure of hours billed and collected. The second variable is the dollar value of a partner’s attribution share of clients that he’s brought into the firm or for whom he’s done work. The second value is multiplied by a fractional value (0.7895) that reduces its weight relative to hours worked.
When a partner brings a client into the firm, he retains 100 percent of the attribution for that client’s billings, but if he wants one or more other partners to work on the client, he must negotiate with them and give them a percentage of his attribution. In the past, the formula has led to large swings in individual partner compensation from year to year. That matter was addressed to a degree in 2001, when the firm decided to spread the calculation over two years based on a 60-40 split (60 percent of the previous year’s production plus 40 percent of the year prior to that).
For example, take a hypothetical partner who has identical production two years in a row of 1,600 hours billed at $500 an hour and $1.5 million in attribution shares. That partner’s compensation — assuming a profit margin of 35 percent — would be $695,000.
— Jason McLure
The amount of money a partner earns each year is based on a deceptively simple formula: the total value of a partner’s hours billed and collected, plus a specific fractional value (0.7895, to be exact) of a partner’s total “attribution” — or share of the total billings from a given client.
The attribution variable is what makes Patton Boggs unusual. That’s because when a partner brings in a new client, he retains 100 percent of the attribution for that client. But should the business-generating partner see the need to bring in a second partner to help handle the work, a negotiation over the attribution ensues. After the negotiation the second partner may garner, say, 25 percent of the attribution. If a third partner is added, she too will have to negotiate with the other two partners for a percentage of the attribution.
The firm provides partners with a guide governing the negotiations, but one rule in particular shapes the attribution system. The original, business-generating partner may never have less than a 50 percent stake in the client’s total billings no matter how many other partners perform work for the client — or how little work he does.
The true strength of the compensation system is its emphasis on entrepreneurship. “It rewards initiative,” says Pape. “It rewards people who bring in clients.”
To be successful, partners must not only succeed at competing with lawyers from other firms for new business, but they also must compete for shares of one another’s business. “The people who make the most money in this system are successful in two markets: internally and externally,” says Pape.
But there’s a dark side to that type of competition. Foremost among the system’s shortcomings: There is no formal incentive in the formula that encourages partners to share work with other partners. Some former partners say it’s hindered the firm in its efforts to win clients with large, complex litigation cases. In fact, say partners who have worked at the firm, the attribution system can discourage partners from sharing sophisticated work with the best qualified of their partners, because in doing so they sacrifice a share of their percentage of the client’s total billings.
Pape says he is not aware of any instances where the firm failed to pick up litigation clients because of its compensation scheme. Still, he acknowledges the compensation formula has some shortcomings. “The system doesn’t require [cooperation],” Pape says. “Where people perceive that it’s economically beneficial to cooperate with their colleagues, they do. Our system allows people to do the wrong thing. If you don’t want to share clients, you don’t have to.”
Or, as Boggs puts it, “It has some drawbacks in that you get some lone rangers once in a while.”
Former partners at Patton Boggs say that the system can push lawyers into making skewed decisions, such as choosing a younger partner with less leverage to negotiate for attribution share, rather than a more experienced partner who will hold out for a higher stake, or avoiding giving high-level work to other partners at all.
“What are your incentives?” says Steven Schneebaum, a former partner who spent 26 years at the firm before leaving for Greenberg Traurig last fall. “You make the most money if you find the guy who’ll take it for the least attribution percentage. Ideally, you’re better off getting associates to do this.”
John Fithian, a former hiring partner at Patton Boggs who runs the National Association of Theatre Owners, agrees: “As a second- or third-year associate, I was managing clients that senior partners could have managed better but for the attribution system.”
Pape says such staffing rarely happens and that “it’s something a number of us keep our eye out for.” Managing partners at other large D.C. law offices say that Patton Boggs’ rigid approach to compensation is uncommon. While most law firms consider hours and business generation, they say, most successful large firms don’t rely on strict formulas, because the approach doesn’t place value on softer contributions such as mentoring and recruitment. Instead, in defining compensation, most large firms rely more heavily on overall evaluations by practice chairmen and committees.
A COLLECTION OF INDIVIDUALS
At a firm where every partner is essentially operating his or her own small business, Patton Boggs has room for partners with quirks, such as former managing partner Timothy May, a specialist in the niche field of postal law, or Boggs himself, who installed a special ventilation system in his office to cleanse the air of cigar smoke. The firm also gives its lawyers wide latitude to pursue pro bono work. (The firm finished 21st in The American Lawyer‘s 2004 ranking of the top 200 law firms’ pro bono activities.)
That autonomy for partners extends to purchasing their own office furniture and paying their own dues for bar admissions outside their home state. Collegiality, say former partners, is hurt by a compensation system that can often result in vigorous, internecine fights over client attribution shares.
In the long run, say Pape and Boggs, those partners who bully or otherwise hog attribution shares are undone by their aggressive internal negotiating tactics. The compensation system for partners is completely transparent, they say, so at the end of the year each partner knows how much attribution for each client a partner retains.
“If I’m a business generator that’s not sharing fairly, over time I’ll find a diminishing number of partners willing to do work with me,” Pape says. “Like all compensation systems, it’s imperfect.”
It’s also a firm with no formal safety net for its partners. Annual pay can vary wildly for individual partners depending on the year. “If you’re an equity partner” who’s not doing any work, Pape says, then, in theory, “you could have zero income.”
Former partners say that until recently, it wasn’t unheard of for a partner to take home a high-six-figure salary one year, only to earn a five-figure salary the next. To curtail the wild swings in compensation, the formula was altered in 2001 so that 60 percent of a partner’s annual pay is based on production from the previous year, and 40 percent based on production from the year before that.
It can also can create great divides in pay among partners. The American Lawyer‘s 2004 survey of disparities in compensation found that the highest-paid partner at Patton Boggs made 38 times that of the least-compensated partner. In contrast, the ratio at a firm like WilmerHale was 5 1/2-to-1.
IN THE SHADOW OF A GIANT
At the heart of Patton Boggs’ profit center is Tom Boggs. In 1966, then the precocious 25-year-old son of House Majority Whip Hale Boggs (D-La.), Boggs joined former Covington & Burling lawyer James Patton and a handful of other attorneys in the firm that would become Patton Boggs.
As a profession, lobbying was still in its infancy, and Boggs made the most of his sterling family connections. As a college student, he sipped scotch with then-Senate Majority Leader Lyndon Johnson while operating the private elevator of House Speaker Sam Rayburn — a job his father had gotten him. After President John F. Kennedy’s assassination, his mother, Lindy, helped Lady Bird Johnson move in to the White House.
But Boggs would soon display a talent for lobbying that went far beyond those connections. In the early 1970s he stopped, by a single vote, the passage of a national no-fault car insurance bill, which, had it become law, would have taken hundreds of millions of dollars from the pockets of his new client, the Association of Trial Lawyers of America (ATLA). His lobbying helped clear the way for the construction of the Alaska Pipeline, and, along with then-Chrysler Chairman Lee Iaccoca, he was an architect of the federal government’s 1980 bailout of the troubled automaker.
“He has an enormous amount of background knowledge on Senate and House members,” says Linda Lipson, the general counsel of ATLA. “If your goal is to kill a bill or pass a bill, he can do both.”
Though he’s spent virtually his entire life in Washington, those who’ve worked at the firm say his identity is still shaped by his family’s Louisiana roots. He’s given to off-color jokes about Boudreaux, a legendarily stupid Cajun from the bayou. Big clients are often romanced by hunting and fishing excursions at Boggs’ country home in Maryland. (“I work when I work and I play when I play,” he says.) In his office he presides with a wet cigar in his mouth, the ashes bleeding onto the front of his white dress shirts.
But those who know Boggs say his success is predicated on more than good-old-boy backslapping. “His greatest skill is as a strategic thinker who can solve problems,” says Fithian, the former hiring partner.
By 1997, Boggs’ reputation as a go-to lobbyist and his talent for combining lobbying, litigation, and regulatory advocacy strategies had helped grow the firm to 170 lawyers. The success also placed the firm in a peculiar position. “We were in a no person’s land,” says Pape, who has run the firm since 1998. “Too big and diverse to be a boutique, but too small to be competitive” with big international law firms.
That year the firm held a retreat in Snowmass, Colo., near the home of James Patton. There, says Pape, the firm laid out a plan for growth focused on five areas: intellectual property, corporate transactions, employment law, litigation, and buttressing the firm’s core public policy practice.
There was also a special meeting of partners to which Boggs wasn’t invited. The focus: life at the firm after Boggs. One of the proposals for survival was diversification of the firm politically — a particularly important goal with Republicans in control of both houses of Congress. A stronger counterweight was needed, to offset Boggs’ long Democratic presence.
Since then, Patton Boggs has pushed hard to meet those goals. Over the past eight years the firm has more than doubled in size. It’s built a strong intellectual property practice in Northern Virginia behind Marc Labgold, a rainmaker poached from what was then Piper, Marbury, Rudnick and Wolf. Its profits per partner have leapt from $500,000 in 2001 to $725,000 in 2004, according to The American Lawyer‘s annual survey.
The firm has also brought in consultants to help encourage partners to cross-sell one another to clients. Politically, the firm has worked to shed its liberal image through the additions of Republican lawyer Benjamin Ginsberg; former Sen. John Breaux, a conservative Democrat from Louisiana; and a host of former Republican congressional staffers.
COVETING THE BIG APPLE
Despite those efforts, the public policy practice remains the firm’s most prestigious. Lawyers and lobbyists don’t get a seat on the eighth floor, the public policy floor of the firm where Boggs’ office is, without Boggs’ express permission.
“I think it’s still seen as a Democratic firm,” says Lanny Davis, a former adviser to President Bill Clinton and Patton Boggs partner who started at the firm in 1975 and left for Orrick, Herrington & Sutcliffe in 2003. “I think Tom’s shadow is still tremendously dominant over the firm.”
Nor have its efforts to expand geographically always gone well. Offices in Seattle; Baltimore; Boulder, Colo.; and Raleigh and Greensboro, N.C., have been closed in the past 15 years.
Boggs says the firm has targeted markets that “didn’t have Washington firms or firms with Washington offices.” Its current satellite offices are in Anchorage, Alaska; Qatar; Northern Virginia; Dallas; and Denver — an unorthodox mix for a firm looking to compete with international players three times its size.
And despite a compensation system that rewards rainmakers, over the past several years the firm has lost a number of key partners — including Davis, litigator Garret Rasmussen, corporate attorney James Stuart, and Schneebaum, its longtime pro bono chair — to larger firms.
Gaining a presence in New York has long been a priority for the firm. “Our No. 1 goal is to have a meaningful presence in New York,” says Boggs. The firm plans to open a New York office next year, but the decision comes only after a number of failed attempts to merge or acquire a New York presence.
In 2004, Pape says, the firm spoke with the New York office of Jenkens & Gilchrist, at a time when that firm was under heavy siege for its role in authorizing tax shelters sold by KPMG. The discussions ultimately proved fruitless. Pape says that the Jenkens lawyers were divided on the potential marriage, and the 91-lawyer New York office jumped to Troutman Sanders earlier this year. Aurora Cassirer, the managing partner of Troutman’s New York office, declined to comment.
The firm also opened talks, in 2003, with Hahn & Hessen, a 50-lawyer corporate law firm that then had offices in the Empire State Building. But those talks collapsed, at least in part, because many in the Patton Boggs partnership didn’t see what benefit the acquisition would bring. Steven Seif, Hahn & Hessen’s managing partner, declined to comment.
In early 2004, Patton Boggs flirted with a more intriguing potential match, California-based Manatt, Phelps & Phillips. The two firms have deep ties: Firm founder Charles Manatt has known Tom Boggs for 45 years, and Boggs’ oldest son, T. Hale Boggs, is co-chair of its corporate practice. Along with a strong California presence, Manatt has 60 lawyers in New York. But the talks never moved beyond the exploratory phase.
“I think if you’re going to make a move like that, you have to go into it with a high degree of confidence that it will work out,” says Pape. “If the people in their separate organizational structures aren’t convinced at the outset that it’s going to work, it’s not.”
“At the end of the day, I don’t think either firm concluded that the case was compelling enough to drive it to a serious phase,” says Manatt managing partner Paul Irving.
Those who have left the firm say its compensation system has been a hindrance in its efforts to merge. Not only does the system create wide disparities in partner pay, but it rewards senior partners for business they brought in long ago and makes them less interested in a move that would alter that arrangement.
Still, the firm is making its own changes. In 2003 the compensation rules were altered so that junior, nonequity partners could no longer receive attribution credits for work they didn’t originate — an effort to encourage rainmakers to share work with them rather than associates.
A second hindrance to merging is the firm’s long-standing relationship with ATLA, an organization deeply unpopular with the insurance companies, drug firms, and investment banks that are the institutional client base of many big law firms. “We’ve lost a number of clients because of [ATLA] and missed some new clients,” Boggs says.
But the relationship also has had its benefits. Last year, Patton Boggs took in $1.4 million in lobbying revenue alone from ATLA, according to Senate disclosure forms. And the millions of dollars in political contributions made by trial lawyers have also multiplied Boggs’ own clout on Capitol Hill.
“It’s a love-hate relationship with ATLA,” Fithian says. “When Patton Boggs throws a fund-raiser and the trial lawyers support it, it’s very helpful to the firm.”
But whether the trial lawyers will stay with Patton Boggs after Boggs’ departure is a matter on which Lipson, ATLA’s general counsel, is hesitant. “I don’t know,” she says. “I’d have to take that up with my directors.” Then, after a pause, she says, “Probably we’d stay with them.”How Boggs’ other clients answer that question is the $45 million issue the firm will have to confront whenever the chairman decides to stop coming to the office.
“He’s the glue that holds it all together,” says Rasmussen, a partner at Orrick who spent 27 years at Patton Boggs. “Just like in the United States there’s a consensus about the Constitution, at Patton Boggs there’s a consensus about Tom.”
Jason McLure can be contacted at email@example.com.