Richard Stehl, the chairman of Otterbourg, a 50-attorney law firm, speaks to the New York Law Journal about the advantages and challenges of being a smaller law firm in a city where everything is supersized. The Q&A is part of an occasional series that includes the views of Ronald Shechtman of Pryor Cashman, Craig Wittlin of Harter Secrest & Emery and David Scherl of Morrison Cohen.
Q: How big is your firm, where is it located and what are its primary areas of practice and focus?
A: Our firm is comprised of approximately 50 attorneys. Our office is located in New York at 230 Park Ave., where we recently completed a complete renovation of our two floors. Our primary practice areas include the representation of lenders and borrowers in banking transactions; the representation of creditors, debtors, trustees and other fiduciaries in bankruptcy and restructuring matters; general corporate matters; cybersecurity and data protection; the representation of private equity groups; general commercial real estate matters; commercial litigation matters relating to many of the foregoing and other practice areas.
Q: Please explain your firm’s governance structure and compensation model.
A: Our firm is managed by a three-person board of directors elected by the shareholders to staggered three-year terms. Our compensation model is a merit-based closed system with a majority of shareholder’s compensation being paid in the form of a year-end bonus.
Q: What do you view as the two biggest opportunities for your firm, and what are the two biggest threats?
A: As a midsize law firm, our two biggest opportunities come from our relationships with our clients and our flexibility. Our client relationships tend to be direct and long-lasting. We do not have a great deal of turnover at our firm and many of our attorneys have grown in their careers at the firm with their counterparts at our clients. As a result, the relationships are “battle tested”; the clients call the attorneys directly and are not made to call through an “intake partner,” and we know the clients’ hot buttons, internal procedures and corporate hierarchy and politics. This knowledge can save a lot of time and effort and avoid mistakes. Additionally, because many of our client relationships span decades, our lawyers do not need to be retrained or focused with each new engagement. Clients can trust that we know what they want and they can concentrate their efforts on areas other than managing their attorneys.
Secondly, clients love our flexibility. We have the instantaneous ability to offer or respond to alternate fee arrangements, restaff matters based on changes in the transaction or litigation, and adapt to specific needs of the client. At our firm, our partners keep each other informed and there is little red tape preventing accommodations for clients.
Our biggest threats include the battle for legal talent and the commoditization of legal work. Many excellent law students are driven to work for large marquee-named law firms. However, after working, often anonymously, in large first-year classes, we find many of these excellent young lawyers rethink their initial employment decisions and become available.
As far as the commoditization of legal work, some clients feel that firms are all the same, but that is simply not true. We have to do our best every day to demonstrate that our firm provides representation that is far superior to our competitors and delivers value far beyond the cost. We have been the beneficiary of business from clients who had been unhappy for years with their existing counsel, and did not know that services could be any better until they were introduced to us.
Q: After the recession hit, the prevailing theory was that midsize firms would start to see more work come their way from large clients who could no longer justify paying Big Law rates. What has been your experience?
A: I think that our experience here has been mixed, and I am not sure that we believe that there is a direct cause and effect. We have seen great growth with many of our large, institutional clients, but we attribute much of that growth to our firm’s marketing efforts, development of new client relationships and expansion of existing relationships. On the other hand, we have seen increased competition from large firms in markets where they did not previously compete with us in any meaningful way. For example, we have seen an increase in the number and size of firms that seek to be retained as counsel to unsecured creditors’ committees in bankruptcy matters.
Q: Are your clients pushing for more alternative fee arrangements, and if so, what types? Is your firm amenable to those requests?
A: We have seen a rise in requests for alternate fee arrangements, and we welcome these requests. Our firm’s size and flexibility have made it easier for us to address these requests than our larger competitors. We currently have more than a dozen operative alternate fee arrangements, and they have resulted in an increased level of satisfaction for our clients.
Q: There is much debate around how law firms can foster the next generation of legal talent. What advantages and disadvantages do midsize firms have in attracting and retaining young lawyers, particularly millennials?
A: We believe that millennials are attracted and well-suited for midsize firms. While painting any group with a broad brush is unfair and often inaccurate, some of the millennial traits that we have observed include that millennials enjoy individual recognition, collaboration, transparency and opportunities for advancement.
We staff matters leanly, typically with only a partner and one or two associates, as the matters require. Associates have immediate and daily recognition for their efforts—there is no possibility of going unnoticed in a massive junior associate class.
Partners dedicate the necessary time to train associates to take on responsibilities quickly in transactions, in court and with the clients. We have a strong record of retention because associates are challenged and rewarded for their success. There is daily collaboration among the ranks, and every attorney plays an important role. With such daily interaction comes total transparency in the working relationship. Associates will know exactly what is expected from them, and they receive frequent feedback. There are no surprises.
Finally, midsize firms present the best opportunities for career advancement. First, as previously noted, each attorney becomes a valuable member of the team. Following the great recession, lawyers became more focused on marketing. In our firm, we expose associates to clients immediately so that they can hone skills in client development and management. Learning the art and focus of client development early in one’s career makes it more likely that the attorney will be able to develop clients necessary for career advancement. In addition, new client relationships, which often start out small, may be meaningful to midsized firms where larger firms may not be interested in spending the time to develop these relationships.
Disadvantages for midsized firms can be a lack of prestige and a less interesting client base. We believe we overcome those potential liabilities in part because of the size and complexity of the deals we handle. Many of the deals we work on are more than a billion dollars. We also have an unusually long history for a midsize firm—dating back to our founding 109 years ago.
Q: Does your firm employ any nonlawyer professionals in high-level positions (e.g. COO, business development officer, chief strategy officer, etc.)? If so, why is it advantageous to have a nonlawyer in that role? If not, have you considered hiring any?
A: We have a controller who plays an important part in financial decisions made by the board, and we have an office manager whose responsibilities include personnel administration and the coordination of marketing efforts. It is important to use skilled professionals to navigate these meaningful areas of firm management. Many lawyers, while often extremely bright, do not have the depth of skill or knowledge in these areas to make the best-informed decisions for the firm. In addition, lawyers who have client responsibilities in addition to administrative responsibilities often attend to the client responsibilities first and may not devote adequate time to the administrative issues. Having adroit nonlawyer professionals in important administrative roles helps alleviate the competition for the lawyer’s time and attention.
Q: What, if any, technology advancements have you made in your firm in recent years? What are the challenges in implementing tech changes?
A: When we undertook our remodel in 2015, empowering our lawyers with the most advanced technology was a major focus. Our substantial investment in attorney-facing and behind-the-scenes technology has made our attorneys more efficient, reduced overhead and enhanced our relationships with our clients. Expanded and secured remote access to the network is available on any computer, laptop, tablet and phone, which, together with attorney telephone extension connectivity to cellphones, means that wherever we are in the world, our clients know we are available to them 24/7. We are also flexible enough to meld our systems to our clients preferred systems for document analysis and production, billing and collections.
We have become expert in using courtroom technologies to add a new dimension to our trial practice—whether something as simple as document highlighting for the judge, to complex multicourtroom trials and presentation of social media videos to establish our clients’ case. Our director of information technology has assisted at trial, at no additional cost to the client, in a recent high-profile trial in the Southern District of New York.
Something that we thought might be a challenge was getting more experienced attorneys to adapt to our technologies; but we have seen the opposite: the more senior attorneys have embraced the technology innovations because they see the improvements, efficiencies and increased client satisfaction.
Q: What would you say is the most innovative thing your firm has done recently, whether it be internal operations, how you work with clients, etc.?
A: We have actively partnered with our clients and presented them with tailored ways in which they can save money on fees and other costs. We have spent time understanding the clients’ business and issues and have developed targeted plans, rather than approaching challenges with a “one size fits all” model. These innovations have taken many forms. In some situation, we provide legal advice “off the clock” for clients that provide a certain threshold level of business to the firm. Sometimes this advice is helpful to the clients in obtaining business themselves. In other situations, we provide alternative fee arrangements customized to specific needs of the client. In one such arrangement, the firm replaced the general counsel of a client and performs GC work at a fixed monthly retainer while performing other services for the client at standard rates.
Q: Does your firm have a succession plan in place? If so, what challenges do you face in trying to execute that plan? If you don’t currently have a plan, is it an issue your firm is thinking about?
A: Our firm has a succession plan. Last year, I succeeded Daniel Wallen as chairman of the firm. This was the result of a three-year succession plan where I was given additional responsibilities during the three-year transition period.
Richard Haddad, who had worked closely with Mr. Wallen in the litigation department, succeeded to Mr. Wallen’s board seat and became the head of the litigation department. Mr. Wallen continues to practice at the firm and serves as a source of advice and institutional knowledge for the board. Since we prepared for the transition over a long period of time, the actual implementation went smoothly. Each attorney involved had the best interests of the firm in mind, the transitions followed a detailed plan, and each change had the unanimous approval of shareholders.