For two very different guys, Reed Smith’s Greg Jordan and K&L Gates’ Pete Kalis have a lot in common. The two West Virginia natives rose to lead their respective Pittsburgh-based law firms well more than a decade ago and both have recently won unopposed elections to additional terms for the next three and five years, respectively.
That nod from their partnerships is perhaps a sign of thanks for each man’s work in taking their firms from regional presences to global powerhouses — though both Kalis and Jordan are quick to point out it is a team effort and one driven by the requirements of the market during their tenure.
Each man has close to 10 large-scale mergers under his belt, bringing their firms from a few hundred lawyers to around 1,500 or more. They each went from a few offices in the mid-Atlantic region to more than 40 at K&L Gates and more than 20 at Reed Smith. They each grew their firms’ revenue from about $300 million to around $1 billion in that time.
Both men began their firm leadership positions — Kalis in 1997 and Jordan in 2001 — with an eye toward expanding their firms nationally and then internationally.
While California was a big part of the firms’ U.S. growth, London proved to be a critical expansion for both firms. Reed Smith’s 2007 merger with Richards Butler resulted in London soon turning into the firm’s largest office and led to a 2008 merger with Richards Butler Hong Kong, starting what would become a four-office presence for Reed Smith in Asia.
In 2005, Kirkpatrick & Lockhart’s merger with London-based Nicholson Graham & Jones was part of the Pittsburgh firm’s thinking that entering London in a meaningful way was the key to the firm’s eventual European and Asian expansion. The firm’s clients were starting to migrate that way and the firm needed to as well, Kalis said.
After London, K&L Gates quickly expanded into Asia with its 2007 merger with Seattle-based Preston Gates & Ellis, a firm with three offices across the continent. Then came offices in Germany, Italy, France, Poland, Brazil, the United Arab Emirates and a number of other cities. At the same time, K&L Gates underwent several large-scale mergers in the United States, expanding into Chicago, Charlotte, N.C., Raleigh, N.C., and Dallas, among other places.
The last few years have slowed large-scale expansion for both firms to a degree, but K&L Gates is back in the saddle, engaging in merger discussions with Australian firm Middletons. That would give the firm 1,400 lawyers in the United States and 700 across Europe and Asia.
Despite transforming their firms into some of the largest in the world, both Kalis and Jordan have more on their agenda. Each firm has spent years looking at how to enter Houston. Both men mentioned Canada as a potential growth target in the future. Jordan said his firm would also have to start looking at places like Brazil and Australia.
While Jordan said he thinks expansion will continue, it won’t be the “big bang mergers” seen in the past, but rather would come in smaller steps. The risk with larger-scale mergers is heightened even more in a difficult economy, he said.
K&L Gates’ growth “was market-driven and the market changed so rapidly that it drove that change all within a really compressed timeframe which happened to be on my watch,” Kalis said.
Managing Time and Cultures
Jordan and Kalis’ professional career paths may have a number of similarities, but their personalities are quite different. Kalis is outspoken, strong in his opinions and quick to point out his skepticism of anything from Swiss vereins to legal process outsourcers. Jordan, while comfortable commanding a room or a firm of 3,500 employees, is a bit more reserved, sometimes happier to stay out of the spotlight.
Both have faced some pushback from their partners or former partners, with Jordan facing a brief challenge in 2009 from another partner looking to end Jordan’s reign at the helm of the firm and Kalis recently responding to a flurry of media reports that partners were disgruntled and leaving.
Each firm seemed to quash any uprising, albeit in their own way. The power struggle at Reed Smith was quietly settled with the other partner dropping out of the running. Kalis fired off an email to his partnership that made its way to the press, blasting the former partners who would anonymously challenge the firm’s financial stability and strategic vision.
While sometimes taking different approaches, Kalis and Jordan have similarly seen their roles adapt along with their firms.
Jordan spends 200 days a year on the road and tries to meet with five clients a week. He said he has been forced to think about management differently as the firm expands in size and reach. He can’t visit all of the firm’s offices within a few weeks of one another anymore, so he spends more time doing town-hall type meetings with each office when he is there. And Reed Smith has had to build a management structure that spreads the leadership across more people in more locations, with all of those leaders constantly traveling among the offices.
Kalis is constantly thinking not just about dealing with a $1 billion global enterprise, but everything that entails aside from growth of the top line — such as compliance issues around the world, data security, being conversant in cultures of more than 15 countries, managing different tax and accounting regimes and dealing with currency fluctuations. He said members of management are voracious readers who constantly share information.
There is also, of course, dealing with the influence of the Internet and press attention to the industry during his 15-year tenure. Kalis said a big part of his job is managing how the firm is viewed externally and making sure that is reflective of what K&L Gates is actually like.
Kalis said he takes issue with how some firms aren’t transparent with their partners when it comes to finances. At K&L Gates, the firm updates its intranet at 9 p.m. daily with all of the firm’s financial metrics, giving partners complete access to how the firm is doing as a whole and by practice area and market, Kalis said.
Jordan also communicates daily through the firm’s intranet, posting a new thought, idea or concern each morning. While it is “certainly less personal” than having a private conversation with people, as would have been done “in the old days,” it is much more effective than not having any contact at all, Jordan said.
Jordan said any firm that expands like Reed Smith has is going to face some grumbling from attorneys who don’t agree with that plan.
Reed Smith has remained true to its Pittsburgh roots and has more lawyers in Pennsylvania than any other firm. That commitment to the state gives Reed Smith the ability to represent clients like BNY Mellon, PNC, GlaxoSmithKline, H.J. Heinz and U.S. Steel, Jordan said. But the firm’s lawyers realize what it takes to represent those companies on an international basis, he said.
“I think for the most part people get over the sentimental side and are pretty able to come to grips with what the real-world options are,” Jordan said. “For Reed Smith to have a major relationship with GE and Morgan Stanley, standing pat as a 400-lawyer firm principally in Pennsylvania, that wouldn’t be easy to do. … On balance, the expansion and the movement of the firm has given people a greater chance to fulfill their potential as practicing lawyers.”
Kalis said he views managing more attorneys as simply an “arithmetical-driven challenge” as opposed to the exponential change that has resulted from technology, for example.
“It’s always been the case that the vast majority of your partners have to be happy with the law firm,” Kalis said. “It’s just now that the numbers are bigger.”
K&L Gates and Reed Smith have surpassed nearly all of the other Pennsylvania-based Am Law 200 firms when it comes to growth in headcount over the last decade and have far outpaced any of those firms when it comes to gross revenue growth in 10 years. K&L Gates grew its headcount 188.4 percent between 2002 and 2012 and saw revenue soar 276.4 percent, according to numbers tracked by Legal affiliate The American Lawyer. Reed Smith saw headcount rise 114.7 percent in that same timeframe and gross revenue rise 216 percent.
Reed Smith and K&L Gates have operated on a different expansion model from other large firms in Pennsylvania. Take Philadelphia-based Morgan, Lewis & Bockius as an example. The firm has fewer lawyers than either Reed Smith or K&L Gates and has rarely done large-scale mergers, choosing instead to pick up chunks of lawyers at a time. At around 1,300 lawyers, Morgan Lewis has higher gross revenue than the other two firms with $1.16 billion. (Reed Smith had $993 million in gross revenue in 2011 with 1,486 lawyers and K&L Gates brought in $1.06 billion with 1,762 attorneys.)
Morgan Lewis also has higher revenue per lawyer (RPL) and profits per equity partner (PPP) at $895,000 and $1.5 million, respectively. Reed Smith had $670,000 in RPL and $1.02 million in PPP in 2012. K&L Gates had RPL of $605,000 and PPP of $890,000.
Kalis has often said the firm’s RPL is not a fair comparison to other firms because K&L Gates has lawyers practicing in multiple markets with lower hourly rates than those firms with the bulk of their lawyers in New York, for example.
In response to questions about their financial metrics compared to other peer firms, both Kalis and Jordan said it was not a fair comparison. They each noted it is important to know where a firm started from and not just where it is now. Jordan said Reed Smith was ranked 100th in the various metrics tracked on the Am Law 100 when he took over as managing partner and said he has a “great sense of progress” for the firm in the last decade or so.
Kalis said the only important metric is market share, which is often expressed in the form of gross revenue. He said the most important thing is to look at firms’ compound annual growth rate.
Kalis said the firm will keep growing until the market doesn’t dictate the need for growth anymore.
“I still think we’re in the relatively early days in the transformation of the industry,” Jordan said, adding the premium is on lawyers being able to do things “better, faster and cheaper.”
Jordan said global companies will increasingly rely on fewer firms that can handle matters more quickly and at a lower cost. That may require, as it has already, the firm to have a physical presence in a certain time zone, he said.
“Fundamentally, it will be less about which new markets than how you use the assets you have to better effect and better deliver quality and value to clients,” Jordan said.
As Kalis put it, law firms like his have “gone from single-cell organisms into fabulously complex enterprises with many, many moving parts.”
Kalis has until 2017, and Jordan until 2015, to figure out where those parts will move next.