THE BINGHAM CASE STUDY: PART II

Starting with the introduction, Harvard Law Professor Ashish Nanda’s case study on Bingham McCutchen depicts Jay Zimmerman as the architect of the firm’s evolution “from a ‘middle-of-the-road-downtown-pack’ Boston law firm in the early 1990s to a preeminent international law firm by 2010”:

“Zimmerman was elected chairman in 1994. Over the next 15 years, he shepherded the firm through 10 mergers, or ‘combinations’ in the Bingham lexicon, the establishment of 11 new offices, and a ten-fold increase in the firm’s revenues to $800 million… Given its impressive expansion, [journalist Jeffrey] Klineman said, ‘Bingham McCutchen has shown it could probably open an office on the moon.'” (p. 1)

Harvard published the study in September 2011.

Another Case Study

Ten months later, Nanda released another case study, “The Demise of Howrey” — a firm that was dying as he considered Bingham. Interestingly, several footnotes in the Howrey study refer to articles explaining how aggressive inorganic growth compromised that firm’s cohesiveness and hastened its collapse. (E.g., “Howrey’s Lessons” by me, ““Why Howrey Law Firm Could Not Hold It Together”, by the Washington Post’s Steven Pearlstein, and “The Fall of Howrey,” by the American Lawyer’s Julie Triedman) But Nanda’s 15-page narrative of Howrey barely mentions that topic.

Instead, he invites consideration of “the alternative paths Howrey, and managing partner Robert Ruyak, might have taken to avoid dissolution of the firm” after that growth had occurred. The abstract concludes with these suggested discussion points:

“What could Howrey have done differently as clients demanded contingency payment plans and deep discounts? Should Ruyak have been more transparent about the financial difficulties the firm faced? Should he have consulted with a group of senior partners instead of relying on the counsel of outside consultants? Is a litigation-focused firm at a disadvantage when it comes to leadership, as compared to a corporate practice? Participants will reflect on the leadership structure of Howrey while discussing issues related to crisis management.”

With all due respect, those inquiries don’t reach a key lesson of Howrey’s (and now Bingham’s) collapse. The following sentence in the study does, but it goes unexplored:

“Howrey continued to add laterals over the concerns of some partners that increased lateral expansion might detract from the firm’s strategic focus and weaken its cultural glue.” (p. 6)

The Metrics Trap

Nanda’s case studies report that at Howrey. as at Bingham, a few key metrics suggested short-term success: revenues soared, equity partner profits increased, and Am Law rankings went up. But beneath those superficially appealing trends was a long-term danger that such metrics didn’t capture: institutional instability. When Howrey’s projected average partner profits dipped to $850,000 in 2009, many ran for the exits and the death spiral accelerated.

Likewise, Bingham’s record high equity partner profits in 2012 of $1.7 million dropped by 13 percent — far less than Howrey’s 2009 decline of 35 percent — to $1.5 million in 2013. But a steady stream of partner departures led to destabilization and a speedy end.

Balancing the Presentation

According to the final sentence of the Bingham case study abstract, “The case allows participants to explore the positives and negatives of following a strategy of inorganic growth in professional service firms….”

The negatives now dwarf the positives. No one should fault Nanda for failing to predict Bingham’s collapse two years later. The most spectacular law firm failures have come as surprises, even to many insiders at such firms. But the Bingham study emphasizes how Zimmerman conquered the challenges of an aggressive growth strategy, with little consideration to whether the overall strategy itself was wise over the long run.

For example:

— The study notes that after Bingham’s 2002 merger with 300-attorney McCutchen Doyle, “Cultural differences…loomed over the combined organization….” But the study goes on to observe, “[T]hese issues did not slow the firm’s growth on the West Coast.” (p. 11) By 2006, “Bingham had achieved remarkable success and unprecedented growth.” (p. 14)

— The study reports that the firm’s American Lawyer associate satisfaction ranking improved from 107 in 2007 to 79 in 2008, which Bingham’s chief human resources officer attributed to “an appreciation for the leadership of the firm. People have confidence in Jay’s competence.” (p. 17). The study doesn’t mention that the firm’s associate satisfaction ranking dropped to 100 in 2009 and to 106 (out of 137) in 2010. (American Lawyer, Sept. 2010, p. 78)

— “Our management committee has people from all over,” the study quotes Zimmerman. “You don’t have to have been at Bingham Dana forever to lead at the firm.” (p. 15) But the study doesn’t consider how too many laterals parachuting into the top of a firm can produce a concentration of power and a problematic distribution of partner compensation. When Bingham began to unravel, the spread between its highest and lowest paid partners was 12:1.

— Bingham’s final acquisition — McKee Nelson — was the largest law firm combination of 2009. The study doesn’t discuss the destructive impact of accompanying multi-year compensation guarantees that put some McKee Nelson partners at the very top of the Bingham McCutchen pay scale. To be fair, Nanda probably didn’t know about the guarantees, but the omission reveals the limitations of his investigation. The guarantees came to light publicly when the American Lawyer spoke recently with former partners who said that “the size and scope of the McKee Nelson guarantees led to internal fissures…that caused at least some partners to leave the firm.”

No Regrets

Looking to the future, Zimmerman told the Harvard researchers, “[W]e’re competing with the best every day. We know we are among the best.” (p. 19)

I wonder if he would now offer the same self-assessment of his leadership that Robert Ruyak provided to the American Lawyer at the time of Howrey’s bankruptcy, namely, “I don’t have any regrets.” Nanda’s case study on Howrey’s demise concludes with “Ruyak’s Reflections.” The “no regrets” line could lead to interesting classroom discussions about accepting responsibility, but it doesn’t appear in the Howrey study. Ruyak’s explanations for the firm’s failure do.

One explanation that receives no serious attention in the case study is Ruyak’s observation that the partnership lacked patience and loyalty to the firm: “The longer-term Howrey people realized that our profitability jumped around a bit,” he said. “The people who were laterals, maybe, did not.” (p. 15)

Perhaps the potential for institutional instability that can accompany aggressive inorganic law firm growth receives greater emphasis in classroom discussions of Howrey and Bingham than it does in Nanda’s written materials. In that respect, both firms are case studies in management failure that is regrettably pervasive: a wrongheaded vision of success and a reliance on misguided metrics by which to measure it.

9 thoughts on “THE BINGHAM CASE STUDY: PART II

  1. Every time I read of a failed expansion, I wish I could bet that the firm did not seek the advice of any of its clients about whether they would, for example, drop their established San Francisco firm for a new outpost of their Boston firm. This reflects that big firm partners believe they are much smarter than big company GC’s and never realize that GC’s have far more experience in marketing to customers and expanding businesses than they or their greedy, unprincipled law firm merger consultants do.

    Sadly, many GC’s also routinely get similarly ignored when their CEO or Corporate Development head takes acquisition advice from their greedy, unprincipled investment banker.

  2. Dear Mr. Harper:

    It is obvious from the intemperate aspersions on my work in both Part I and Part II that you are clueless about what a case study is. A case study is not “an investigation,” as you oddly characterize it. Nor is it a research paper or on op-ed piece. A research paper seeks to prove or disprove hypotheses; an op-ed piece presents a viewpoint. Instead, a case study tries to provide a multifaceted perspective on a situation and studiously avoids presenting an analysis, leaving that for case discussion. You probably don’t realize it, but implicit in your extensive recitation of my case study facts, none of which you are able to dispute, and your claim that I did not present an analysis in the case studies is an appreciation that the case studies were well written by case writing standards. I wish you had attended any of my case discussion sessions, or done me the courtesy of asking for my analysis of the situation before writing the piece.

    Seeping through both Part I and Part II is your approach of making your point not on its own merits but through sensationalism and calumny of others. Not surprisingly, given that you employ the telltale sign of disrespectful writing (“With all due respect…”), even as you launched into slander, you did not accord me the simple courtesy of seeking my perspective, something that thoughtful academics such as Bill Henderson and capable journalists such as Julie Triedman (both of whom you quote) always do, particularly when writing a critical piece.

    I am disappointed by the unprofessionalism shown by someone who claims to uphold the values of an erudite and moral profession.

    Regards,

    Ashish Nanda

    • Professor Nanda: I’m not sure where you’ve been slandered. You’ve also left me wondering at what the utility of a case study is if it doesn’t present a full picture of the facts, but that discussion seems out of scope.

      In any event, I think readers of the post would be very interested in seeing what your analysis of the situation is if you’re willing to post it. It’s clear you have saw nerves about Mr. Harper’s post but hopefully you can see past that to add to the discussion.

      • Happy to share my perspective, Mr. Patterson. Not on this slanderous blog though. You will see my viewpoint expressed shortly in other media where the person has engaged productively. I am also happy to discuss with you, if interested. ananda@law.harvard.edu

  3. I will take Mr. Nanda at his word: that business case studies involve no investigation, no viewpoint, no hypothesis to be proven or disproven, and no analysis. But this would indicate that such case studies are essentially worthless to the reader. We are left with only a “multifaceted perspective,” whatever that means. From your use of the term, it appears that it does not require any critical consideration of the information that is being provided to you by a particular entity, in this case a law firm that would, of course, want to appear in the best light possible, regardless of any contrary facts they they would not wish to provide to you.

    Best wishes Mr. Harper, you found yourself a very thin skinned professor.

  4. I have not read the case study nor have I reviewed any of Prof. Nanda’s work, but want to focus again on one of the underlying questions. Since Prof. Nanda works in the area of professional service firms, this may be something he has paid attention to. And that is how to tell when a growth strategy will be beneficial to a law firm or not. What metrics are there for gauging that? In particular, what I have sensed over the decades has been that growth in law firms is, notwithstanding press releases or what the less-than-experienced writers in the legal press may say, often driven by what the firm’s management team considers to be in its best interest and not necessarily what is in the interest of the majority of the firm’s partners. Because managers are paid more for managing more, and may not have to deal with grubby things like getting and working for clients, while all the additional expenses are the problem of the working partners. However, unless you are in the firm and paying attention and the firm provides partners clear financial information, I’m not sure that is always easy to discern. You say it is often a surprise when firms fail, and when I have asked some partners at these firms why they did not see it coming, they usually say it is because they were busy practising law, and were not watching the management. That is in addition to the second point of whether there is any institutional cohesiveness, which seems mainly cultural to me. The impact of culture may be underestimated in an environment trained to think only analytically.

    • Good observations, Arthur, and happy to share my perspective as I mentioned to Mr. Patterson, but not on this slanderous blog. You will see my viewpoint expressed shortly in other media where the person has engaged productively. I am also happy to discuss with you, if interested.

  5. Steven, case studies in business school serve a quite different purpose to cases in law schools. As a former, long-standing and senior faculty member of the University of Melbourne Business School, I support Professor Nanda strongly in his rebuttal of your assessment.

    I do however agreement that metrics lead many law (and other professional services) firms astray. The bigger is better mindset drives far too much dangerous behaviour. This analysis of ours shows that clients can provide very sensitive early warning signs for firms that are getting into trouble: http://www.beatoncapital.com/2014/07/clients-like-canaries-coal-mines/
    Trouble is most leaders and partners of these firms wait far too long – and leave it too late.

  6. Interesting, Mr. Beaton. I wonder if someone has done a similar look at law firms, though. I’ve always sensed that, at least in the US, there is a different approach to the provision of services to clients in law firms than consulting or accounting firms when internal issues arise, perhaps because of the greater exposure for individual malpractice in law versus advising. At Dewey, for example, I suspect that the firm’s clients were pretty happy with the quality of legal services right up until the end. I think the fact that almost all of Dewey’s partners were quickly scooped up by other firms is evidence of that. In other words, I am suggesting there might be something a little different about legal services than other types of service firms, at least in the less commoditized areas of the law.

    Incidentally, I agree about case studies. I have a business degree as well as a law degree. I thought case studies were one of the more fun bits of B-school, but I must say I did not learn as much from them as I did from the more didactic parts like finance and accounting.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s