Tag Archives: McKenna Long

DENTONS STRIKES AGAIN

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[NOTE: Beginning April 16 and continuing through April 20, Amazon is running a promotion for my novel, The Partnership. During that period, you can get the Kindle version as a FREE DOWNLOAD. Recently, I completed negotiations to develop a film version of the book.]

Dentons must have a large support staff whose only job is to introduce the firm’s new partners to each other. Three months ago, it joined with the massive China-based Dacheng to create the world’s largest law firm — or whatever it is. Now McKenna Long & Aldridge’s partners will merge their 420 lawyers into the Dentons North American verein.

Well, not all 420 lawyers because, as McKenna Long’s chairman Jeffrey Haidet told the Daily Report, “There will probably be some fallout from the legacy partnership. It’s unfortunate….”

There’s nothing unfortunate about the deal for Haidet, whose personal “fallout” will make him co-CEO in Dentons-US.

Eliminating The Opposition

Haidet tried to make this deal in 2013, but according to the Daily Report, it collapsed when a few key McKenna Long partners balked over concerns about losing the McKenna identity and name. The currently prevailing big law firm business model doesn’t value such dissent. So it’s no surprise that during 2014 McKenna Long lost a greater percentage of its partners (22.3 percent) than any other Am Law 200 firm.

Haidet told the American Lawyer that some of his firm’s record-setting 59 departures last year “were of partners who disagreed with the firm’s growth strategy.” That’s not surprising either, since that strategy apparently involved extinguishing the firm itself. A venerable Atlanta institution that is also highly regarded for its Washington, DC government contracts and policy work will soon disappear.

What’s Next?

If and when McKenna Long releases its financial results for 2014, the underlying motivations behind Haidet’s renewed discussions with Dentons may become clearer. Perhaps the firm’s financial performance limited its options. But this much is obvious: Compared with McKenna Long’s earlier focus that gave it a clear identity, the partners who survive this transaction will join an organization that has an open-ended goal, namely, getting bigger.

Dentons’ global CEO Elliott Portnoy told the Wall Street Journal, “There is no logical end.” That echoed global chair Joseph Andrew’s remarks in an earlier article: “We compete with everyone. We compete with the largest law firms in the world and the smallest law firms.” Combine those two thoughts from the top of Dentons’ leadership team and it sounds like an effort to be all things to any and all potential clients.

“We’re going to be driven by our strategy,” Portnoy told the Journal. Even so, it looks like the strategy is growth for the sake of growth — a dangerous path. But as Andrew put it, they’re out to prove everybody else wrong about the perils of that approach: “What we’re trying to do is to take these myths that have gathered in the legal profession and say (they’re) not true.”

The Evidence Speaks

Andrew and Portnoy are fighting more than “myths.” Last year, the 2014 Georgetown/Thomson Reuters Peer Monitor Report on the Legal Profession devoted most of its annual report to the folly of growth alone as a business strategy. It begins by debunking the argument that increased size means economies of scale and cost savings:

“[O]nce a firm achieves a certain size, diseconomies of scale can actually set in. Large firms with multiple offices — particularly ones in multiple countries — are much more difficult to manage than smaller firms. They require a much higher investment of resources to achieve uniformity in quality and service delivery and to meet the expectations of clients for efficiency, predictability, and cost effectiveness. They also face unique challenges in maintaining collegial and collaborative cultures, particularly in the face of rapid growth resulting from mergers or large-scale lateral acquisitions.”

In addition to the quality and cultural issues discussed in my February post on the Dacheng deal, Dentons’ expanding administrative structure prompts this question: How many CEOs can a law firm have at one time? In addition to global CEO Portnoy and global chairman Andrew, Haidet will join four other current Dentons CEOs. Additional senior management will result from implementing the Dacheng deal.

Turning to the key question, the Georgetown Report notes, “[G]rowth for growth’s sake is not a viable strategy in today’s legal market. The notion that clients will come if only a firm builds a large enough platform or that, despite obvious trends toward the disaggregation of legal services, clients will somehow be attracted to a ‘one-stop shopping’ solution is not likely a formula for success.”

Compare that analysis to the Wall Street Journal’s summary of Dentons’ strategic plan: “[T]he firm hopes to become a one-stop shop for big corporations and small businesses alike.”

A Distraction?

The Georgetown Report’s most intriguing suggestion is that a law firm’s pursuit of indiscriminate growth can mask a failure of true leadership:

“Strategy should drive growth and not the other way around. In our view, much of the growth that has characterized the legal market in recent years fails to conform to this simple rule and frankly masks a bigger problem — the continuing failure of most firms to focus on strategic issues that are more important for their long-term success than the number of lawyers or offices they may have.”

As a way for law firm leaders to convince their partners that they have a strategic vision, the Report continues, growth is “a more politically palatable than a message that we need to fundamentally change the way we do our work.”

Drawing an analogy to Amity Police Chief Martin Brody’s line (delivered by Roy Scheider) in the movie Jaws, the Georgetown Report concludes, “For most firms…the goal should be not to ‘build a bigger boat’ but rather to build a better one.”

Dentons has already built an enormous boat and, as Portnoy said, “There is no logical end.” Someday soon we’ll know if it’s a better boat, and whether it even floats.

ART, LIFE, AND THE GOOD WIFE

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The writers of the hit television series, The Good Wife, are onto something. Recently, Alicia Florrick and several senior associates left Lockhart & Gardner to form a new firm. They took a big client with them.

Art imitates life

One scene in particular is a reminder that fiction can reveal profound truth. Sitting in his office, Will Gardner concludes that Florrick and other former colleagues betrayed him just by leaving. He resolves that he’s going to get even by making his firm the biggest in the country: “I’m going to destroy the competition.”

Gardner wasn’t looking for a few talented attorneys who would serve particular client needs while enhancing the culture of his institution. He wasn’t seeking to shore up an area of lost expertise. He wasn’t even pursuing growth because it would benefit his firm financially. Rather, he wanted to preside over a big firm that would be significant – even intimidating – solely because of its bigness.

He instructed fellow partners to target rainmakers at other firms as potential lateral hires, announced the opening of a New York, and rolled out the firm’s new logo — “LG.” He wanted growth for the sake of growth. No other plan. No strategic vision. No institutional mission beyond getting bigger.

Real-life managing partners wouldn’t be so stupid, right?

Many large law firms are making news with their efforts to grow. This phenomenon is somewhat perplexing because law firm management consultants have reported for a long time that there are no economies of scale in the practice of law. In fact, they say, maintaining the infrastructure necessary to support growth pushes the bottom line the wrong way.

But in today’s no-growth era, many managing partners worry more about the top line. They want to acquire books of business through aggressive lateral hiring of other firms’ rainmakers and, in some cases, the ultimate lateral event – merger with another firm.

A path to where, exactly?

For the profession overall, the lateral hiring/merger craze is a zero-sum game. For individual firms asserting that clients somehow drive the process, it’s dubious at best.

“I’m pretty skeptical about the value these big mergers give to clients,” IBM’s general counsel, Robert Weber, said recently. “I don’t know why it’s better to use a bigger firm.” And that’s from a guy who spent 30 years at Jones Day — one of the biggest law firms in the country — before joining IBM seven years ago.

In The Good Wife, creating a big firm is part of Will Gardner’s personal vendetta. In the real world, vindictiveness isn’t the reason that most managing partners build bigger firms. But personal ego is often part of the equation. Many leaders see themselves as modern-day versions of Alexander the Great. The desire to stand atop an empire is irresistible.

In the coming weeks, Gardner will probably press ahead to create a large enterprise where name recognition alone confers an illusory prestige. Even if his fellow partners are inclined to question or, God forbid, disagree, they won’t speak up.

If Alicia Florrick were still there, she might have had the courage to challenge him. After all, she and Will had a steamy affair and her husband is now Illinois Governor-elect. But Alicia is gone and Will rules his firm with an iron fist, bare and unadorned with a velvet glove. At Lockhart & Gardner — as at many big firms – dissent is not a cherished partnership value.

There’s one more interesting aspect of Gardner’s battle cry. He hasn’t learned from his mistakes. In season two, Lockhart & Gardner merged with Derrick Bond’s Washington, DC firm. The clash of cultures and personalities nearly destroyed Gardner’s firm. Like all talented lawyers possessing the skill to distinguish away adverse precedent that doesn’t suit their current views, Gardner must think that this time will be different.

Luckily for him, Lockhart & Gardner is fictional. Notwithstanding his poor leadership decisions, the writers can craft a story line that will keep him and his firm going until the show’s ratings fall. Some real law firms won’t be as fortunate.

ANOTHER BIG LAW FIRM COMBO?

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You might think that the leaders of SNR Denton would pause to take a breath after completing the firm’s March 2013 merger with Paris-based Salans and Canadian-based Fraser Milner Casgrain. But according to published reports, almost immediately after closing the Salans/FMC deal to become a 2,700-lawyer mega-verein, Dentons began discussions to add yet another contingent — McKenna Long & Aldridge and its more than 500 attorneys.

As I wrote almost a year ago, the leaders of what had been SNR Denton boasted that they had used no strategic legal consultants or advisers in the process that led to its French-Canadian three-way. But they did have “branding and advertising advisers” who recommended the entity’s new name, Dentons.

I don’t know if Dentons’ leadership is getting advice on its current potential merger, but if it goes through, the McKenna Long & Aldridge brand seems likely to disappear — as did Sonnenschein’s, Salans’, and Fraser Milner Casgrain’s. Then again, the Luce Forward Hamilton & Scripps brand disappeared after its 2012 merger with McKenna Long.

The venerable McKenna Long brand won’t be the only casualty. The combined firm would have two offices (each with a significant number of lawyers) in five cities: Washington, Los Angeles, San Francisco, New York, and Brussels. In touting the prospect of creating the world’s third’s largest law firm of more than 3,100 attorneys, no one is estimating the number of likely near-term departures.

Who is being served? Clients?

The rhetoric accompanying most big law firm combinations is usually the same. In response to inquiries about its discussions with McKenna Long, Dentons issued this statement: “Since creating Dentons earlier this year, we have been very clear in our determination to always deepen our capabilities to serve clients in the U.S. and around the world.”

But clients aren’t asking their outside law firms to join with other firms. In fact, most clients understand that no single firm (or collection of firms in a verein) could or should house every attorney most appropriate for their needs throughout the country, much less the world.

Who is being served? Partners of the merging firms?

Perhaps the prospect of financial gain for individual partners underlies the Dentons/McKenna Long discussions. For the Dentons partners who haven’t yet lived through a full year since the Salans/FMC combination, that suggestion seems like a triumph of hope over what is, at best, profound uncertainty.

Maybe the myth that economies of scale accompany the growth of law firms is driving this deal and others that have preceded it recently. But according to law firm management consultants Altman Weil, getting bigger doesn’t make law firms more efficient. It usually works the other way.

On the McKenna Long side, the financial motivation is even less evident. According to the 2013 Am Law rankings, the firm had 2012 average partner profits greater than SNR Denton’s ($930,000 for McKenna Long v. $785,000 for SNR Denton prior to the Salans/FMC merger), along with a better profit margin (26 percent v. 22 percent).

Maybe McKenna Long partners are relying on the verein structure of the combination to preserve their relatively superior economic position. After all, individual firms in a verein retain their financial independence. But as Edwin B. Reeser and Martin J. Foley suggest in their recent article on undisclosed fee-sharing agreements, that structure could also be creating thorny ethical complications when client referrals across member firms within a verein become factors in compensating partners.

Who is being served? Empire builders

For many big firm leaders, growth has become a stand-alone strategic objective. How many of them remember Steven Kumble’s similar view?

Kumble presided over an explosive expansion that, by 1986, made Finley Kumble the second largest firm in the world. As Kumble erected his firm’s global platform from 1977 to 1986, a fellow partner asked him why his goal wasn’t to create the best firm, rather than the biggest one.

Kumble replied, “When you’re the biggest, everyone will think we’re the best.”

He was wrong. As Finley Kumble became one of the biggest firms, no one ever thought it was the best. Through acquisitions of other firms and aggressive lateral hiring of rainmaker partners, Kumble promoted a culture in which money became the glue that held things together — until it didn’t.

In December 1987, Finley Kumble dissolved and its brand became a symbol of monumental law firm failure.