Partners Under Pressure : Workplace: Law firms are changing their collegial ways. They're becoming like any other business, showing fiercer loyalty to the bottom line than to partners.

TIMES STAFF WRITER

C'mon now, you didn't really think the scriptwriters for "L.A. Law" could just make up all that stuff, did you?

Inside real law firms all across the country there's high drama being played out, the likes of which have kept TV's fictional McKenzie, Brackman in turmoil for several seasons. New partners are brought in solely for their ability to lure clients, while long-time partners stalk out, their own client lists in hand. Nonproductive partners get shoved out the door. Associates who are pushed off the coveted partnership track either cut deals to stay with the firm or hit the streets looking for scarce jobs. Everyone sues everybody else. And once-stable law firms collapse under the weight of infighting.

Gone are the collegial ways. Firms are rewriting the definition of a partnership and charting profound changes in the practice of law. It's becoming more and more like any other business, showing fiercer loyalty to the bottom line than to its traditions and greater affection for performance-based rewards than for longevity. Firms are hiring and firing in fits and starts; young lawyers no longer develop allegiance to their firms, and many older lawyers are questioning their commitment to a changed profession.

During the 1980s, many law firms prospered by being responsive to the economy and acting more like the corporations they served. They, too, expanded, merged, raided, and, most notably, drew in phenomenal sums of money. By the end of the decade, it was not unusual for a senior partner in a top firm to make more than $1 million a year.

But now, in the chill of the recent recession, the changes and the partnerships that have made them are being sorely tested. The days of escalating fees have been replaced by legal "bake-offs"--competitive bidding for jobs. Law firms are hiring their own marketing staffs to help promote them in the tight market. Some have failed--often just as spectacularly as they had earlier appeared to succeed. In Los Angeles already this year, three notable Century City firms have broken up; more dissolutions, bankruptcies and receiverships are predicted throughout the country.

Some, both in and outside the legal profession, welcome such changes, including clients eager to reduce their legal costs. Steven Brill, publisher and editor-in-chief of the American Lawyer and several other law journals, long has been nagging law firms to scrap their collegial ways and act more like businesses. Other proponents of the changes say that in the course of being more responsive to economic realities, law firms have also become more attuned to society's needs, particularly by making room for women and minorities.

Yet others who practice, teach and study the law are worried that, ultimately, the legal system and the public interest will suffer. "These (changes) seem invisible but can have huge implications for society," said Robert L. Nelson, a lawyer, sociologist and member of the American Bar Assn. Foundation.

Nelson and others worry that the devotion to the bottom line creates greater conflict between the lawyer's dual roles as representative of the client and an officer of the court. David Wilkins, assistant professor of legal ethics at Harvard Law School, said that as law firms move from long-term relationships with clients to piecemeal work earned in competitive bidding, there is more pressure for them to give advice that the clients will like--and that may not be in the public's best interests.

Always before, Wilkins said, part of the role of an attorney was "to attempt to encourage clients to conform their conduct to the broader rules and regulations" of law and society. This ethic is endangered, he said, "as law firms become more and more competitive and more and more emphasis is placed on how many dollars the lawyer brings in."

Critics have charged that in the savings and loan crisis, for example, attorneys ignored their ethical obligations by helping put together deals and structures that were beneficial to their clients, but which bent regulations and eventually cost depositors and taxpayers. In the past year, the federal government has brought about 50 cases against lawyers and law firms, including the large, powerful firm of Jones, Day, Reavis & Pogue of Cleveland, in connection with the crisis and is investigating other possible suits.

The transition of the legal profession had its roots in the 1970s in the large law firms and accelerated in the 1980s with the mergers and acquisition spree and huge real estate deals. In recent years, the changes have been filtering down to the medium-size and small firms and moving from the East Coast to the West.

Their big clients were expanding through takeovers, creating new forms of financing and then shedding unprofitable assets, and law firms rushed to keep up. They moved into new cities like fire ants on the march, gobbling up office space, groups of attorneys or other firms and shedding their own nonproductive assets.

One New York firm led the charge into the new era and was among its first victims. Last known as Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, the firm had changed partners and its name so often that only the nimblest could keep up. But the rest of the profession nervously watched as Finley Kumble practiced partner- and client-raiding as if it were a martial art.

It drew in big deals and big clients, and big partners--such as Robert F. Wagner, former mayor of New York, Hugh L. Carey, former governor of New York, and Paul Laxalt, former Nevada senator. Finley Kumble fueled its rise in the mid-1980s on rapid expansion and borrowed money, but in 1988, Finley Kumble crumbled into bankruptcy, buried in debt and acrimony.

Partnership battles were part and parcel of the Finley Kumble legacy. But the model for the in-house squabbles on "L.A. Law" in the past few seasons was Los Angeles' own Wyman, Bautzer, Kuchel & Silbert, a powerful, high-profile entertainment-law firm.

This year, Wyman Bautzer became the best known of Century City breakups when it filed for dissolution in February; many say the dissolution was the smoothest way to end Wyman Bautzer's latest partnership struggle and capped a long downward spiral that began in 1987 with the departure of prominent partner Terry N. Christensen.

Christensen originally left to work directly with MGM mogul Kirk Kerkorian. But in 1988, he founded another firm with a dozen other Wyman Bautzer attorneys and took most of Kerkorian's business. Christensen's new firm even sued to dissolve Wyman Bautzer. When the legal tangle was sorted out, Wyman Bautzer had won the suit but lost its future.

All over the country, lawyers with "hot" specialties or clients were getting star treatment and astronomical pay. Junk bond-financed mergers and acquisitions were generating huge fees; the $25 billion RJR Nabisco leveraged buyout pumped more than $50 million into about 10 law firms in just a few months.

The boom was also felt in the lower ranks as big law firms hired greater numbers of beginning lawyers, competing with ever-increasing starting salaries for the top graduates of the top law schools.

Even firms not handling big mergers felt the impact and jacked up salaries to attract high-quality summer interns and graduates. On the East Coast, first-year associates can command salaries of more than $80,000 a year. California firms--traditionally a step below the elite Wall Street firms--began notching up their salary scales as well. At Gibson, Dunn & Crutcher of Los Angeles, the state's largest firm, first-year salaries rose to $75,000.

But the job and salary escalator has halted. This year, law firms and law school placement offices alike say firms are cutting back on their recruiting and hiring. First-year salaries are being held steady and in some cases being eased back. Legal recruiters, the help-wanted agents for the profession, are being swamped with attorneys desperate for jobs.

Today, clients can't, or won't, sustain law firms' bloated structures and the exorbitant fees to support them. Corporations, in search of relief from charges that at some firms top $600 an hour, are breaking long-term relationships with legal representatives, beefing up in-house counsel staffs and putting their outside jobs up for bid.

Partner profits are being squeezed. "It's clear to me that unless firms do something very Draconian, the partners are simply going to make less money in the early '90s than they did in the late '80s," said Ronald S. Beard, managing partner at Gibson Dunn.

Although the financial structure of law firms varies from firm to firm, generally associates are paid salaries and partners, as the shareholders, divide up the profit. Senior partners may control as much as 99% of the firm, and it may be many years--or never--before junior partners build up enough equity or status to rise to the ranks of senior partnership.

American Lawyer, which tracks earnings at the country's biggest law firms, said that in 1990, profits dropped, sometimes by double-digit percentages, at firms that were major players in the mergers and acquisitions spree. Included were Cravath, Swaine & Moore, where senior partners' individual profits fell to a reported $1.5 million; Sullivan & Cromwell, down to $1.1 million; Skadden, Arps, Slate, Meagher & Flom, down to $975,000, and Davis Polk & Wardell, down to $990,000.

Michael Cavanaugh, chairman of San Francisco-based Graham & James, said the big earners at East Coast firms "may just have to learn to live again on a six-figure salary."

But many firms are looking to halt the decline in profits, and one of the first targets has been the swelling ranks of associates. Layoffs are sending thousands of associates into a tight job market. Many firms have avoided widespread layoffs but are still cutting back. Skadden Arps, for example, earlier this year said it would reduce by 100 its 1,100-strong lawyer staff through attrition and by urging less-productive attorneys to leave.

Associates who don't get the ax are finding tougher times inside their firms. It used to be an "up-or-out" system; associates either made partner at the end of a five- to seven-year track, or they were asked to leave.

The modern partnership track is vastly different. Typically, it's eight to 10 years long now. There are different, higher hurdles. Many associates opt off early, and there are options for those who stay but don't complete the course.

The days of "lock-step" partnership tracks are gone, said Carol Kanarek, head of the New York legal recruiting and placement firm of Kanarek & Shaw. In many New York firms, the chances of making partner have fallen to only one in 20.

"The expectation of an automatic opportunity for partnership is gone, gone, gone," said Kanarek.

Many of the changes can be traced back to money: Partners at East Coast firms began balking at elevating $125,000-a-year associates to the millionaire club. They began devising alternatives to keep them in the firm but at a lower cost.

When partners' profits reach the $1-million-plus range, they are "reluctant to promote senior associates because they would have to pay them an enormous amount of money," said Cavanaugh of Graham & James, where the top partners among its 400 attorneys make annual profits of about $250,000. The reluctance remains now that revenues are not growing, or even are shrinking; too many new partners would mean a much smaller share of profits for those already in the inner circle.

There are new demands on would-be partners. While technical ability is still expected, more emphasis is on an associate's ability to generate business (often called "rainmaking"), the number of hours worked that can be billed to clients and how well a specialty meets today's demands.

Bankruptcy and environment law are hot these days. "Merger and acquisition work might have made you a partner in 1985; this year, it's likely to get you laid off," Kanarek said. "The only way a job in private practice is secure today is through an ability to attract and retain business."

Increasingly, firms have been creating alternative career paths for associates who aren't accepted into full partnership. Some are kept on with a new title, such as "senior associate."

Other firms have instituted a curious rank called "contract," "salary" or "non-equity" partner in which the attorney has been given the status and in some cases the authority of partnership, but is excluded from a share in the profits and often from making decisions about how the firm is run.

In the past two years, more than 60 large firms have formally instituted such alternatives. But several are leery of creating a non-equity partnership class, fearing that it carries a stigma for the attorneys and will cause morale problems. Michael L. Klowden, managing partner of the Los Angeles office of Morgan, Lewis & Bockius, a large Philadelphia-based firm, said: "There's still a feeling (among Morgan Lewis partners) that that second class becomes a dumping ground and that those people might be better off if they pursued other opportunities."

Indeed, few non-equity partners are open about their status. "I'm not anxious to be identified," said a non-equity partner at a law firm on Los Angeles' Westside. "Right now, to the outside world, there's no difference in how they view me. But if there are different levels of partnership, people might feel there must be something different about you, that you're not as vested or as involved, that you are 'less' of something or another."

Critics often call the alternative careers "the mommy track." They warn that it will become a new, and more acceptable, way of ghettoizing women, who now make up nearly 45% of all law school graduates.

"I think there's a real danger of that," Harvard's Wilkins said. "If you look at the part-time (jobs) and non-equity partnerships, there's a tendency for women to be concentrated in these areas. But there are many women and men who would like to find alternatives to the incredibly high-pressure demands of large corporate law firms in order to work out a more sensible, rational approach to both work and family."

Recruiter Kanarek sees the other side. "Some people with those kinds of positions have greater job security--not as much opportunity for advancement, but greater security," she said. "I see large numbers of men and women who say they don't care whether they have a shot at partner. They just want something secure."

These days, even partnership isn't a guarantee of security. "For the first time ever," Kanarek said, "unproductive partners are being asked to leave firms."

Though many in the profession express shock when partners are unceremoniously booted out, "it's only startling if the model is the old law firm," said Gerry Singsen, director of the Program on the Legal Profession at Harvard Law School.

In that traditional model, partners carried each other through lean times. Now, Singsen said, law firms operate more on classic market system and "the tradition of gentility is largely gone."

Stephen Beigenzahn, a 41-year-old attorney, mourns the loss of such traditions. Beigenzahn is a partner at Buchalter Nemer Fields & Younger, a firm that has been convulsed by additions, defections and layoffs of support staff in recent months.

"What is problematic is the thinking that you ought to get rich as a lawyer, the concern for maximizing the bottom line and ignoring the considerations that made it a profession rather than simply a business," said Beigenzahn. "Things such as collegiality, training and growth of young lawyers and integrity--the idea that you ought to give something back to the community."

Beigenzahn has resigned and will be leaving his firm in a few months, though not, he said, with client list in hand. He hasn't decided what to do next.

"I lament the changes in the profession . . . (and) as much as I have learned from this different environment, my inclination is to say this doesn't suit me anymore," he said.

Law Profits Leading law firms based on estimated 1990 revenues, ranked by profits per partner

1990 profits Pct. change Firm per partner from 1989 Cravath, Swaine & Moore, New York $1,550,000 -12% Sullivan & Cromwell, New York 1,115,000 -12% Davis Polk & Wardwell, New York 990,000 -12% Skadden, Arps, Slate, Meagher & Flom, New York 975,000 -18% Simpson Thachter & Bartlett, New York 895,000 -12% Shearman & Sterling, New York 860,000 + 8% Fried, Frank, Harris, Shriver & Jacobson, New York 700,000 -14% Latham & Watkins, Los Angeles 650,000 - 3% Gibson, Dunn & Crutcher, Los Angeles 560,000 -13% Sidney & Austin, Chicago 380,000 - 5%

Source: American Lawyer

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