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March 11, 2010 12:49 PM

Howrey's Looming Partner "Layoffs"

Posted by Zach Lowe

Over the past couple of weeks, we've talked to a half-dozen sources close to Howrey who say the firm has plans to cut at least 20 partners and possibly as many as 30. So we weren't caught totally off guard when Robert Ruyak, the firm's managing partner, confirmed just that in interviews published on Thursday both here and in the U.K. publication Legal Week

As we've reported before, profits per partner at Howrey dropped 35 percent, to about $846,000 in 2009. Ruyak had prepared the firm for a tough year, but Howrey still wound up missing its budget projections by a significant margin, according to our reporting. Two sources familiar with the matter tell us that Howrey fell between 5 and 6 percent short of expected revenues, and that the firm's numbers were worse than Ruyak anticipated when he briefed several partners on the state of the firm last fall.

One former partner who preferred to remain anonymous tells us that Howrey had a "credibility gap" during his time at the firm, citing Ruyak's pledge to partners that the firm's 2009 financial performance would be better than it ultimately proved to be. In an interview Thursday morning, Ruyak declined to discuss specific numbers but said the twin decisions to offer clients discounts on hourly rates while extending payment deadlines had combined to create a a larger-than-expected drop in Howrey's realization rate. 

Two sources close to Howrey, including one still at the firm, say Ruyak took responsibility for the firm's 2009 performance at an all-partners meeting on January 19. In that meeting, held by videoconference, Ruyak explained the decline in profits and vowed to restore the firm to financial health, in part by continuing to hire good laterals.

Ironically, the acquisition of high-profile laterals--including a construction group from the now-defunct Thelen and Gary Bendinger, whose lucrative client list includes KPMG and other auditors--created internal client conflicts that hurt some partners, according to two sources familiar with the matter. In an interview Thursday, Ruyak acknowledged as much, but said that firms routinely make such trade-offs in planning for the future.

In the meantime, Howrey has hired the outplacement firm Shannon & Manch to help up to 30 partners find new work, according to our sources. Shannon & Manch officials declined to comment when we contacted them earlier this month. Ruyak tells us that the hope is to keep the partners at Howrey until helping them land elsewhere. Even those who essentially leave the firm to focus full-time on finding a new job will get to keep their profiles on Howrey's Web site for an undetermined period of time while seeking a new professional home, according to Ruyak and two other sources we've spoken with. 

As an example of a possible destination, Ruyak cited Novak Druce + Quigg, a California firm founded by former Howrey partners that might be able to swallow up lawyers from Howrey's trademark prosecution practice--a practice the firm no longer deems a great fit, Ruyak says. Katherine Basile, a Howrey partner who joined Novak last month, did not immediately return a call seeking comment. 

The plan, Ruyak says, is to ease all the partners into new jobs and position Howrey for a fast recovery. The firm has already set up an apprenticeship program for first- and second-year associates that has won raves from in-house counsel, and Ruyak believes Howrey can thrive by better focusing on its core litigation practices, he says.

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Quite a few firms should follow suit: Pillsbury comes to mind...

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