October 15, 2010 11:30 AM

The Ghost of Finley Kumble

Posted by Ed Shanahan

By Steven Harper

"I just don't see the need to cram two firms with around a thousand lawyers [each] together. It made no sense," one Akin partner reportedly told The National Law Journal shortly after the collapse of merger talks between Akin Gump and Orrick.

The number of law firm mergers in 2010 is down from recent years, but look at the headliners among the ones that were realized or still are in the talks phase: Sonnenschein – Denton; Hogan & Hartson – Lovells; Reed Smith – Thompson & Knight; Orrick and anyone. An earlier consolidation wave produced K&L Gates, DLA Piper, Bingham McCutcheon, and others.

How much of this activity proceeds from the overly simplistic premise that bigger is always better?

When I was a young partner in my large firm, Finley Kumble became a disaster that struck fear in the hearts of big-firm expansionists. During the early 1980s, Finley rocked the legal world as it signed up high-profile figures and raided other firms' superstars, some of whom earned the then-staggering sum of $1 million annually. From only eight lawyers in 1968, Finley became the nation's second largest firm by 1985.

It promoted itself as a national powerhouse run on principles of meritocracy. The more business a lawyer generated, the more money he or she took home. Money was the glue that held the partnership together. Does that sound familiar?

But Finley grew too fast, assuming debt for office expansions and promising outsize paychecks to big-name lateral hires. (In a September 1987 feature, The American Lawyer broke the story that the
fast-growing firm was laden with debt and was borrowing against its receivables through a dummy corporation that bought them with loans guaranteed by the firm. Click here to download a PDF of that story.) As revenue dollars dwindled, the firm disintegrated. With more than 650 attorneys at the time of its dissolution in 1987, it was still one of the nation’s largest firms.

The ghost of Finley Kumble haunted large law firm leaders for years. Some saw its end as confirming that even large, diverse firms possessed their own identities. Mixing cultures through aggressive recruitment of name players with portable practices was a mistake. Others concluded that senior attorneys and their egos couldn’t survive as a single cohesive unit if their sole point of intersecting common purpose was greed. Still others saw the failure as an inevitable consequence of unrestrained growth. Finley proved that there was a limit on the size that any healthy large law firm could attain. No one knew the outside boundary with certainty, but crossing it was fatal.

What did today's large law firm leaders learn from the lessons of Finley Kumble's demise? Probably very little. After all, lawyers excel at distinguishing away precedent that undermines their preferred positions.

In that respect, modern proponents of growth through merger and high-profile lateral acquisitions can point to many differences between Finley and today's firms. For example, the use of MBA-type metrics that focus on short-term profits at the expense of nonmonetary values is now pervasive throughout big law. In that respect, the earlier potential for cultural clashes has diminished as current year equity partner profits have become the universal coin of the realm. Likewise, lateral movement at all levels — especially among rainmakers who were Finley Kumble's signature recruits — has become commonplace. Indeed, the legal world has become more hospitable to Finley's central mission and modus operandi.

It would be interesting to hear from former Finley attorneys on the question of how today's large firms differ from what their old firm once was. Perhaps Finley was just ahead of its time. Or perhaps some major players in big law are about to see their times change. Or maybe the large-firm segment of the profession is proceeding toward the same countdown that big accounting firms have already experienced: From Big 8 to Big 6 to Big 5 to Big 4... and the race is on to be one of those few.

Here's the key question: Who benefits in the long run from the rise of megafirms? Management consultants embrace strategic mergers producing scale economies that supposedly benefit clients and equity partners. Perhaps they are correct. But who considers whether hidden costs include undermining community, exacerbating attorney dissatisfaction, or imperiling broader professional values?

Personally, I enjoyed the time when I recognized most of my equity partners at the firm's annual meetings. Who is willing to develop or consider a metric by which to measure that?

 

Steven J. Harper is an adjunct professor at Northwestern University. He recently retired as a partner at Kirkland & Ellis, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at www.thebellyofthebeast.wordpress.com. A version of the column above was first published on The Belly of the Beast.

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