February 18, 2011 12:00 PM

Howrey's Lessons

Posted by Steven Harper

If Howrey disappears, most big-law leaders will make distinctions; they'll focus on how their organizations are different from Howrey. More interesting are the similarities, especially the universal forces that might render others vulnerable to the highly respected firm's current plight.

First is the speed with which events can overtake seemingly secure institutions. On May 19, 2008, Legal Times hailed Howrey's chairman Robert Ruyak as one of the profession's "Visionaries."

In the 30 years prior, Ruyak's career enhanced Howrey's reputation and the business of law in Washington, D.C.. But on February 1, 2011, he and Winston & Strawn managing partner Thomas Fitzgerald together urged Howrey partners to act quickly on Winston's offers to hire about three-quarters of the lawyers. The big-law world can rapidly take a dramatic and unexpected turn.

Second is the way unprecedented demand for large law firm services combined with the prevailing business model to create enormous financial paydays that became even larger as firms grew. When Ruyak became chairman in January 2000, Howrey ranked near the middle of The Am Law 100 in average profits per equity partner (PPP) of $575,000. It had 325 attorneys; 89 of those were equity partners.

Ruyak's strategy targeted growth in three core practice areas: antitrust, IP, and litigation. As Legal Times observed at the time, "To achieve that vision, Ruyak knew that the firm had to be bigger, so Howrey went on a merger spree." It added Houston-based patent firm Arnold, White & Durkee, acquired the antitrust practice of Collier, Shannon, Rill & Scott, and established European offices in London, Amsterdam, Brussels, Paris, Munich, and Madrid.

By 2006, Howrey had 555 attorneys; its 127 equity partners averaged $1.2 million each. After profits dropped in 2007, they soared by almost 30 percent in 2008--the biggest percentage revenue-per-lawyer gain in The Am Law 100 that year. Howrey's 2008 profits were $1.3 million per equity partner--an all-time high.

Third is the fragility that such financial prosperity created for the fabric of many law firm partnerships. When profits plunged 35 percent in 2009, Ruyak's partial explanation was that 2008 had been aberrational. Large contingency receipts accounted for much of that year's nonrecurring spike. The firm was stil "figuring out how to do [alternative fee arrangements] well."

Unfortunately, the revolution of rising expectations was underway; the short-term bottom-line mentality is an impatient and unforgiving two-edged sword. In 2000, Howrey had a clear identity and average equity partner profits of almost $600,000--seemingly sufficient to keep partners satisfied and any firm stable. Certainly, that amount far exceeded any current big-law equity partner's wildest financial dreams when entering the profession. A decade later, disappointing projections that the firm might reach only
80-90 percent of its $940,000 PPP target (or $750,000 to $850,000) fed rumors.

Heller Ehrman proved that lateral hiring and law firm mergers risk sacrificing firm culture in ways that inflict unexpected damage. I don't know if that has happened at Howrey, but when cash becomes king, partnership bonds remain only as tight as the glue that next year's predicted equity partner profits provide, assuming those predictions are believed.

That leads to a final lesson: leadership requires credibility. Only two weeks before the remarkable joint message from Ruyak and Fitzgerald, Howrey spokespersons insisted that all was well: "The amount of costs taken out of the firm at all levels--which includes leases, partners, associates, and the like leaving the firm--have made the firm much more efficient," vice-chairman Sean Boland said. "It's done wonders for our cost structure, such that we're going to see some major advantages in 2011. We're very
encouraged by the cost cutting that we've done."

Likewise, one of the firm's outside consultants said that the firm was "getting back to its strengths. What's happening at Howrey is largely by design."

Maybe so. But from this distance, the parade of top partner departures and Ruyak's involvement in Winston's outstanding offers make the design appear curious, indeed.

In May 2008, Legal Times concluded with a senior partner's observation that Howrey had become "a very exciting place to work." I suspect that's still true. As with most things legal, the definition is everything.

 

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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