1	The RISE and FALL of the Brobeckian Empire….. And other stories of law firm failures, presented by: Stephen M. (Pete) Peterson Managing Director Law Firm Business Institute Minnesota State Bar Association March 19, 2003
2	Session Contents Factors influencing law firm trends today Brobeck—its success and failure Common characteristics of failed firms Other warning signs of firms in trouble What to do—how firms can be proactive
3	Challenging Times for Law Firms Competition Consolidation Commerce Pace of change Increasing costs Pressure on fees Free Agency Partners
4	Competition is Becoming Increasingly Unconventional Market is eroding: In-house legal departments Boutique firms MDPs, Big 5, 4, 3, 2, 1 ? Consulting firms eLawForum Bombay
5	Preliminary Autopsy Results Columnist for The Connecticut Law Tribune stated that there are 3 underlying causes of law firm death: Death by debt. Death by divisiveness. Death by defection. Debt is an aggravating circumstance—not the cause.
6	Brobeck-the Best of Times Under the leadership of Tower Snow Incredible focus on high-tech companies—to be the premier firm representing this segment Injected a much needed dynamic to law firm planning For its clients Ranked #1 law firm by the nation’s top 50 technology companies Hit the strategy and marketing bull's-eye For its partners Profits per partner 1999-44% increase 2000-56% increase, to $1.17 million (most of any California firm)
7	Brobeck-the Best of Times For its staff In 2002, Fortune ranked firm among the 100 best companies to work for Although some critics question propriety and methodology of survey Over 900 attorneys at its peak; 15^th largest U.S. firm in terms of gross revenue
8	Then, the Worst of Times Collapse of the market and economy
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11	Brobeck’s Fall Lack of positioning and investment in other practice areas and market sectors Rubbernecking consultant speak: “Of course, I saw this coming.” “Live by the sword, die by the sword.” “Don’t put all your eggs in one basket.” The firm’s debt—not the cause but aggravated the underlying problems
12	“Law firms are using leverage more than permanent capital to finance growth.” Stunning conclusion reached by Citibank after reviewing results from its own Law Firm Survey
13	Brobeck’s Fall Instead of retrenching or changing its focus, the firm continued to spend Tower Snow would not resort to layoffs Costly 2001 TV advertisements on CNN Expansive and expensive new facilities in P.A., S.D. and N.Y.C. August 24, 2001 Cooley Godward lays off 60 associates September 11, 2001—Brobeck executive committee stuck in Colorado Succession plans were incubated on the long drive home November, 2001-Chairman Tower Snow steps down…ousted by partners in May, 2002; takes 17 partners to Clifford Chance
14	Brobeck’s Fall New leadership was ineffective Partners were not kept informed More partners leave --taking clients with them 60 partners left prior to collapse Resulting in significant revenue loss Making more than 170 associates redundant The firm needed an earlier downsizing as a measured reaction to the economy This would have broadcast a strong message that good management was in place And that the situation was under control Instead of the highly publicized infighting
15	Brobeck’s Fall Last ditch merger discussions First with Hogan & Hartson then with Morgan Lewis Talks with Morgan Lewis broke off on January 29; firm announced closure 2 days later Morgan Lewis saw many difficult hurdles (debt, future financial performance, free agency partners, etc.) Morgan (and others) then scooped up the cream The parts worth more than the whole Firm also erred during the merger courtship Last days were described a as total meltdown. “I have great confidence that it will be a nasty, ugly fight.”
16	Other Notable Failures (recent failures as of March 1, 2003) California Lyon & Lyon Skjerven Morrill Boston Hill & Barlow Gaston & Snow NYC Shea & Gould Finley Kumble Lord Day Seattle Bogle Gates Minnesota Popham Haik Doherty Rumble Texas 15 mid-sized firms in 2001 alone Chicago Peterson and Ross Keck Mahin & Cate
17	The key thing that makes national law firms work is synergy; with the right combination, one and one make three. -Steven Kumble Finley, Kumble, et. al.
18	Not Just a U.S. Phenomena Recent poll of 100 managing partners in the U.K. Over one-third of respondents expect a significant failure or two this year
19	Common Characteristics of These and Other Firms in Trouble Ineffective leadership And poor succession planning Lack of strategy and/or failure to execute on strategy Including reassessments Poor compensation policies Lack of trust among partners Internal bickering Cultural imbalance Internal versus external focus Excessive client loyalty to individuals
20	Greed is a Significant Factor
21	Other Classic Warning Signs Owners acting like employees 9 to 5 mentality Lack of cross-selling Slowdown in new file openings Partners hoarding work Significant increase in aging of WIP and accounts receivable Same for accounts payable
22	What to Do? Have a clear strategy and implementation plan Perform an economic assessment—determine what resources are needed to service current client base Hold partners accountable for their performance or lack thereof—meaning something good or bad happens Maintain a good chemistry of core values (culture of trust, common philosophies, similar work ethic)
23	What to Do? Loss of jobs and benefits all affect morale--it is essential that management remain upbeat and keep focused on the practice Reassess your strategy—review practice segments and mix in anticipation of changing market conditions Place greater emphasis and investment on professional development activities
24	What to Do? Careful review of laterals—it’s not just about economics—it’s about culture Work on client relationships—your clients want you to know their business And treat them as “Firm” clients
25	“There’s no substitute for talking, for visiting clients to find out what we’re doing right, what we’re doing wrong, where the marketplace is going, and what their needs are going to be.” Debora de Hoyos Mayer Brown Rowe & Maw
26	What to do--Consider an Ancillary Business?
27	Closing Thoughts
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29	Opportunity for Follow-up Law Firm Business Institute Stephen M. (Pete) Peterson Managing Director pete@lawfirmbiz.com T: 303.981.1118 (Denver) T: 970.626.2226 (Ridgway)