• When Washington Grew Up

    Legal Times

    October 27, 2003 - In 1978, the District of Columbia's largest law firm had a little over 200 lawyers firmwide. Today, the biggest firms in the city are pushing 1,000 lawyers. And over the past 25 years, Washington has become a magnet for out-of-town firms of all kinds—drawn by burgeoning and reliable work generated by the federal government and its growing presence in business and culture. To mark 25 years of covering law, business, and government in the nation's capital, Legal Times on Oct. 7 assembled a panel of managing partners to step back and discuss how the D.C. legal profession has changed and where it is headed.

    The panel had representatives of a variety of law offices in the D.C. area. Two of the participants are managing partners of firms founded in D.C. (William R. Charyk of Arent Fox Kintner Plotkin & Kahn and J. Warren Gorrell Jr. of Hogan & Hartson), while two others run local offices of firms that came to Washington from other cities (John L. Ray of Los Angeles' Manatt, Phelps & Phillips and Judith L. Harris of Pittsburgh's Reed Smith). The fifth managing partner offering his views was Thomas J. Cawley, a veteran Northern Virginia lawyer who also runs the McLean office of Richmond-born Hunton & Williams.

    The event, held at the Ronald Reagan Building and International Trade Center before some 100 audience members, was sponsored by Beers & Cutler, the CBF Group, Newmark, the Sage Solutions Group, and the SunTrust Legal Practices Group. What follows is a transcript of the discussion, edited for length, clarity, and space.

    —The Editors

    Participants

    Moderator: Richard Barbieri, editor in chief, Legal Times
    Thomas J. Cawley, managing partner, McLean, Va., office of Hunton & Williams
    William R. Charyk, managing partner, Arent Fox Kintner Plotkin & Kahn
    J. Warren Gorrell Jr., managing partner, Hogan & Hartson
    Judith L. Harris, D.C. market managing partner, Reed Smith
    John L. Ray, D.C. office administrative partner, Manatt, Phelps & Phillips

     


    The March on Washington

    Richard Barbieri, Legal Times: Let's start by tackling the broadest question: What was happening in the late '70s and early '80s that caused Washington to become a magnet for law firms — for out-of-town firms especially?

    J. Warren Gorrell Jr., Hogan & Hartson: The role of the federal government was expanding at that time and has continued to grow. And as firms have adopted more strategic thinking in trying to have national and international platforms, as Bob Glen Odle, my predecessor, was quoted as saying — and it didn't come across quite the way he meant it — "Every law firm in the United States with at least two lawyers had to have an office in Washington, D.C."

    And, frankly, it is the role that the federal government plays in so many different businesses that attracted people here, because they wanted to stay in touch with their clients and the other type of work that they were doing. Of course, we're the firm that was here, and actually, we've immigrated into many other places.

    Thomas J. Cawley, Hunton & Williams: Isn't it true that one of the reasons firms came from out of town to D.C. was that their clients more and more required attorneys in D.C., particularly in the area of environmental enforcement?

    And that's a strong impetus for the firms to get their own offices here as opposed to losing that business to a firm that was in D.C. already. That had some impact. Plus, it seems to me that lawyers tend to all want to do the same thing once they find out that the other one's doing it.

    John L. Ray, Manatt, Phelps & Phillips: Actually, the regulatory framework here started changing with the election of President Kennedy. It started in the '60s and it came on up through the '70s — from consumer legislation to environmental protection. And, as a result of that, companies were impacted in a way they'd never been before. And this really became a very lucrative practice and a lucrative market.

    When you talk about the growth of law firms, the growth of a law firm is really reflecting the growth of industries and mergers/acquisitions. That's part of the story.

    Judith L. Harris, Reed Smith: There was a sense, with the development of this large permanent federal government, that Washington was recession-proof. And that acted as a counterpoint to some of the old traditional law firms that went back 100, 125 years — in the case of my firm, in Pittsburgh. When iron was king and steel was king, there was no firm in the world like Reed Smith and no place to be like Pittsburgh. Firms started to look around for that recession cushion.

    And I believe a lot of the young people graduating from law school in the early to mid-'70s were gravitating toward Washington. There was a tremendous interest in public interest law and going into the government in the post-Vietnam era and just sort of changing the world and getting involved in policy, and that carried over.

    The Bigger Get Bigger

    Barbieri: This was all happening while — not just in Washington but everywhere — firms were getting bigger.

    Steve Brill wrote a famous story in The American Lawyer years ago predicting that the national legal scene would eventually be dominated by a handful of mega-firms.

    What is the place for the non-mega-firm in the Washington market today?

    William R. Charyk, Arent Fox Kintner Plotkin & Kahn: Being as how we're a non-mega-firm, I think that part of his thesis was either that you'll be very, very large or you'll be a specialty boutique, but if you're in the 200- to 300-person range, there really isn't a place for you. And I would, speaking from enlightened self-interest or self-aspiration, at least, say that that is a challengeable proposition.

    But a midsize firm does have to honestly take a look at what it does and not try to emulate 25 different practice areas. I think that a firm that wishes to remain in the 200- to 500-person size has to have a period of honest self-reflection — What is it really good at, and where can it measure up in quality, as well as quantity? — and realize that it's not a huge Wall Street firm. It shouldn't aspire to the sorts of client work that it's not realistically going to obtain.

    Gorrell: I think the point you made, Bill, is not really just one for a midsized firm. It's really for all of us. We need to look at the things that we do well, and not try to do things that we don't do well.

    That's something, at Hogan & Hartson, we spent a lot of time being focused on. There are a lot of things we do really well, and we're going to build on those, and we have built on them. And then there are some other things that we just said, "Look, we don't have to be a player in that business in order to have the best clients and to have a practice that's going to be interesting and rewarding."

    Cawley: There's also a limiting principle to how big firms can get — and that is conflicts. I know in the litigation area, it's difficult to get firms to waive conflicts when you're asking for permission to sue them on some other occasion. And in most practice areas, there are fewer and fewer big corporations in certain markets, and they are very jealous of their position, and they wouldn't want their law firms having anything to do with their competitors.

    Gorrell: Conflicts are a bigger problem for Washington-based firms than they are for firms headquartered in other places, because where you have a large number of different regulatory areas that you specialize in, you may work for a large company but only do a small piece of what they do. The challenge is, of course, to have a team-oriented culture where you can expand that.

    But unless you get advance waivers or you have clients that are quite understanding of this whole conflicts area, it can cause a problem. So we have more conflicts problems, I bet, than comparably sized firms headquartered in other places.

    Money and the Profession

    Barbieri: Has the role of money in the legal profession and the attraction of the profession as a payoff to wealth changed in your career?

    Harris: Because I came out of law school in the early '70s, in '73, I really don't think that money was a motivating factor. And indeed it was very hard for the large New York firms to be recruiting people at that point. People really wanted to take their law degrees and do something that mattered with those degrees.

    To this day, it's an interesting question. Although we've seen associates' salaries be driven way up, the trade-off between billable hours and salary is a perennial problem. Everybody wants to be making as much money as the next guy; they want to be compensated fairly.

    On the other hand, I rarely talk to anybody who wouldn't trade off a few extra dollars for a little bit more free time. How you accomplish that, I don't know.

    But I'm not sure people go into the profession now for money. It comes with making certain choices. I'm not sure that people wouldn't happily buy into a situation where they were making a little less.

    Barbieri: It does seem that a common theme in the profession is the unhappiness of the staff, right? Are the young people who work for you having less fun at it, even though they're being paid more than you were paid when you were doing it?

    Charyk: There is the phenomenon of great publicity associated with levels of compensation at the associate and partner level. And that has contributed to—I'll refer to it euphemistically as flexibility-in-one's-career or free-agent mentalities.

    Partner compensation is a topic that consumes hundreds of hours. It's one that, in the search for a fair system, something that Shakespeare described in "The Comedy of Errors," Act I: "Hopeless to find yet loath to leave unsought." And we spend a big chunk of every year thinking what new thing can we do that will somehow magically make everybody happy.

    Compensation probably plays a somewhat larger role than it did, simply because there's so much more information out there as to what someone might get with a comparable level of business in another firm. And whether the information is completely accurate or not is not really the issue; it's the perception. So we have that to deal with in terms of law firm management.

    Ray: If your question is, "Do folks go into law because they want to make money and they see it as a road to become wealthy?" the answer to that is yes. And I don't think it's something of the day. It's always been that way.

    But the trade-off now is that large law firms have become very conscious of what's going on around them. You go to any Web site and almost all of us are bragging about the pro bono work we do.

    That's good, but we all get in this business because we want to make money. We're motivated to do that, and if we weren't, we wouldn't have these billable hours we tell associates they have to do each year. It's a fact of life. And mergers and all those things are about protecting your market and being profitable and growing just like the other industries.

    Gorrell: People want to do well, but I don't think it's a profession that you go into to maximize your personal net worth. If you wanted to do that, you'd be an investment banker or an entrepreneur or something of that sort.

    People go into it and they probably don't realize how hard it is to make a living. What we do is pretty hard. But once they're there, they enjoy the environment that they work in. People enjoy working with people who are smart and working on types of issues that they enjoy working on.

    And while making money is important, I'm sure probably every partner at Hogan & Hartson has been offered more money to go someplace else, and they stay. And you always ask yourself, "Well, why is that?" And it's probably what I spend the most of my time being focused on, and that is preserving the culture. The reason I went to Hogan & Hartson instead of someplace else is because I liked the people and it was known for being a people place.

    So our goal is to keep it that way so that our best partners stay at Hogan & Hartson.

    And, you know, compensation is important, but we've had to adapt our compensation to deal with having a number of different practices that aren't as profitable as others and being in a number of markets that aren't as profitable as having a big M&A practice in New York.

    So the range of compensation is extremely large. The average profits per partner are virtually meaningless because we seek to pay people fairly for what they do, where they do it. But in the end, you have to have people who like where they work.

    Maybe you'd call me old-fashioned, a hick from Kentucky, but I still believe that's really important.

    Ray: I think that's important, and I'm a hick from Georgia.

    Gorrell: Well, I'm a bigger hick.

    Barbieri: How happy are associates? Let's just talk about associates for a minute.

    Charyk: Perhaps more firms have a formula now for compensating associates by reference to billable hours, so there may be less of "You do this because this is the tradition of the profession." And that might shift the mind-set a little bit away from "This is fun, I'm doing it because I enjoy it, and I'm earning the respect of my peers."

    Cawley: There's no question that some associates — or some law students around the country — went to law school because they didn't know what else they wanted to do, and the law now has a reputation for very great starting salaries.

    If you went back and looked at the starting salaries when I got out of law school — they were about $12,000 in D.C. and about $15,000 in New York. When the New York firms announced they were going to $15,000, which was about 1967, it stunned people that someone would be paid that much.

    Now, I don't know what the equivalent of the senior grades in the U.S. government were being paid then, but I'll bet it was a lot more than the average lawyer was making around the country, which was probably between $8,000 and $10,000. And so all of a sudden that changed, and it's changed even more dramatically now.

    So when kids who have big loans look around when they're in college and they say, "I could get, on my first day, a rate of $125,000, $135,000, $145,000 a year as a starting salary," which is as much as maybe the person's father makes as a senior grade in the U.S. government, that does have an impact. And, sadly, it has an impact of attracting people who probably would be much happier doctors or engineers, but they go to law school not because they really love it. They then go to the firms because they have even bigger student loans to pay off now.

    And then they get in there, and let's face it, because of these high salaries, firms expect a lot of work. Most good firms have a reputation for working hard and producing materials very quickly. Well, to pay those high salaries, there has to be a lot of work by associates. And so the associates are there — some of them — who don't want to be lawyers, and they don't like the work because they feel it's a grind and they don't have good contacts with clients.

    Harris: I was on a recruiting trip, and I brought home this pamphlet [that] concerned me. It's something that we, as managers, need to be mindful of.

    This is a survey that the Yale Law School Career Development Office did, surveying their graduates five years after their departure from law school. According to the results of what was a fifth-year survey, only 26 percent of firm lawyers report being very satisfied with their jobs. And that's compared to 81 percent of those in academia, 55 percent in public service, and 50 percent — 50 percent — in business.

    This is more than a few young lawyers paying back loans.

    Gorrell: It is a real problem. Honestly, though, we see a pretty good side of this in Washington. Even though we have high expectations of our associates, because of the importance that we give to doing things in the community and the strong tradition of pro bono work that the Washington firms have, I really do think that we attract a very high-quality group of associates.

    Now, many of them may come because they have large student loans. I was one of those guys myself. But they come to the Washington firms because they like the policy-oriented work that's available to them.

    And the real challenge for us is how to find someone who ideally would like to be practicing in your law firm for a career. We do want to provide a career opportunity to people, instead of people who just want to come to Washington because it's an interesting place to be for three or four years, you make a lot of money, you pay off your loans, and then you go do something else that you think is more interesting. But we get a very high quality of people.

    Partnership: Still the Brass Ring?

    Barbieri: Let's talk about the career track a little bit. When you all were starting out, did the possibility of becoming a partner at a firm mean something different than it does now?

    Charyk: There's a greater proliferation of varieties of partner. I know that there's the guaranteed share partners, or non-equity partners, or senior attorneys and counsel — countless ways of carving out niches for people — which I don't think existed to the same extent 25 years ago.

    Another phenomenon you have now that's different is the number of people at the partner level who wish to pursue a career on a part-time basis. The number of women in the work force that can raise a family and still maintain a professional position is just larger than it was proportionately 25 years ago. I'm not sure you would have thought of those terms 25 years ago. It would have been perhaps inconceivable that you could maintain a partnership and still have a domestic situation.

    Barbieri: By creating the new positions of partnership and the steps in between, you're working toward a more realistic model. What's the next step? What else do firms have to do to provide a career opportunity for people who you don't necessarily want to leave once they get their student loans paid off? What else can you do to keep them if they're not going to become a partner?

    Gorrell: This is one of the biggest problems that has faced law firms for a long time, particularly where firms had an up-or-out policy. That's really a very stupid approach, because, particularly today, think how much money we invest in our associates.

    The challenge for us has been to find ways to give people a long-term career opportunity, whether it's advancing to partner or some other way to spend a long time at the law firm, and particularly with more women in the profession and the importance of having a family life and being able to have a flexible work schedule so that you can do that.

    It's another big challenge that we have. There are a huge number of really talented women you sure don't want to leave your law firm. People, 25 years ago, weren't focused on part-time or anything like that.

    Harris: This is a subject that I have very mixed feelings on, actually. And I could probably get rid of my administrative responsibilities at Reed Smith in the next few minutes by saying what I'm about to say.

    I always worked full-time, in quotation marks. I did that, and I raised two children, and I had a husband — still have him — and I found a way to juggle.

    I think I was cut some slack by virtue of the fact that there weren't very many women — actually, you're looking at her — for many years. I just always took the attitude, "I'm going to do what I can do. I'm going to look at what you pay me to do it. And for as long as that's working for both of us, I'm here, and when it doesn't, I'm not."

    When we had our debates about creating different statuses and non-equity positions, I had a lot of concern about it. I had concern that it would become a dumping ground for women — a second-class track that would give the predominantly, at the time, male partners a way not to confront the really tough issues.

    I can tell you now, with my children gone and my working 24/7, that it's a short number of years in a woman's life that you need a little slack. So I have a concern about that, increasingly, when you look at who elects to be in which kind of situation.

    Although, we do it and we do it successfully, and women want, and men too, all kinds of different situations to pursue, all kinds of combinations of interest. I firmly believe that a law firm needs to worry about making its people happy, and to the extent they can be accommodated in a business structure, I'm all in favor.

    But it's true that when we joined law firms way back when, many people didn't make that cut, but there still was a thought that you were potentially joining a firm for life. We bought that firm with less information than you would buy a dress. There was no information publicly available — well, maybe a dress was a bad thing to say.

    I know that the second week that I was in my law firm years ago, the wife of one of the senior partners passed away and that firm shut down. Everybody went to that funeral. Every single pallbearer was a partner at that firm. There was a sense that you were joining potentially for life, and an awful large percentage of the partners had been there for life. So I do think that that has changed.

    I don't think people think about it as much. I don't get asked those questions as much by young people.

    Information Interlopers

    Charyk: Richard, I wondered if, as a member of the journalistic profession, you realize that you're the observer who changes the results of the experiment through the act of observation. For example, this publication of profits per partner, profits per this, profits per that, has caused a number of firms to seriously think, "Well, what do we mean by equity partner, and should we create this slot and do this and do that?"

    So just the dissemination of information has indeed caused internal restructuring simply to accommodate statistics, to look better with respect to that information, which wouldn't have happened 25 years ago in terms of, well — you know, as long as people seem to feel they are paid as much here as they would be paid someplace else, that's fine. So it's a dynamic interplay we have between law firms on the one hand and Legal Times on the other.

    Barbieri: Well, is that a bad thing, though?

    Gorrell: It's pretty much a bad thing.

    [Laughter]

    Harris: I think we finally have complete consensus on the panel.

    Charyk: This is a backhanded compliment.

    Barbieri: And I appreciate it. I'm happy to talk about Legal Times, but what we're really talking about is information flow and third-party players, and [Legal Times is] probably one of them. I would argue that there are others that are presumably even more powerful in your businesses — the consultants and the people who have taught you things about marketing that lawyers didn't ever study before.

    Let's talk a little bit about the third-party players. You know, what's the chicken and what's the egg in terms of consultants driving the professionalization of the management of law firms?

    Charyk: There has been some positive development in the push to make firms more like businesses. Although we can represent businesses, that doesn't automatically infuse us with the capabilities of masters of business administration types.

    There is a good role for consultants. And a consultant or a third-party player dealing with a law firm will have a challenge on their hands, because they're going to be dealing with a bunch of owners that are convinced they know more than any consultant they could possibly hire would be able to tell them.

    But there is a value to be added in the right situation, particularly in terms of devising disciplines and internal systems to do profitability analysis and to better coordinate the firm that does want to focus on what it does well, what it does best, and not try to cling to a one-stop shop for whatever clients wander into its doors.

    Barbieri: Does it feed, though, the tendency of law firms to follow one another, sometimes to their detriment?

    Gorrell: You know, it could, and there are examples we could all point to where it has. But I don't think it means that it has to. The proliferation of service providers to law firms is actually a good thing. The trick — it's just like in picking a good lawyer. You need to pick somebody who's good at what they do.

    There's no doubt that we run a business. We operate 19 offices around the world. It's a very sophisticated operation. We hedge foreign currencies. We're allowing a lot of people to help us do those sorts of things. Without them, it would be impossible to do this, because it's a big business. So that's positive.

    Harris: It's been, on the whole, positive, but I think it's impossible to say that it hasn't had a huge impact. It's had a huge impact.

    When attorneys tended to join a law firm for life, it was a little easier to spread out — this practice area is down at this period of time, but, you know, three years later, the bankruptcy practice will be up and the M&A practice will be down, and we're all in this forever anyway and so we can ride out these trends.

    Now — and I say this realizing I'm looking at a room full of recruiters, including ours — those things have had a lot of impact on the market. It means you have to worry all the time about keeping everybody happy right now. And that adds a level to your management challenge. I don't think it's a bad thing necessarily, but it's certainly something that you have to focus on.

    Barbieri: Is there a single thing that keeps you up at night when you think of your to-do list as a manager of a firm, a manager of other lawyers?

    Ray: It's just difficult to keep everybody happy.

    But a law firm really is teamwork, and you really want everyone to come to work motivated. You want them to come to a place they're happy to be. So you work hard to try to make sure that everyone is pulling the same weight. It doesn't happen all the time. But if you can keep it that way, I'd say, 85 or 90 percent of the time, you're doing pretty well.

    Charyk: Keeping me up at night? In our case, trying to look for connections that have eluded us in terms of situations where there are natural client expansion opportunities within the range of practice areas we've had. When I referred to a one-stop shop, that was an attitude that characterized our firm and perhaps has characterized many over the years, which has now had to change somewhat in response to the fact that there is a different form of competition in terms of larger firms and a need to really focus on what you do in a manageable number of areas.

    Cawley: I was on the executive committee for many years with our firm. The biggest tension in a law firm is this: The truth is, most lawyers like practicing law, and they're proud of being lawyers, and they're proud of being in the legal profession. And the tough thing for law firms, most of which are very proud of their culture, is, How do you run a firm and be businesslike and keep up with the technology and the ability to pay salaries and the ability to pay good partners appropriate compensation — or, as we say in our firm, ownership interest — at the same time preserving the culture that brought people to the firm in the first place?

    And that tension, which is constantly there and really can't be easily resolved, is constantly in front of all the managers of the law firm. And it takes a lot of time and it takes money to try to preserve that culture.

    Gazing Into the Crystal Ball

    Audience Question 1: Your speciality practices aside, what do you foresee as the growing practice areas in the coming years?

    Gorrell: The whole health industry is an obvious place. The most senior member of my class at Hogan & Hartson is Paul Rogers, who just turned 80. He joined Hogan & Hartson after a distinguished career in Congress, when we decided that we wanted to build a health practice. And we thought the health industry was going to be a big industry in the United States.

    And that turned out to be right. And from that, you know, we now have a major [Food and Drug Administration] practice, a big pharma[ceutical] practice, life sciences, and if you look at the economy, the part of [the gross domestic product] that's in the health industry, that's not likely to get smaller.

    The energy industry, although it's been down a lot — of course, it's suffered a lot from the Enron fallout and all the impact that had on energy trading and all the other energy activities — but on a global basis, that's still going to be a big part of the economies of many countries.

    Harris: I would agree with that. At our firm, we're betting on life sciences, broadly defined, [as you have]. It's an area we've been in for a long time and we continue to expand in it greatly. Also financial services we see as being a really important future area. International trade inevitably will be strong, given all the globalization that we all deal with every day.

    I have to say this as an old communications lawyer, but I think we're going to see a resurgence in that area, as well. And we'll see some tech coming back at some point.

    Charyk: I would add to the list financial restructuring, which is a euphemistic term which covers a lot these days. And also the role of intellectual property assets and the litigation which stems from that. And antitrust litigation is going to be a growing area as well.

    Cawley: You can predict anything but the future.

    Four years ago, when associates came to interview with me, they said, "Well, how much high-tech work do you do?" And that's all they wanted to hear. And, of course, in a very honest way I probably gave them the impression that we hardly did anything but high-tech work.

    And now we say, "We have never gotten into high-tech work. We represent institutional clients." But I'll tell you, the high-tech work collapse certainly occurred, but it didn't occur in one area — and that was patent prosecution and patent litigation, which is really hot.

    Now, there are some very excellent firms which specialize in IP practice, but it's a boom area to be in any kind of patent litigation, licensing, patent prosecution, any of those intellectual property functions, including copyright. That's a real boom area. In products liability — class actions around the country — we've seen a huge increase, and bankruptcy is still very strong.

    Audience Question 2: One of the changes in the 10 to 20 years in Washington practice is that more firms have added legislative capabilities. Is that something that you see continually growing?

    Ray: Yes, because government's always going to be here. One of the things that's happened in government practice over the last 25 years is that you have a lot of nonlawyers that are doing that now. You know, 25 to 30 years ago, it was probably 99.99 percent lawyers, but you know, if you're looking for a good lobbyist on the Hill today, you're not necessarily looking for a lawyer. You're looking for someone who's got the contacts, the knowledge, and what have you.

    Barbieri: Well, thanks. I want to thank the panelists and thank you all for coming. We work hard to put out a paper that hopefully people want to read — that you either love us or you hate us, but keep showing up.

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