I’ve heard more about Howrey in the last few days that ever before. And much of what I’m hearing is the utter BS being offered to explain their demise. The Managing Partner blames the firm’s demise on alternative fees. The sad thing is that the reporter didn’t call him on it. I’ve wanted to write about it, but refrained. But I have received the insights for a former BigLaw insider who is happy to "translate" the recent pablum. There are two installments–first, go check out Patrick McKenna’s post, A BS Detector’s Review of the Latest Howrey News. He explains a bit more about our common friend’s experience.
Here’s the the same anonymous insider’s view of the Journal article Law Firm Howrey to Hold Dissolution Votes.. As Patrick McKenna did, I am copying key parts of the article with our anonymous ex-insider’s comments in bold:
Howrey LLP, a prominent global law firm that specializes in litigation, is nearing the end of its life following the exodus of more than 70 partners in the past year.
(Actually it is more than twice that number. Perhaps some were "de-equitized" after departure to not make it look so bad.)
The remaining partners of Howrey are set to hold "a series of votes" in coming days on winding down the firm, Chief Executive Robert Ruyak told the Wall Street Journal in an interview Tuesday. The votes could result in dissolution of the firm, he said.
("Could result"? That is the purpose of the vote and the recommended action by the Chairman of the firm. What is the other option on the ballot?)
Mr. Ruyak declined to disclose when the votes would be held. One person familiar with the matter said several partner meetings were scheduled for Wednesday.
Dissolutions are relatively rare among big law firms, which have traditionally tended to attract a steady stream of business regardless of broader market conditions. Firms that struggle often merge into other firms rather than dissolving wholesale.
The past year’s departures at Washington-based Howrey have included the former chief of the 55-year-old law firm’s litigation practice, who left in December to join another firm.
Although the departures weren’t fatal in themselves initially, they dealt a severe psychological blow to remaining Howrey lawyers, who have seen average profits per partner plummet in recent years. The firm’s spokeswoman said she couldn’t say how many partners are left at the firm.
Howrey, which once employed as many as 750 attorneys and uses the slogan "In Court Every Day," built what many corporations described as "go to" litigation and intellectual-property practices in the U.S. and Europe. Its recent clients have included Yahoo Inc., Boston Scientific Corp. and General Electric Co.
Starting in late 2008 and 2009, however, "the [litigation] market started to change dramatically," Mr. Ruyak said, bringing unsettling swings in the law firm’s profits and, subsequently, a painful exodus of the firm’s partners.
("It’s not my fault. I didn’t know. I didn’t do it. Outside forces beyond my control combined to destroy the firm.")
One of the factors affecting profitability was a move by clients to pay for litigation using new alternative billing and contingency arrangements. As clients began looking to lower their legal costs, the firm took on a growing proportion of work on a contingency or partial contingency basis—shifting a big portion of its business into what Mr. Ruyak described as "future recovery."
(So the tipping point was the response to client pressure for a small percentage of cases to be converted to AFA? Or did the firm take on an increasing number of contingent fee cases, which are not AFA, which is really what it sounds like, and could not replicate the big successes that drove profits in prior years so high?)
Last year, 10% or 11% of Howrey’s billable hours were devoted to matters that were handled on a contingency basis, up from 8.5% in 2009, and from 3% to 4% in the 1990s. The adjustment was "difficult," said Mr. Ruyak.
(So, they were borrowing money to pay draws and not collecting fees on a regular basis and they ran into a cash flow crisis. Imagine that.)
"What we found is that partners at major law firms have very little tolerance for change and very little tolerance for fluctuation in profits," he said. "You couple that with free agency, which exists where partners–without much risk to them–can change firms quickly and rapidly….it’s difficult."
(What a surprise. And such a shame that a visionary leader would have to learn this lesson so harshly. But he will be so much better prepared next time around.)
Another challenge was the rise of third-party document-discovery specialists that could provide litigation support services at substantially lower rates, Mr. Ruyak said. Howrey, a law firm with many offices in big cities, and thus higher costs, couldn’t compete, he added.
(AHA. SO, the firm survived on overcharging clients for mundane administrative discovery service. And did not have the acumen to adjust its fundamental practice accordingly. That was certainly not anything that was foreseeable or addressable by management.)
A law-firm merger "never was an option," he said.
(Aha, so all those committees and efforts for finding a merger partner, negotiating with Winston, etc. were just a ploy to do something else. Like move expeditiously to a dissolution of the firm one year later.)
"If you have a firm our size, and with our client base, and you talk to any firm that has a large litigation practice, the conflicts of interest are extraordinarily difficult to deal with, which means that many people on either side couldn’t be part of a merger," he said.
(So that is why the litigation partner who was head of the negotiations for both the merger, and then the group lawyer move to Winston, quit this last couple of weeks. That makes sense.)
In litigation, clients often won’t hire law firms or lawyers who have competing obligations to another present or former client.
(The fundamental rules of professional conduct as they relate to absolute client loyalty and the combination of practices with conflicts is such a bummer.)
I don’t know if my friend’s analysis is correct or not. But he is absolutely right to not believe the nonsense being spewed by the person who presided over the demise. Here’s the one comment (link here) that got me (also from Bob Ruyak):
Outside the U.S., the litigation market is “very, very different. In Europe there isn’t a lot of discovery. So, cases are much smaller. They may duplicate cases in the U.S. But the cases are usually much more streamlined in Europe, with special courts in some jurisdictions.
“Our extension into Europe was to accommodate our clients predominantly in the patent litigation area. The procedures are very different in Europe by and large and there’s not a big requirement for discovery that we have in the U.S.—as a result, there’s less pressure for alternative fee arrangements in Europe.
“The real problem we ran into in Europe was conflicts of interest. In Europe the markets are smaller and there are fewer cases. It’s a different analysis in Europe. But we had to apply the U.S. standards across Europe. That made it difficult to grow because we had to forgo a lot of cases.
“Because cases are smaller, you need to have a lot more of them to keep things running. You can’t build large offices with lots of lawyer in Europe. For litigation, it’s not the same gain.”
With this comment, Ruyak was attempting to say that things happening in European litigation made the expansion into Europe unwise. But I am left to wonder what changed in European litigation? The answer is nothing. There were no surprise changes. But I suppose there aren’t too many people these days willing to blame "mistakes of judgment."