They came in saris, cheongsams, and Muslim headscarves — plus the usual black tuxedos and glittering gowns. After cocktails and tapas in the marble halls of the National Art Museum of Catalonia, they streamed into a Roman amphitheatre for an intimate sit-down dinner for 400 colleagues and another 300 or so of their significant others.
If Baker & McKenzie ever wanted a sideline, party planning could be just the ticket. That soiree in
But English is the common language — and these days, the acronym on everybody’s lips is ‘PEP’. It has been the buzz ever since Bakers’ profits per equity partner hit the $1m (£570,000) mark in 2007. For Bakers, crossing that line was a watershed event, marking its readiness to be a player in the league of major law firms.
Long derided as the firm that never met a location it didn’t like, Bakers is finally getting respect for pioneering the global law firm. Just when many major firms with large financial practices are struggling in this economy, Bakers is thriving, particularly in
Bakers still lags behind the national and international norms — for 2007, the average PEP for The Am Law 100 was $1.315m (£751,000) — but the gap is closing. Bakers has achieved these marks even while it has increased its equity partner ranks by 16% since 2004. And in its recent merger discussions with Heller Ehrman, a firm that might not have deigned to talk to Bakers just a few years ago, the legal giant was in the driver’s seat.
“There has never been a better time to be a Bakers partner,” said John Conroy (pictured above), the firm’s chair, in a toast to the firm’s newly-minted partners at a wine cellar in
For much of its 60 years, the firm has struggled to find a coherent strategy. But in the last four years, Bakers has made a mighty effort to integrate its vast network and shed its image as a loose confederation of offices of uneven quality. The plan, says Conroy, is to concentrate on its 200 key clients — including companies such as Accenture, Eli Lilly and Company, Estee Lauder and Unilever — and attract high-end transaction work, high-stakes litigation, and key advisory work. And the springboard, he says, is Bakers’ pre-eminent position in emerging markets, especially
More unified, focused and prosperous than ever before, Bakers is a story of determination and vindication. But it is also a story in the making. Despite its progress and the prestige of some of its offices, Bakers is seldom mentioned in the same breath with the magic circle or the top Wall Street firms. Moreover, it is facing competition from other firms that have recently gone global. DLA Piper, for one, is a newcomer that seems hot on Bakers’ trail.
How Bakers further integrates its network of offices, refashions its famous brand and distinguishes itself from its competitors will determine its place in the global legal marketplace.
Partners assert that Bakers’ time has arrived. Over and over again, they describe Bakers as “a sleeping giant that has awakened”. But the subtext is that Bakers has been slow to capitalise on its global assets, and that it has to pounce before the opportunity goes away.
Depending on how you look at it, Bakers is either cursed or blessed for being way ahead of its time. Founded in 1949 by Russell Baker and John McKenzie in
Spurred by the demands of an early client, Abbott Laboratories, Bakers opened seven offices by the end of the 1950s, including in
Bakers took its first serious step at integrating its far-flung offices when Christine Lagarde (pictured) became chair of the firm in 1999. “Lagarde did extraordinary things,” says one former partner. “She posed a strategic vision, revitalised practices and regions and integrated the firm.”
Under her leadership, a new generation of leaders began to emerge. Conroy and current executive member Eric Lasry worked with her, as did Nicholas Coward, who recently left the committee. She is also credited with adding teeth to quality control and rallying people behind the firm. It didn’t hurt that she had tons of charisma.
“When Christine walked into the room, you knew who was in charge,” says the former partner. Lagarde left the firm in 2005 to become
Conroy had a hard act to follow when he became chair in 2004. While Conroy cannot compete with Lagarde’s eclat, he gets praise from current and former Bakers employees for his discipline and work ethic: a banking lawyer who served as managing partner for North America before he succeeded Lagarde as the firm’s chair, Conroy spends much of his time globe-trotting away from his wife and seven children in the
Conroy is so consumed with work, says one former colleague, that he’s oblivious to popular culture: “He’ll say he’s never seen Seinfeld or heard of Paris Hilton.” Always neatly turned out with a crisp white handkerchief in the breast pocket of his suit, Conroy is soft-spoken, but “he can out-argue anyone”, says the ex-colleague.
That tenacity undoubtedly came in handy when Conroy started pushing his ambitious agenda. Conroy set the $1m (£570,000) PEP target. Amazingly, until that goal was set in 2004, Bakers paid scant attention to profit, says Paris-based Eric Lasry: “There was a mentality that you did not need to focus on PEP.” When Conroy challenged his partners to meet the PPP target by June 2008, “people just smiled”, remembers Lasry. Hitting that mark — one year ahead of schedule — through unblinking attention to the bottom line is a big deal, though probably more to Bakers’ partners than the outside world.
“It has bolstered confidence and made us more ambitious,” says Conroy.
Conroy’s challenge delivered a larger message: success — and the partners’ profits — depends on unity. To promote integration, the executive committee streamlined the firm’s 30-odd worldwide practice areas into 11 units (including antitrust, banking/finance, insurance, intellectual property (IP), and M&A), each with its own head, and launched the kind of exhaustive quality control and talent management programmes that might even pass muster with devotees of Six Sigma.
For instance, quality audits, an idea that began in the
The result is “more accountability”, says
In 2004 Bakers launched its current talent management programme by hiring industrial psychologists — an innovation from its Australian office — to interview associates about their work and training. The goal is to retain promising associates. Despite initial resistance, the programme is now enshrined at the firm. In 2007
“When you are this big, you need consistency and systematic ways to evaluate and compensate people,” says Groysberg. Now the firm has a global talent management team of more than 25 people (in 2004, it had eight).
Bakers is also investing in partner leadership training. So far, it has sent 60 partners at all levels of seniority to a custom-tailored week-long programme in
None of these programmes are cheap, says Conroy, though he declined to name a price (on its website, CCL’s list price for a five-day programme is $6,800 (£3,800) per head). “You have to create a high-performance team,” he says. “Quality and profitability are two sides of the same coin.”
The dual focus on profit and quality, say Conroy and his partners, have pulled the firm to new heights. “Ten years ago, we didn’t have matters that would have made The Wall Street Journal,” says Hackett. “Ten years ago, we wouldn’t be in the league tables.” The firm seldom makes the front page now, but in 2007 Baker was ranked in the top 10 for deal count in M&A in the Bloomberg, Thomson Financial and Mergermarket league tables. In the debt and equity category, its securities practice garnered 11 top 10 rankings from Bloomberg and Thomson Financial.
Indeed, in certain practices and regions Bakers holds its own against top-tier firms. The
The largest office of the Bakers empire (with 300 lawyers),
But the place where Bakers is a real powerhouse is Hong Kong and mainland
“We have been there for the long haul, and it has been highly appreciated by the Chinese Government,” she adds, alluding to Bakers’ close relationship with
An energetic and stylish woman — she travels with a suitcase full of shoes — Lee is a 24-year Bakers veteran who specialises in M&A and IP. Though fluent in Mandarin and Cantonese, she neither reads nor writes Chinese. But that has hardly kept her back. She says Bakers’
For any firm trying to be a major league global player,
Undoubtedly, it cannot help Bakers’ lateral recruitment that the legal market still perceives the firm as a collection of local offices, each run as its own profit centre. Moreover, Bakers still has an “eat-what-you-kill” reputation.
But Conroy says those notions are outdated. In the last five-to-10 years, Bakers has made major changes on the compensation front, he says. All revenues now go into a worldwide pot, he says, from which partners are paid; afterwards, some partners’ compensation is adjusted based on their office, practice group or region.
These adjustments, says Conroy, give the system flexibility, allowing fine-tuning according to local market conditions. Another innovation is the adoption of a ‘subjective’ compensation system, says Conroy, that takes into account factors beyond client generation and billings, such as cross-selling efforts.
To a firm long accustomed to individual office profit centres — a carry-over from Bakers’ old strategy of expansion through merger-revenue pooling remains a radical idea. Partners at Bakers say that pooling caused a huge uproar when the executive committee first proposed it to the North American offices (US and
“It led to a dramatic change in the partnership composition,” admits Conroy. But the profit-integration effort was well worth the trouble, says Conroy, because it demonstrated that Bakers is a unified operation. “It dramatically changed our ability to attract talent,” he says, alluding to the Coudert group.
Not everyone buys Conroy’s rosy view. “[The compensation system still] rewards the wrong kind of behaviour,” says one ex-partner, pointing to partners who still hog client credit and billable matters and argue over shared expenses. It also makes recruiting laterals difficult, says a London-based recruiter.
“They are a hard sell,” this headhunter says of Bakers. “They are hugely disjointed.” Moreover, some former staff say that the profit-pooling system is random. “Anybody can pool if they want to,” says one alum, adding that the system is “mysterious”. The bottom line, says another, is that there “are still 40 separate compensation systems”. What Conroy calls the “complexities” of the compensation structure, others see as a series of disparate systems that are still a long way from real integration.
Ironically, one of Bakers’ major competitors defends Bakers’ less-than-tidy system. DLA Piper recently abandoned its own plans to integrate the finances of its 65 worldwide offices. Francis Burch, one of DLA Piper’s joint chief executive officers, says that “very few global firms use one operating entity” and that integrating finances worldwide would create all sorts of tax, regulatory, currency and risk management issues.
“The marketplace will credit Baker & McKenzie’s early commitment to a global strategy,” says Burch. “It will appreciate Bakers’ structure and management.”
Generous words — especially coming from a firm that is giving Bakers a run for its money. Among firms operating in Bakers mid-market sphere, DLA Piper poses the biggest challenge (other close competitors include Jones Day, White & Case, and a few European firms, such as Salans). DLA Piper is relentlessly aggressive about expansion. Recently it lured corporate partner Roger Meltzer from Cahill Gordon & Reindel. By contrast, Bakers has few star laterals of that sort; the closest is Paul McNulty, former
Bakers wins the prize for brand-name recognition in the international arena — though that fame can be a double-edged sword. In the legal market, Bakers and the word ‘franchise’ still go together.
That characterisation was never fair — even in the old days, asserts former executive committee member Coward, who has been at Bakers for more than 25 years. That misperception, he says, is partly Bakers’ fault: “We let other people define us.” But he thinks clients do not harbour such misconceptions. “There’s a bifurcation between how we are perceived by clients and the legal market,” says Coward.
Indeed, Bakers has some big fans. Marc Firestone, general counsel for Kraft Foods, praises the firm’s “strong sense of client service”. Though Bakers has been primarily servicing Kraft’s multinational needs (commercial, tax, labour and counselling work), Firestone says he would consider the firm for “different projects”, including major transactions.
Unfortunately, Bakers cannot always count on satisfied clients for more high-profile work. For instance, Bakers received heaps of praise for its role in a series of complicated sales and spin-offs for American Standard Companies in 2007. Mary Elizabeth Gustafsson, the head of American Standard’s legal group at the time, calls Bakers’ performance “outstanding”.
Led by
So does that mean she will reward Bakers with a more prominent transactional role in the future? Well, not exactly. “I would use them again for internal structuring; it’s very tedious work,” says Gustafsson, now deputy general counsel of Ingersoll Rand. But for the sexier transactional stuff, she’ll go back to Skadden. “It is difficult for any firm that is not Skadden to do public M&A,” she says. “There’s no time for learning those skill-sets.”
In 2006 Bakers won a high-value litigation for NetManage, when the US Court of Appeals for the 9th Circuit held that the Los Angeles County Sheriff’s Department infringed the company’s software copyright. The case was a big victory for the software industry, limiting customers from using software beyond what was originally authorised. NetManage’s then-general counsel, Stephen Mitchell (now in charge of global licensing for Hewlett-Packard), praises Bakers’ Silicon Valley partner Tod Gamlen for winning the precedent-setting case, but says he continued to regard Kirkland & Ellis as “our bet-the-balance-sheet firm”.
Mitchell adds, “I’m not saying Bakers wasn’t up to snuff,” but says that he thinks of Bakers for certain roles: “When somebody sues you in
Back in
But it is an open question how far Conroy or anyone else can push Bakers toward greater ambitions without changing one of the firm’s hallmarks: its consensus culture. Even in the old days, when Bakers was content to be a loose confederation of autonomous offices, the firm strived for consensus rule. Partners proudly call Bakers a firm of “evolution, not revolution”, and they generally reject the idea of autocratic rule.
“Change cannot be mandated from the top,” says Coward. Though major decisions are now made by committees rather than direct partner votes, the firm is “respectful” of all viewpoints, says Conroy: “The word ‘domination’ doesn’t exist in our vocabulary.”
Some contend, however, that the democratic style is stunting Bakers. That consensus culture, say some ex-partners, is why Bakers can’t pony up the big bucks to haul in a first-rate corporate team in
Poh Lee Tan, for one, is doubtful that Bakers can complete its transformation into a world-class firm without altering some of the firm’s sacrosanct traditions: “The consensus-driven culture has served us well; but going forward, it may not be enough.”
What is needed, she adds, is “a more rigorous approach” that gives “agility across the board, whether in investment [in offices or practice areas], lateral hiring, or mergers.”
Bakers has to push the transformation even further. In other words, a revolution is overdue.
Baker Ehrman: What might have been
Originally, Baker & McKenzie was the pursuer: a year ago, through an intermediary, Bakers chair John Conroy sought out Heller Ehrman for a possible merger. Heller’s chair, Matthew Larrabee, was interested ”but didn’t think his partners wanted to sign up with a 3,000-lawyer firm”, says a source close to the negotiations.
Six months later, as Heller started bleeding partners, Heller found Bakers a lot more attractive. When Conroy and Larrabee finally met this spring, a match seemed imminent. But in August, Bakers pulled the plug.
Larrabee cited conflicts as the reason for the aborted merger in a voicemail sent to his partners in August. But the conflicts were only part of the problem, says the negotiations source. To resolve them, the new firm would have had to shed clients — particularly in the insurance sector — and revenue. According to the source, Heller’s revenue was “already a moving target”, because its partners were leaving even as the merger talks continued.
Plus, says David Goodwin, a former Heller partner who jumped to Covington & Burling in July, Bakers faced the prospect of paying ‘stay’ money to keep some of Heller’s high producers, including litigators Robert Rosenfeld, Marie Fiala, and Lawrence Popofsky and corporate partner Stephen Tonsfeldt.
Bakers’ non-US partners balked at the deal, says Goodwin, who followed the talks through friends at Heller. They “were unwilling to make an investment that would benefit the
In the end, the negotiators were a bit sad that the merger failed. “There was a lot of good chemistry and shared values and aspirations,” says the source.
For Bakers, calling off the merger meant losing a chance to boost its
For Heller, which announced on 25 September that it was to dissolve after failing to secure a similar merger deal with Mayer Brown, the failure to secure a deal with Bakers must be a cause for much regret.
This article first appeared in the The American Lawyer, Legal Week's US sister title.
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