In 14 months Orrick boss Ralph Baxter will move on after 23 years in the job. Is his legacy at risk of derailment by a strategically stalled final few months?
Orrick Herrington & Sutcliffe is a firm in transition. Usually, that kind of statement is intended as a faintly critical jab at a firm that has perhaps lost its way. In Orrick’s case however, it is literally true.
At the end of October Silicon Valley partner and the head of Orrick’s corporate business unit Mitch Zuklie was unveiled as chairman-elect. It was the culmination of an 18-month search to find a replacement for Ralph Baxter, the man who has led Orrick for 23 years, who transformed it from a sleepy San Francisco-based outfit primarily known for municipal bond work, handed it ambition and transformed it into a global name capable of competing with the world’s biggest legal giants.
Baxter has been synonymous with legal market ambition since he took over as chairman of Orrick in 1990. In particular, he is arguably the single lawyer most associated with the use of the law firm merger as a tool for growth.
“Ralph is a true visionary; you see a handful of his calibre per generation,” extols Bruce MacEwen, president of Adam Smith, Esq. “Can you argue he attempted mergers that didn’t come to fruition? That the global-footprint law firm, launched from a relatively parochial base, has become a widespread aspiration? That lots of firms are now exploring or building ‘onshoring’ facilities? Yes, yes, and yes.
“But Ralph led the way. That initiatives he pioneered are now perceived as common wisdom in the industry underscores the clarity of his vision at a time when no one else was doing it. The showstopper question any lawyer poses when innovation is proposed is ‘Who else is doing it?’ It didn’t stop Ralph.”
But in the past few years Baxter – or at least Orrick – appears to have run out of steam. The firm he heads has floundered, with two failed attempts at potentially transformative deals (with Akin Gump Strauss Hauer & Feld in October 2010 and SJ Berwin in May the same year) dimming Baxter’s strategic star. A rocky time in London has also seen much of its top talent head for the exit (although the office has also hired in recent months).
Now Baxter has 14 months left in office as he prepares to hand over the reins to Zuklie on 1 January 2014. Is it time for one last hurrah or is he, as one senior partner at a rival US firm describes him, in US Presidential terminology, “a lame duck”?
The failed SJ Berwin merger in particular highlighted one of the biggest ongoing problems at Orrick and an urgent item on Zuklie’s agenda – namely, what to do about London?
Currently, Orrick’s London office houses 21 partners and around 60 lawyers in total, 10 fewer than in 2010 when Baxter went on record saying he was targeting 400 because 70 was too small. And, although the past few months have seen some efforts at building, a string of heavy-hitting partner departures litters Orrick’s City history, with more recent exits including former London head Martin Bartlam, who joined DLA Piper in January this year, banking partner Elisabeth Gaunt, who joined Taylor Wessing at the start of 2012 and European co-head of restructuring Mark Fennessy, who left with fellow restructuring partner Hazel Miller for Dewey & LeBoeuf (both partners are now at Proskauer Rose).
So, The Lawyer asked Baxter, what’s the problem with London?
“You’re not off-base with much of that,” says an engagingly candid Baxter, speaking in the week Zuklie was announced as chairman-elect. “But it’s not true that it’s turbulent there now – that’s an outdated perception. It’s true that we’re not big enough. Orrick has been ambitious but we haven’t made the progress we’d like to have made. However, we’re determined – London is mission-critical for us. I’m always looking for teams and potential merger opportunities but they’re few and far between. There are more than 100 US law firms in London all trying to do the same thing. You have to be realistic, it’s the most competitive legal market in the world.”
“We now have, pound-for-pound, precisely the right quality of lawyers we need in London,” continues Baxter. “The financial performance is not where we want it to be, no doubt. The same is true of scale, but the lawyers we have in corporate, finance, litigation and so on are of the right calibre. We now have a complete set of specialisms, although we don’t yet have the depth. We’re making progress with client relationships and are able to handle any kind of engagement. Morale, internal cohesion and esprit de corps are better than ever.”
Any number of former partners would disagree with Baxter on the latter point, but then that’s probably why most are former partners. Baxter’s admission that Orrick’s London financial performance is not where he would like it to be, however, is more illuminating.
This year Orrick just about hung on to its place in The Lawyer’s top 30 international firms in London table (where firms are ranked by UK revenue), with a City turnover in 2011 of $34.5m (£21.6m). The graph on page 24 paints a gloomy picture of an office that has simply failed to grow and failed to meet the firm’s – and its leader’s – expectations.
As one former partner in Orrick’s London office puts it “if you’re bringing in 6 to 8 per cent of revenue, no matter how good you are you can never make a difference. That’s why Ralph Baxter never ‘got’ London”.
In contrast, Orrick’s Paris office, while also not posting huge year-on-year growth recently, is broadly seen as a success story by current and former Orrick partners.
“You could argue that London has done okay – it’s not losing shedloads of money,” says another former partner. “But some of that is down to the great property deal it did, with very low rents because it was at the bottom of the market
[Orrick is understood to be paying £47.50 per square foot in London]. But the partners aren’t making as much per person as those in Paris.”
David Syed, Orrick’s senior partner for Europe, puts some of the reasons behind Paris’ success into context.
“We had a head start in Paris,” Syed admits. “When we joined from Watson Farley [in January 2002] it was a fully functioning, well-staffed office with good clients. Across Europe Paris is now the most mature office, with around 100 lawyers. It’s now full-service and one of the top 10 business law firms in Paris, on anyone’s shortlist for any big corporate, litigation or finance mandate.”
Not everyone would agree with the latter statement, particularly partners in the Paris offices of UK firms such as Clifford Chance or Linklaters, US rivals like Cleary Gottlieb Steen & Hamilton, Weil Gotshal & Manges or Willkie Farr & Gallagher, or French super-boutiques such as Bredin Prat or Darrois Villey Maillot Brochier – all of which are widely seen as having stronger Paris credentials than Orrick.
But Syed’s point about the firm’s Paris origins is credible. Baxter himself points to the acquisition of effectively all of Watson Farley’s French operations a decade ago (seven partners moved in Paris, gifting Orrick its first office on the Continent) as having been one of the most important deals in his lengthy litany of mergers and team bolt-ons.
“The Watson Farley deal gave us European bona fides,” claims Baxter. “Until then we’d had a small skeleton London office, but Watson Farley overnight gave us the heritage of a genuine European firm with 20 years in Paris. It changed our character and enabled us to do things afterwards that would not have been credible before.”
Those ‘things’ included taking more teams and opening more European offices such as Rome in 2004, Moscow in 2005 and three offices in Germany when it merged with local firm Hoelters & Elsing. And, of course, it gave Orrick the credibility to acquire French independent Rambaud Martel in January 2006, adding 18 partners.
The latter deal matched Watson Farley’s finance capability and banking client base with the French firm’s stellar M&A credentials. It also beefed up litigation, making Orrick a player on the Continent.
Yet, back in London, the firm could find no such transformative deal.
The question now is whether Orrick continues to look for one or, as Baxter edges towards the exit and Zuklie picks up steam as its new leader, abandons that path in favour of a fresh approach.
Tactics and strategies
First, though, allow Baxter to straighten out that misguided perception that merger was ever a strategy.
“Merger is a tactic, not a strategy,” he clarifies. “Orrick’s strategy is to be global, to have scale and breadth. A merger is a tactic that propels the firm faster than one lawyer at a time. That’s why I favoured it and continue to think it’s a good idea. But you have to be careful. It’s hard to pull off a really good merger. Most mergers aren’t successful.”
Quiz the man who knows more than most about mergers on why many are not successful and you get some genuine insights into one of the present global legal market’s driving forces.
“A merger needs compatible culture, strategy and economics,” says Baxter. “It also needs the parties to be willing to really merge, to cede independent control of their fate and lock arms with the merger partner to become part of something new. We are.”
So Orrick is still in the market for that big, transformative deal yet there is a caveat to that, admitted to by Baxter, which underlines the prevailing unfair impression of him as a lame duck leader. When asked if he will seek to do another big deal before his time ends as head of the firm Baxter begins his answer in what seems like a tangential aside before coming to an illuminating conclusion.
“One of the most significant ramifications of our nominating committee finishing its work of 18 months this week is that we know who my successor will be,” he says. “That means it’s possible for us to consider big moves again, now decisions can be taken.”
In other words, Orrick has been in a strategic holding pattern for 18 months. And for the next 14 months it will be in a period of transition as Baxter gradually hands over power to Zuklie.
“Eighteen months is an incredibly long time to take to appoint a new leader and then another 14 months of transition,” says the senior partner of another US firm. “As soon as people know you’re approaching the end you have little capital to do anything. You’re effectively a lame duck.” As the partner adds: “It’s not a great advert for succession planning.”
This theme is picked up by a former Orrick partner who recalls one of his first meetings after joining the firm several years ago.
“Even back then his succession was on the agenda,” says the partner. It raises the question of whether Baxter simply stayed on too long.
The man himself, though, sees the transition period as anything but a time of stasis.
“When I’d said I wouldn’t be seek- ing another term it made it hard to do another big move on what remained of my watch because someone else would be left having to deal with the impact of my decisions,” argues Baxter. “Now, and in the next 14 months, anything is possible. There has been no diminution of ambition.”
There’s the hub
Precisely what shape that ambition takes, however, and how it plays out in London, remains up for debate. Syed, appointed as global head of finance in January this year as part of Orrick’s wide ranging strategic overhaul (see box, right) has clear views on what one route could be.
“I’m not sure a merger is the only course any more,” says Syed. “I’ve worked hand-in-hand with Ralph for 10 years on Orrick’s international development and the crisis has changed things, the law firm model has changed and the role of London – along with New York and Paris – has changed. The emerging markets are increasingly important so I wonder whether the type of London office we need also has to change. I see it as more of a hub. This is something we will have to discuss in the coming months.”
Syed’s vision is for a London office that is larger than it is now but smaller than the 400 or so lawyers targeted by Baxter two years ago.
“We might be looking at a London office with a different kind of lawyer, one who flies in and out more – less domestic-focused,” adds Syed.
That approach immediately raises the question of what would happen to the current crop of lawyers in Orrick’s London office whose practices are primarily domestic in focus, notably real estate specialist and partner-in-charge of the City office Anne O’Neill.
“Anne’s practice is mainly domestic it’s true, but it’s also totally stable and a building block that gives stability and revenue to London,” says Syed. “However, I’d see London as a hub. I’m thinking along these lines, but this is not yet a strategy of the firm.”
The man whose job it will soon be to lead any decision on the future of London is staying relatively quiet on the matter for now. Zuklie says the most important part of the transition period will see him spending “considerable time” going around the network and talking to partners directly before making any decisions on Orrick’s future. Until then he will not be drawn on strategic matters.
Similarly, on the protracted search for Baxter’s successor, he merely says: “Ralph had been leading the firm for 23 years and we needed to be orderly, thorough and inclusive. That’s the prudent way.”
On London Zuklie virtually parrots his predecessor when he says: “It’s fair to say we see it as an extremely good group of lawyers who are, pound-for-pound, very strong and working in one of the most important legal markets in the world, and it’s not as large as we want it to be. We want to grow it. Also, every one of our partners in London connects well with others in the global partnership.”
Notably, Zuklie pinpoints capital markets, international arbitration and energy and infrastructure as among the most internationally connected areas. He also chimes with Baxter when quizzed about mergers.
“Merger is not a strategy,” says Zuklie. “Our strategy is not to do a merger for its own sake.”
Don’t rule it out though. In this period that has seen more law firm merger activity than any others few would bet against Orrick – with Baxter still at the helm – nailing one more big deal. Yet while Baxter’s appetite for growth is undimmed, the same market turbulence that is acting as a catalyst for many deals is also making finding the right talent problematic.
“Most of the people who are available are available for reasons that disqualify them,” states Baxter. “It’s obvious that we are open to doing large moves, but also obvious that achieving this is difficult. You have to proceed with unyielding effort, be determined and persistent yet careful, and observe high standards.”
Although it is not quite the end yet for Baxter, the chance to ask one of the world’s best-known and most charismatic law firm leaders about his epic period in power is too good to miss. Does he have any regrets?
“Nobody’s ever asked me that,” says Baxter, as he ponders the question in silence for several seconds. “Honestly, I don’t have any. The world’s changed dramatically during the nearly 23 years I’ve been doing this. Yes, if you apply hindsight we could find things we could have done differently. But given what we knew at the time, I don’t have any regrets. We were driven by a clear ambition and strategy to adapt the firm to a changing world. It was focused on our core values, things that will never change and that I held on to at every turn. This was one reason we chose Watson Farley – it had the same values.
“I remember the night I was elected. When I could see it was likely I’d be nominated I took a couple of days to thoroughly assess whether I was qualified to do this and if I wanted to. I’d trained to be a lawyer, not a manager. I had doubts whether I was up to it. Ultimately, I considered I was and could try it. I then had to decide what I should say to the partners. I said we really have to change, we must do it, and I thought the reason they’d chosen me must be because they wanted change too. I told them – we’re going to become international.”
Baxter has clearly achieved that ambition and, as he nears the end of his time running Orrick, it is equally clear he still has plenty of new goals to strive for. Baxter’s father celebrated his 100th birthday on 14 October, an event that not only gave the lawyer an opportunity to consider his dad’s life, but also get his own future in perspective.
“I’m not going to retire,” Baxter insists. “I have no interest in putting my feet up or spending time playing golf. I may stay at Orrick, depending on what role I can play. I may try my hand at other business ventures. I’m interested in changing the way legal services are delivered. I’ve also always had an interest in public service – before I’m done I think I’d like to do something in that sphere.”
As he says, there has been no diminution of ambition.
Zuklie – the new guy
Mitchell (Mitch) Zuklie is 43, the same age Ralph Baxter was when in 1990 the employment law department boss took over as head of the entire firm.
Zuklie is a corporate lawyer and technology specialist based in Silicon Valley. He started his career at the Venture Law Group (VLG), a firm described by Baxter as “inherently innovative”.
Zuklie quickly rose to the rank of director at VLG and joined Orrick as a partner in 2005.
“He’s a great client person, has a great client base mainly of technology companies and investors focused on technology,” adds Baxter. Two of Zuklie’s biggest clients are Fiskar Automotive and Nest, although the extent to which he will be able to continue fee-earning once he takes over from Baxter in 2014 is unclear.
Zuklie has fundamentally been a leader since joining the firm. He was appointed co-head of the Silicon Valley operations when he was in his mid-30s. Then he headed the transactional division and then the corporate business unit, the second-largest in the firm.
“He’s very, very smart,” says Baxter. “And that’s critical for these times, which are the most challenging times for UK and US firms in particular. He’s also very thoughtful, open-minded, can embrace change and listens to other people. In meetings he helps bring issues into clear perspective and facilitates getting to a sound and consensual decision. He’s also a very likeable guy.”
Zuklie is also obviously highly competitive. One of those rare individuals that manage to combine academic excellence – he was the editor-in-chief of the law review at the University of California – with an athleticism illustrated by his skills as a college American footballer. At university he also played rugby and boxed, a skill that might just come in handy in the brutal world of the law.