Radical downsizing and a strategic rethink as IP is spun off.
In one of the most dramatic restructurings witnessed at any firm since the recession, over the past year more than 60 partners have left Howrey.
Observers could be forgiven for thinking it shows all the hallmarks of a firm in terminal decline. Yet managing partner Robert Ruyak remains upbeat, insisting it is all part of a plan that will see it emerge stronger than ever.
Not everyone agrees with the firm’s radical approach, including numerous former partners. Crucially, however, Howrey retains the support of its banks, with whom Ruyak has been in close dialogue in the past few months. He insists there is no chance of them pulling their funding.
“We’ve kept our banks closely involved in what we’ve been doing – that’s important when you’re going through this kind of process,” says Ruyak. “You don’t want to surprise the people who are funding you.”
The firm recently put in place a new one-year covenant with all its banks, a move that will offer some comfort to Howrey staff in what has been a turbulent period.
One of the most dramatic developments came in October last year when 12 partners left to form IP boutique Hoyng Monégier. They included Europe managing partner Willem Hoyng, head of Europe IP Benoit Strowel, Amsterdam managing partner Bart van den Broek and Brussels IP head Carl de Meyer.
As reported on TheLawyer.com (7 January), IP partner and London head Mark Hodgson has also left for City firm Field Fisher Waterhouse (FFW). Ruyak claims this is part of a wider strategy that will see the firm spin off what remains of its IP practice across Europe, with the exception of Paris.
The firm’s depleted European offices will instead focus on antitrust and competition work, and also arbitration in London. Part of the restructuring plan will also see it move from what Ruyak describes as “an office to a network” structure.
“We originally thought it was best to have our own offices, but that didn’t work out so well,” Ruyak concedes. “We’re now moving away from the concept of offices to networks. It means independent firms will still be utilised because we still need coverage in these countries [in Europe] for our clients in the US. We’re going from being staffed by our own people to having a network where we still serve clients, but in a way that doesn’t create problems.”
Ruyak is confident this will result in strong referral relationships with the likes of Hoyng Monégier and Hodgson at FFW. The Lawyer understands the relationships are not exclusive and there are no obligations to refer work on either side.
Ruyak lays the blame for Howrey’s struggles in Europe almost entirely at the door of what he considers the US’s draconian approach to client conflicts.
“What we’ve found, much to our dismay, is that conflicts of interest have been devastating,” he says. “We’re a huge firm in the US, and in smaller markets in Europe we found partners were getting pushed out of cases.
“There were so many lost opportunities, particularly in the pharmaceutical industry. It just wasn’t working, and we came to the conclusion it made more sense for the IP partners in Europe to go independent. Hopefully, they’ll be in much better shape as relationship firms.”
On leaving the firm, Hoyng issued a statement in which he urged US authorities to “take a serious look at their conflict rules, which are often not in the interest of clients but just a tool to outmanoeuvre competition”.
Ruyak adds: “US conflict requirements are much more stringent than in Europe. I’ve talked to a lot US firms and they’re having the same kind of problem. That’s why very few US firms have got into litigation in Europe.”
The question is, if conflicts have proved so damaging for the firm’s ambitions in Europe, why didn’t anyone see it coming? The firm began its expansion into Europe in 2000 after its merger with Arnold White & Durkee, eventually opening offices in Amsterdam, Brussels, London, Madrid, Munich and Paris.
“We didn’t anticipate the conflicts when we started this project,” admits Ruyak. “Maybe we should have, but we didn’t think it would be that difficult. It was frustrating for all of us, but you have to understand that US laws have been tightened in recent years.”
By March this year the firm expects to have completed its restructuring, and Ruyak does not rule out further departures before then. Significant changes have also been seen in the US, including the departure of the firm’s litigation co-chair Gary Bendinger to Sidley Austin.
“The US is different,” says Ruyak. “We had to make the decision to focus even more than in the past and it was clear we needed to downsize the firm. You also need to remember there have been some dramatic shifts in litigation in the US. The use of electronic discovery and outsourcing has meant less need for manpower. That’s been a dramatic shift in the past few years.”
Another potential development in the US could see the firm spin off its trademarks practice along similar lines to its IP practice in Europe. In a move certain to surprise many, Ruyak reveals the firm is eyeing up potential mergers and acquisitions in the US.
The firm will not be releasing its financial figures for several weeks, but revenue will be down on 2009. It is a hit that Ruyak says the firm is willing to take in order to create
“a substantial improvement in profitability”.
The cuts may trigger alarm bells among some, but Ruyak insists the firm’s clients have generally responded positively.
“Many of them think it’s about time law firms started looking at their cost structures – they’ve long said firms have too many partners and pay associates too much. In some ways they’re right. In the past law firms have been victims of having too much work.
“It’s time for firms to start acting like other businesses – it’s a new world and you have to adjust. We’re not perfect but I hope we’re going in the right direction. The next couple of years will tell whether this was the right thing to do.”