Focus: Dechert, Paradigm of virtue

Late last month, on Thursday 26 March, US firm Dechert unveiled its most significant round of cost cutting so far when it cut 63 lawyers and a total 125 positions from its offices in the US, Europe and Asia. The layoffs followed two rounds of redundancies in February, which saw 29 lawyers lose their jobs.

For many firms, three rounds of job cuts in little more than a month would smack of crisis. Yet the consensus in the market is different.

“I think they’re very well-managed, so I’m pretty bullish about them,” says legal market consultant Alan Hodgart of H4 Partners.

Remaining robust

How is it that the Philadelphia-heaquartered firm can do three rounds of redundancies and still project an image of robustness? Much of it is to do with the firm’s chairman Bart Winokur.

Winokur is a lawyer with a long reputation for being tough, even ruthless. That has been built partly by his acknowledged ability to focus on the bottom line. For many who have worked with him, Winokur has a fearsome reputation.

“Within the firm there is a definite sense of people saying, ‘Bart thinks this’ and, ‘Bart thinks that’,” says one former partner. “But it’s also very easy to focus on just one person, there’s more to it than that.”

The majority of those laid-off lawyers and staff would agree that Winokur has no problem taking tough decisions. But for a number of legal market specialists outside Dechert, he is also seen as one of the most effective managing partners in the US.

“Bart’s an amazing leader,” says Renée Berliner Rush of US recruitment consultancy AW Rush & Company. “He leads by example, is an astute businessman and a good business leader. His imprimatur is on everything. When people meet Bart he gets them, he understands what it is they need.”

Last month, The Lawyer went to meet Winokur in his corner office overlooking Manhattan’s Bryant Park. The 26 March layoffs had yet to be announced and the conversation focused primarily on how well-prepared Dechert was for the current challenging environment, an environment increasingly characterised as representing a paradigm shift in the working practices of law firms. But even with a major round of redundancies just around the corner, it was clear there was no doubt in Winokur’s mind that his firm was more than ready for whatever challenges the market downturn was presenting.

“What’s happening is a little more serious than I thought, but not a lot more,” claims Winokur. “But I’m tempted to say there’s a paradigm shift facing law firms in terms of the way we do business. Because I like that. I always think I have an advantage when there’s a paradigm shift.”

As Winokur sees it, the legal market has seen fundamental changes before, in the 1960s, 1970s and 1980s. And they bring opportunities as well as risks.

“They favour the nimble, the brave, the people who have courage and who embrace change,” he argues. “Cyclical downturns don’t do that.”

For Winokur, the issue is simple. If there is indeed a paradigm shift then that is a good thing, because that should allow firms such as his to prosper.

“Great lawyers solve problems, they don’t do process,” he argues. “The top end of the profession is about dealing with change, helping clients solve their problems, understanding them. It’s never been about doing what you did yesterday.”

Storm warning

Certainly a number of Dechert’s lawyers have been at the core of the current financial storm, helping their clients deal with change. Last year more than 50 per cent of the firm’s revenue was generated by dispute resolution, a figure that will surely only grow in 2009.

The success of the disputes practice is typified by the string of cases handled by star partner Andy Levander, whose clients include former Merrill Lynch CEO John Thain, who was advised on executive compensation, and New York financier Ezra Merkin, a high-profile figure enmeshed in the Madoff scandal.

But Dechert has had its own ‘change’ issues to deal with. In contrast with the disputes group, the firm’s finance and real estate practice (FRE) saw a 50 per cent reduction in its revenue last year. In 2007, the FRE group contributed around 13 per cent of total fee income. It could barely manage 7 per cent last year as the markets collapsed.

Internationally Dechert has had its challenges too. The London real estate team has seen a number of departures, including City head Ciaran Carvalho, who joined Nabarro in January, while last month Dechert called time on its hopes for an office in Frankfurt. The German financial centre should have played a key part in the firm’s international strategy. Now it has gone.

Andreas Junius, a corporate partner who left Dechert in March for German independent P&P Poellath, says the US end of the business appears to have lost faith in the need for two offices in Germany (Dechert still has an office in Munich).

“When I joined in 2006 one of the aims was to build the Islamic finance practice,” Junius recalls. Dechert had just hired Mike McMillen from Norton Rose for real estate-related Islamic finance work and Junius came in to handle the M&A and private equity aspects. “To me it made good sense,” Junius adds. “And there was real support for that practice area within Dechert.”

Three years later, the support at least for Frankfurt appears to have waned. While Junius says Dechert has “a manifest and credible international strategy” and has had successes in Hong Kong and mainland China, the support for the Frankfurt office has all but gone. The global financial crisis may not affect Dechert’s long-term strategy, but in the short-term the management’s focus is on cutting costs. And that means one German office is enough, thanks very much.

Frankfurt retreat

In spite of the reversal in Frankfurt – a move that seems to conflict with Dechert’s strategy of building critical mass in all of the world’s key financial centres – and the layoffs last month, Winokur’s faith in his firm and the global law firm model appears not to have wobbled a jot.

Much of that faith, in spite of all the layoffs and the calls for major structural overhauls in the legal market, is based on Winokur’s unshakable belief in market economics.

“Two years ago someone asked me why associate salaries were so high,” Winokur recalls. “I said it’s supply and demand. And the market corrects itself. The market smoothes things out.”

Winokur also believes that the equation for success in the legal market is simple: the best will succeed.

“The most important issue for clients is not how many hours you spend on a matter but what you do,” he argues. Winokur believes that there is a fundamental flaw in the arguments currently being widely debated about the billable hour and other related issues.

“People have gotten it into their heads that if you spend an hour it’s worth X,” he says. “It’s not. Hard work is not about how long you work, it’s about how hard you work each minute and what value you generate. The clients know what they’re looking for. Value is in the eye of the beholder. It’s not abstract. The best clients are the most critical and demand the best work. The ones who push their lawyers to be the best. It’s not a matter of what’s your hourly rate, it’s a matter of what you do.”

As for Dechert, Winokur is an unapologetic proponent of the capitalist system and knows better than most that there are significant opportunities right now for those firms with a good solid financial base. Dechert has no debt and paid $29m (£19.75m) worth of 2009’s expenses upfront in 2008. It was cashflow-positive in January and February. It may have been forced to lay off some staff but as a firm the betting in the market is that it will be among those that emerge strongest from the downturn.

“Cream always rises,” says Winokur. “Sometimes it rises faster than in other times.”

And this could be one of those times.