Mayer Brown: Baggage handling
26 November 2007
Mayer Brown: Baggage handling" />Who would want to be a Mayer Brown partner? Well, the firm's London office has seen no shortage of volunteers in recent weeks. Recent arrivals include litigator extraordinaire Clare Canning and corporate rainmaker William Charnley, who came on board from Barlow Lyde & Gilbert and McDermott Will & Emery respectively.
But the prevailing direction recently through the doors of the firm's US offices has been the reverse of London, for all sorts of reasons. Earlier this month Charlotte-based finance partner Tim Ryan, described by one former Mayer Brown partner as "the glue in the [Bank of America] leveraged finance relationship", left to join Hunton & Williams.
As has been well documented, earlier this year Mayer Brown cut 45 partners from the equity as part of a radical restructure, with the majority leaving the firm. Elsewhere partners in ones, twos and teams have jumped ship over the past 12-18 months. They include big names such as finance partner Ronald Brody, who left for White & Case with four of his New York partners this February, and leveraged finance partners Mark Wojciechowski and Andrew Mattei, who both joined Allen & Overy in New York in August.
Last Monday (19 November) a trio of Mayer Brown's top partners, including vice-chairman Paul Maher, said the firm's aim was "to be in the top five to seven biggest firms in the world". For that to happen Mayer Brown's success in the US recruitment market is going to have to start looking a little rosier.
Recruitment and growth are at the top of the Mayer Brown management team's agenda. But those efforts are not helped by the firm's PR difficulties surrounding a couple of recent lawsuits.
Two years ago Mayer Brown settled a major suit with the now defunct Oklahoma company Commercial Financial Services (CFS). Earlier this year the firm was sued for $17m (£8.24m) over issues relating to another bankrupt company, CMGT.
Meanwhile, on 3 December, the deadline for the latest stage in Mayer Brown's current battle over collapsed commodities brokerage Refco passes. That is the day the firm's attorney, Williams & Connolly, is due to serve its response to the opposition to Mayer Brown's motion to dismiss, lodged on 9 November by Weil Gotshal & Manges partner Seth Goodman. Mayer Brown is unable to comment publicly on Refco, except to say that it plans to defend itself "vigorously". The outcome will be watched closely by the US legal market.
Refco may be the current claim, but the 2005 CFS settlement and the firm's level of insurance have taken on mythical proportions with former partners. There appears to be a particularly nasty battle of words between the firm and former partners over remarks alleged to have been made by Mayer Brown's former general counsel Jim Holzhauer at a partnership meeting over the firm's level of insurance.
There is no evidence to suggest that the firm is not sufficiently covered, but as a measure of how bitter relations have become, some former lawyers persist in arguing that this is an issue for the firm.
Holzhauer insists: "At a Mayer Brown partner's meeting I informed the partners that the CFS issue had been settled and that the settlement was well within our insurance coverage limits. Speculation to the contrary is absolutely false."
New York head Brian Trust prefers to reverse the point. "Equally you could turn the question around," he says. "If there are so many liabilities and risks to being a Mayer Brown partner, why would we stay? Mayer Brown has a terrific client base, terrific lawyers. The fundamentals of the firm are so strong and that's what people will see. People get it."
New York focus
The place where most of the 'people' that Trust needs to 'get it' reside is New York. Currently housing "slightly more" than 200 lawyers, the New York office is crucial to Mayer Brown's ambition of expanding its global footprint.
"We're building in Asia and we've added an office in São Paulo," says Maher. "We're also intent on building New York further. We hope to be announcing several lateral hires soon. We're certainly looking at lots of people in New York."
Indeed, it has to be assumed that anyone considering joining the firm has had their mind put at rest about potential exposure to damages related to Refco. Although Mayer Brown operates a single profit pool (indeed, exhibit A - Attachment 1 of Weil Gotshal's November opposition to Mayer Brown's motion to dismiss - quotes a 2005 story from www.thelawyer.com reporting that fact), the partner hires in London will be shielded from any US exposure as they are members of a separate LLP.
And contrary to market gossip, New York is profitable, according to sources at the firm, and is generating significant instructions. Recent transaction highlights include a role (although not the lead role) on marquee client EMI's sale to Terra Firma (Mayer Brown handled the securitisation aspects of the deal) and a key position on Mlec, the Super Siv. Mayer Brown has scooped one of the lead roles on structuring the Siv along with Allen & Overy. Cleary Gottlieb Steen & Hamilton is advising the liquidity banks on the fund that aims to rescue assets from volatile investment vehicles in the unstable market.
"These are very tangible examples of huge deals with dozens of lawyers across many of our offices," says finance partner Paul Jorissen.
This is no throwaway line. Aside from the firm's woes, real or otherwise, over malpractice suits, the other major criticism that has been levelled against Mayer Brown over the years is its lack of collegiality.
"Mayer Brown had, or has, a very selfish, entrepreneurial culture," remembers one former partner. "There was a widespread perception that the overriding way to remunerate people was based on their originated billing credits. Consequently people sought to maximise these to the exclusion of proper teamwork."
This is one area where the firm's senior management, led by Maher, has clearly introduced change. Getting on for 100 partners have left the firm one way or another over the past couple of years and there is no doubt that some, whatever their personal billings, will not be missed.
Historical stories of 'out-of-town' (read Chicago) partners coming to New York to pitch against their own partners by quoting lower rates ("cannibalising our own client base", as another former partner puts it) abound. The reason? The 'eat what you kill' compensation culture.
Since January 2007, however, the firm has adopted a UK-style system designed specifically to encourage collegiate behaviour. Under the new system partners are placed in 16 bands and given a set number of points, with the value of those points dependent upon the firm's overall financial performance.
As Maher told The Lawyer last year (9 October 2006): "While individual entrepreneurs have done this firm a lot of good, in an increasingly complex and more competitive environment it seems pretty obvious that a more focused team-based approach is a better way to go."
The system was never going to suit everybody, but almost a year on Maher is unable to resist a dig at some of the "big-billing" partners who have either left or been shown the door.
"The underlying reality - and I stress this with all candour - is that a lot of what's being written is nonsensical," he insists. "We've introduced a new compensation system aimed at a more collaborative way of working. Some people didn't like that system or feel comfortable with it. Forty five partners leave, then they turn up as rainmakers."
Onwards and upwards
Maher's frustration at much of what has been written is obvious, partly because it has appeared on anonymous blogs to which the firm has little or no recourse. As he puts it: "Obviously we've been through a restructuring and have made certain changes - logical, coherent changes. We don't feel we're losing our best partners, but the bloggers have been at work. And our advice is: you can't take on the bloggers."
There is no doubt bloggers have been busy, with each posting more hysterical than the last. And there are plenty of them; a wild guess says it probably has something to do with the amount of former Mayer Brown lawyers out there.
There is huge passion on all sides at Mayer Brown, current and former lawyers included. But the reality of the situation boils down to money, pure and simple. Mayer Brown is still only at the start of a radical and transformational process overseen by Maher. The compensation overhaul was fundamental to the firm's future, but it will have influenced some partners to leave.
More than that, the fact that it was overhauled at all highlights the incontrovertible internal problems the firm let simmer for years. As one New York legal recruiter puts it: "Things are fairly serious when you have to change the compensation system to get your partners to behave like partners".
Mayer Brown's average profit per equity partner (PEP) is still hardly stellar. Although the firm posted a record revenue figure last year of $1.1bn (£597.83m), its $1m (£543,500) PEP is good, but not great.
"I could think of several other firms in New York in that PEP bracket that don't have the baggage of Mayer Brown," adds the recruiter.
The Refco suit is therefore an additional headache for the management. If it goes away, there is a chance that the firm will start to generate some good news in the shape of significant lateral hires in New York. If that happens, there is equally a chance that the firm, still proportionately US-biased in terms of lawyer numbers, will be able to stick up two very British fingers to those outside Mayer Brown who would love to see it slide.