Orrick Herrington & Sutcliffe: Ralph and ready
28 July 2008
Orrick Herrington & Sutcliffe: Ralph and ready" /> It’s 9.35am in Manhattan and I’m doodling on a pad at the same conference room table where, 18 months ago, West Coast-headquartered Orrick Herrington & Sutcliffe ended its merger talks with Dewey Ballantine.
I’m waiting for Ralph Baxter, the head of the firm and one of the most talked about lawyers in America. The meeting was scheduled for 9am and, despite regular assurances from an assistant that “he’ll only be 10 minutes more”, there’s still no sign of Ralph.
At last, the door opens and in comes Orrick’s brown-jacketed boss. Apologetic, Baxter explains that he has been on a conference call for the past hour. Clearly running to catch up, he adds that he had flown in from Moscow the previous night. One thing is obvious: Ralph Baxter is knackered. “The amount of travelling I’ve done in the past six weeks has been insane,” he admits.
It is unusual for a lack of energy to be much of a problem for Baxter. Over the past few years, he has driven massive expansion at Orrick, maintaining its forward momentum by bolting on lawyers from the collapsed Coudert Brothers, as well as Rambaud Martel and Watson Farley & Williams in Paris. But midway through 2008, there is no sign of another market-busting Dewey-style New York deal that would have secured the critical mass and corporate capability where, arguably, it is most needed. What, I ask, is holding the firm back?
“Well, there are only so many market-busting mergers that are conceivable if you sincerely mean what Orrick has been saying all these years,” responds Baxter.
“That any deal we do will need to be compatible with our ideas of strategy, of culture and of economics. Well, I can tell you that there just aren’t many such deals to be done. Most of the firms that would fit for us, from their own perspective are not interested in doing a deal. Partly because not everyone shares our view, and partly because they’re so successful that either they would rather continue to grow through small moves themselves or they just choose not to do something more dramatic.”
There is another view. After the talks with Dewey collapsed, The Lawyer reported that one of the chief reasons for their failure was the personal demands Baxter is believed to have made (15 January 2007). In other words, one of the problems facing Baxter in his mission to grow his firm is Baxter.
“There is a general view in the market that has chilled Orrick as a possible merger partner,” says one legal market consultant. “Ralph is viewed as someone who readily entices firms into merger discussions in which he acquires important information about the performance of the other firm’s partners and practices. He then seeks to destabilise the other firm by being public about the talks, which puts him in a win-win position. If the merger succeeds, great. If not, and the other firm is destabilised, he knows who to cherry-pick. As a result, nearly no one will talk to him about a merger.”
The reaction to this criticism when it was put to Baxter the week following our meeting was dramatic. Baxter himself did not respond directly, but within minutes of an email reaching Orrick, Brad Hildebrandt of Hildebrandt International called The Lawyer, apparently on Baxter’s behalf, labelling it “scandalous”.
Eventually, an Orrick spokesman emailed the following: “We engage in spirited debates on a regular basis with those individuals who have differing perspectives than our own, and who stand up and identify themselves. But we do not respond to those who are unable to muster the courage to stand behind their comments.”
An alternative view of Orrick and Baxter is offered by the resolutely on-the-record Friedrich Blase of Kerma Partners, who argues that the firm is among the few with the skillset to go after opportunities when competitors struggle, and then move in on key people and clients that fit its strategic ambitions.
“Most other firms can learn a few lessons from them in this regard,” adds Blase.
Spats aside, and even without a replacement Dewey deal, Orrick has managed to grow significantly in the period since the deal fell apart.
“There’s been no let-up in our growth and development,” Baxter insists.
In recent months, Orrick has hired a veritable stream of laterals, without seeing too much traffic heading the other way. High-profile hires this year include two partners from Jones Day (the former head of the firm’s Los Angeles intellectual property group Rob Dickerson and London head of corporate Hilary Winter); Dick Martin, formerly managing partner and head of litigation at struggling Heller Ehrman’s New York office; restructuring partner Mark Fennessy from Hunton & Williams in London; high-profile white-collar criminal defence partner Michael Madigan from Akin Gump Strauss Hauer & Feld; and former Goldman Sachs
in-house counsel Howard Altarescu.
“I think when we get to the end of 2008 and we take stock of what we’ve done since we broke off the discussions with Dewey, you’ll see the pace of growth isn’t different before and after,” Baxter claims.
As ever with Baxter, the subject that really gets his juices flowing is Orrick’s global growth. One of the keys to maintaining its 2008 trajectory lies in Germany. Orrick is thought to be close to adding considerable corporate muscle in the coming weeks with the takeover of Dusseldorf-headquartered Hölters & Elsing. Baxter refuses to confirm the market gossip, but is happy to reveal the firm’s current top priorities.
“If you posed the question ‘what are the two places you most need to expand at Orrick?’, every partner in this law firm would give you the same answer,” asserts Baxter. “New York and London.”
Baxter admits that neither Orrick’s 240-lawyer New York home or its 75-lawyer London office are big enough.
“London continues to be one of the most important places for law and commerce in the world. So being our size isn’t nearly large enough for our own good,” he asserts.
How large would be large enough?
“We’re talking several hundred,” says Baxter.
Baxter is too canny to put a deadline on this significant City expansion, but the opportunism that runs through his veins means he is also ready to admit that the current market turmoil is not hurting his growth plans.
“We’re seeing far more high-quality lateral candidates, teams and individuals than we’ve ever seen,” Baxter reveals. “We also have enough history to know that these things come when they come. We know those moments will be there.”
And presumably the current economy means it is the perfect opportunity for more of those kinds of deals?
As Bruce MacEwen of US legal blog Adam Smith, Esq confirms: “I do believe that economic times like these disrupt rather than cement the status quo, and the observation that Orrick is seeing far more high-quality lateral candidates, teams and individuals than ever bears this out.”
Get Baxter started on the subject of international expansion and, fatigued or not, the Orrick head will wax lyrical. In particular, Baxter is clear on what his style of international growth means for his firm.
“American firms are more inclined to adapt the way they do things to the customs and practices of the other countries [than UK firms],” Baxter argues.
Clearly this is a simplification, but Baxter’s underlying point is that it is his firm’s policy to go native wherever possible.
“In London, almost everyone now is UK-qualified and almost all are UK citizens,” says Baxter. “Now this is becoming a very significant idea. The law firm that really does what I’m saying becomes a different law firm. And Orrick is becoming this. Orrick isn’t an American firm – Orrick is an American-origin firm.”
The follow-on from this strategy is that a firm that relies heavily on local lawyers should also distribute its leadership around the world – the failure to do so remains a constant source of irritation among many an international outfit.
“I was recently on the website of an international firm based in New York,” says Baxter, “and I looked at the members of the international committee. Almost all, except maybe one, were resident in New York.”
Too many lawyers
Yet for all Orrick’s global ambitions, expansion may be the least of Baxter’s current concerns. Right now, the number one problem of many US firms is not too few lawyers, but too many. For a firm such as Orrick, with one of the largest structured finance practices in the US, surely the likelihood is that it has been forced to cut back on its ranks of lawyers, not go out and hire more?
“We haven’t done layoffs, we haven’t needed to do layoffs,” maintains Baxter. “The obvious realities in securitisation, in mortgage-backed securities and so on has impacted us. It’s a large practice of ours. But we’re not dead in the water, it hasn’t eliminated everything. In fact, it has created some opportunities because there has been some restructuring of different things that we do.”
Not enough to replace what there was before, though?
“Not nearly enough,” admits Baxter, candidly. “But we’re a diversified law firm, so all in all in the firm some things are up.”
Some of those “things” include infrastructure finance – with Orrick involved in a number of international toll road financings such as the $608m (£304.32m) Pocahontas Parkway in Virginia and the $4.9bn (£2.45bn) Indiana toll road – and intellectual property (IP), an area into which the firm has recently recruited heavily, having brought in a trio of IP partners from Hogan & Hartson.
Baxter also claims Orrick has had some success in moving lawyers from its structured finance group into areas and geographies that are busier. But he agrees there is a limit.
“You’re not going to go from doing mortgage-backed securities to being the first-chair trial lawyer,” Baxter admits. “But there’s work that you can do. And our philosophy has been in these times to do the most we can with our own people, rather than hire new people. So our amount of hiring of lateral associates has declined, especially compared with what it otherwise would have been, and we’re filling those needs as best we can by rearranging people.”
In other words, Orrick is accepting the short-term economic effect of having more lawyers than it needs in structured finance and real estate finance – “Which we do have”, confirms Baxter – and attempting to gainfully employ its lawyers via reassignment.
“We think that will be sufficient to get us through this,” says Baxter, adding that if, as expected, the firm has over-hired for its autumn 2008 intake of new lawyers, “we’ll deal with that in the same way”.
Meanwhile, Orrick is being very careful with its money. Since the beginning of 2008, the firm has searched for non-essential expenses it could cut. Examples include the
biannual practice group meetings it usually holds that bring lawyers together from all over the world.
“We postponed some of those,” says Baxter. “We looked at all the ways, right from January, that we could reduce expenses to have a buffer for ourselves against a possible sustained downturn in demand for certain practice areas.”
As Peter Zeughauser of the Zeughauser Group puts it, prudence in all things financial is entirely appropriate in the current economic climate. “Nobody has ever accused Ralph of not keeping his finger on the pulse of the market,” he adds.
On this evidence, Orrick’s heartbeat looks to be still racing ahead.