Skadden looks on the bright side

IT IS rare to see partners leave Skadden Arps Slate Meagher & Flom, so Manhattan’s legal community was set chattering recently when it witnessed three partner defections in the less than a week.

First M&A stars David Fox and Daniel Wolf announced their departure to Kirkland & Ellis (TheLawyer.com, 19 May). They were followed shortly by New York-based restructuring partner Jan Baker, who defected to Latham & Watkins last Tuesday (TheLawyer.com, 20 May).

At first glance the trio of exits appears to signal bad news for Skadden. Both Wolf and Fox were prominent members of the corporate team, having advised BHP Billiton on its proposed $150bn (£96.12bn) bid for Rio Tinto in 2007.

Like Fox and Wolf, Baker is a well-respected and well-known partner. He has also advised on a number of key deals, including the restructuring of US grocery store Winn-Dixie in 2005.

Yet according to Skadden firmwide chief executive Eric Friedman, three departures in a week is not a concern for the firm. “We’ve been fortunate that so few partners, especially given the size of our partnership, have left the firm,” he says. “While we weren’t expecting it, this is the normal course of events in the legal profession; they were presented with an interesting opportunity.”
As Friedman says, a firm the size of Skadden can probably live through the exit of two ­partners who were part of a
131-partner global M&A team.

“Our model is such that we’re not dependent on any few clients or any few partners,” adds Friedman. “No client and no single partner is directly responsible for more than 3 per cent of our revenue.”

“These guys were not the stars of the show,” says a partner at another US firm. “At Skadden they’d do well but wouldn’t be ­promoted way up the ranks.
At Kirkland they’ll be the big hitters responsible for developing a practice.”

Although departures of high-performing partners at other firms could signify the beginning of tougher times ahead, for Skadden that’s not the case – the majority of those in the New York legal community still have faith in its future.

“Yes, Wolf and Fox were successful at Skadden and took the lead on some fantastic deals,” admits another US partner. “They were valuable members of the team, but in no way crucial to its survival.”

In contrast, for Kirkland the arrival of Wolf and Fox is a big deal. Their experience will
be crucial in strengthening the Chicago firm’s New York M&A team.

“We already have a successful M&A practice across our offices,” claims Kirkland head of corporate Tom Yannucci. “We felt we needed to add the experience of M&A principal deal lawyers. This is exactly what these guys give to our practice.”

As for Latham, the firm declined to comment on its new recruit. But bringing in Baker as head of restructuring does appear to be a statement of intent by a firm that the market believes has been underweight in this area for some years, a point highlighted in this year’s Transatlantic Elite.

Skadden has been successfully developing its restructuring practice since the 1990s, with Baker at the heart of the strategic push, advising on deals such as the restructuring of American Pad and Paper, Circle K Company and the HealthSouth Corporation.
Indeed, Baker’s practice has been at the forefront in the downturn, so snaring him to head restructuring is a major coup for Latham.
Still, although it is undoubtedly a loss for Skadden, the move arguably says more about individual partner remuneration than it does about Skadden.
Although details of Baker’s compensation have not been made public, it is understood that Latham offered the partner a hefty guarantee to lure him away from Skadden.
“As a restructuring partner you’ll be bringing in the bulk of the revenue right now, which will be shared with other partners who are not driving revenue at the same level,” says one US partner. “If another firm can offer you more and solve that problem for you, it would be very tempting.”
But Skadden does not seem too concerned by the departures. A spokesperson said the firm wished all three well at their new firms and thanked them for their contribution, while Friedman points to the much-hoped-for greenshoots starting to appear.
“Over the past few weeks, we’ve started to see some favourable signs in the economy and in the markets generally,” he says. “Although no one can predict the precise timing or nature of recovery, it will come and we expect to participate in it.”