Sonnenschein on comeback trail
7 July 2008
Portnoy bids to return firm to US ‘A’ list
The chairman of credit crunch-hit US firm Sonnenschein Nath & Rosenthal has vowed to put the misery of May behind him and target significant growth in the latter half of 2008.
Elliott Portnoy, the man who pulled the trigger on the jobs of 124 lawyers and staff just over a month ago, said the lateral hiring pipeline that has seen dozens of partners join the firm already this year is now likely to slow.
But Portnoy reveals that he is already focusing on implementing an ambitious strategic plan that could see Sonnenschein increase dramatically its scale and geographical reach. The plan includes a major domestic merger deal, offices across the Continent and China and re-entry into the London market with the acquisition of a local firm.
“We’re in the middle of a period of transformation for the firm,” Portnoy says. “It’s a transformation to reclaim the place in the legal profession Sonnenschein has occupied for many decades.”
Portnoy is candid enough to admit that the ‘place’ he is referring to, as one of the US’s elite firms, has been lost by Sonnenschein.
“A period came when some of our Chicago competitors and, over time, national competitors began to put some distance between themselves and Sonnenschein,” says Portnoy. “Not in terms of client service or the quality of lawyers, but in terms of scale and profitability.”
At the beginning of 2006 Sonnenschein launched a strategic plan that shifted the firm’s governance from a geographical to a practice group basis and overhauled the practice groups themselves, introducing 14 departments (including the four largest – litigation, corporate, real estate and IP). May’s layoffs, which saw lawyers cut from uneconomical practice areas in an attempt to maintain the firm’s profitability, were a logical part of the plan.
Although Portnoy readily admits the cuts were aimed at keeping profit high, he insists that the firm’s number one goal is to grow revenue rather than profit. His argument, effectively, is that if the growth is handled correctly, with the right talent brought on board, then higher profit will follow.
“PPP [profit per partner] clearly is important as a recruiting tool,” admits Portnoy. “You’ve got to pay your highest-performing people extremely well.
But our focus isn’t PPP, but scale, and then using that scale to make investments in particular talent and, over time, achieving profitability.”
But according to one US recruiter, Portnoy has been a little more upfront internally about his wish to grow profit. Several years ago, she claims, he made a promise to his partners that within a set timeframe the firm would have an average PPP of $1.5m (£753,435).
Portnoy, who at 42 is unarguably youthful for a major law firm chairman, insists that he has never put a specific profit per equity partner (PEP) figure on where he wants to get to. That, he claims, is not what is important.
“It’s less about a firmwide PEP number and more that that is where the leading group of firms will be, so that’s where we need to be to continue to be competitive for talent and clients,” Portnoy argues. “We went through, frankly, a very straightforward exercise, in which we gave each of our operating units, our practice groups, net income targets. We evaluated our practice group leaders and the practice groups themselves against those targets.
“When some of our practice groups were showing a net income shortfall for 2008, we worked with those practice group leaders to put in place plans as to what steps would be necessary on the direct and indirect costs side to reach those profitability targets. That included the separation from the firm of associates in those groups.”
In other words, Sonnenschein was not looking to hit a particular firmwide PEP by the end of 2008. “Because, frankly,” adds Portnoy, “I think those numbers are illusory.”
But because the firm’s business is driven through its revamped practice groups, it encouraged its lawyers to hit their own individual targets. If that happens to result in a firmwide PEP of around $1.4m (£703,206) for 2008, so much the better.
As Portnoy says, the figure of $1.4m was not intended as an objective in and of itself, but as an approximation of where the leading group of firms would be.
“We said to our partners, profitability isn’t our objective – scale, revenue, practice portfolio growth is the objective,” adds Portnoy. “But if we had to put a push pin in the map directionally, then at the end of 2008 $1.4m is about where we should be aiming to be.”
Right now Sonnenschein has a lot of pins in a lot of maps. The next few months may reveal how many are illusory.
Paul Weiss names new corporate department chair
Paul Weiss Rifkind Wharton & Garrison last week unveiled the long-awaited identity of the new chair of its corporate department.
The successful partner, appointed unopposed after a steering committee reached a unanimous consensus, is the current co-head of M&A Bob Schumer.
Schumer, whose major clients include Time Warner, will take up his new role in January after the incumbent, Richard Borisoff, retires at the end of the year.
The appointment of a new head of one of Paul Weiss’s most powerful groups comes at a time of significant change at the US firm.
The Lawyer reported (9 May,) that litigator Brad Karp had been elected to take over the running of the firm from Alfred Youngwood, the chairman since 1999.
At the time London partner David Lakhdir hinted that the firm was likely to review its international referral networks and in particular the firms with which it works in the City.
Schumer plays down any suggestion that his appointment will result in any significant shift in the strategy of Paul Weiss’s corporate group.
“I’ve always played an important role in the department,” he stresses. “There won’t be any major change, but this will require a bit more focus on my part – a bit more administration.”
Schumer adds that the fact Paul Weiss does not practise English law meant it was not viewed as a competitor in the London market – a situation he sees as unlikely to change in the short term.
“We get a lot of referrals from firms such as Slaughters, Freshfields and Macfarlanes,” said Schumer. “We’ll look to grow the London office, although it’s been doing extremely well as it is. We may review our referral firms, but that’s something we constantly review anyway. It might make sense to have a more formal best friends-style system, but we wouldn’t want to close off referrals from any of the excellent firms we work with.”
Schumer has a broad-based corporate and M&A practice, with the emphasis on public company deals primarily in the media sector. He has helped steer major client Time Warner through a succession of deals. Outside the media sector a recent mandate saw the firm advise Canadian agricultural company Agrium when it acquired US rival UAP in a $2.65bn (£1.33bn) sale, with Wachtell Lipton Rosen & Katz advising UAP.