Smaller law firms finding their niche

Posted: August 19, 2007

Steve Madva gets the telephone calls all the time.

A law firm in New York wants to merge with his Philadelphia-based firm, Montgomery, McCracken, Walker & Rhoads L.L.P. A consultant suggests Madva's firm acquire a practice that is shopping itself around.

"There are always opportunities to be acquired or to acquire," said Madva, the chairman of Montgomery McCracken, who listens to but resists most such entreaties. "We are treading slowly and cautiously."

For several years now, the received wisdom in the legal profession has been that the marketplace is fraught with risk for small to midsize firms such as Montgomery McCracken that must expand geographic reach or risk being driven out of business by larger competitors.

But like Montgomery McCracken, many firms have chosen a more modest approach, forgoing grand expansions in favor of targeted, regional growth that seeks to minimize risk while playing to the firms' strengths.

"The conventional wisdom is, you have to be big and that a midsize firm cannot survive," said Robert Denney, a law and business consultant based in Wayne. "But the secret of survival for a midsize firm is not to be all things to all people. You have to be very selective, even brutal, about the kind of practice areas you put your resources behind."

Montgomery McCracken, which has about 170 lawyers, has been growing about 10 percent annually and projects that it will grow to as many as 250 over the next several years. But rather than establishing far-flung offices, the firm has focused instead on having a larger regional footprint, locating its legal talent in the Philadelphia area, with practice areas that are national in scope, such as litigation.

In the last year, the firm has expanded its entertainment and sports practice and established a practice group focused on helping parents maneuver through the bureaucratic morass of special-education programs.

It is also flexible on its rates.

Madva said the firm would consider discounting hourly rates in exchange for incentive payments if there is a favorable outcome. He is not shy about citing the value of the Montgomery McCracken brand - one of the founders of the law firm was former U.S. Supreme Court Justice Owen J. Roberts.

To ward off recruiters, top-producing partners are paid well and carefully tended to, Madva said.

"It is increasingly competitive out there, and the competition is not just for work, but also for lawyers," Madva said. "We have to be very competitive in how we compensate our major producers. When you get from three-quarters of a million to a million [dollars] in billings, they get calls [from recruiters] all the time."

Cherry Hill-based Flaster Greenberg has grown exponentially since its managing partner, Peter Spirgel, joined the firm as its seventh lawyer in 1987. Yet it remains small, and likely will stay that way, at least in relative terms.

Spirgel said the firm, which now has 70 lawyers, had no aspirations to expand beyond its base in Southeastern Pennsylvania, Delaware and New Jersey.

When Spirgel joined the firm, it focused entirely on tax law and estate planning, but since then has expanded to land use, environmental law and bankruptcy. Spirgel said the firm targeted the clients and practice areas, such as land use, that larger firms could not handle because they did not have the local contacts or enough lawyers focused on those matters.

"We looked at our corporate and tax practices, and we said we are not going to get the big Fortune 500 companies, let's not kid ourselves," Spirgel said.

So the firm focused on midsize, privately held businesses where owners seem to want a more personal relationship with their lawyers.

"If you are a mega firm, you are probably not interested in a $50,000 relationship," Spirgel said.

For a large firm, he said, "it probably costs $10,000 to just open the file. But a $50,000 relationship for us is in our sweet spot."

Spirgel said the firm would grow, but he was careful about whom it recruited. He interviews at least one candidate a week, but finds that some candidates do not match up well with the firm.

It would make no sense, for example, for a lawyer who practices before the World Trade Organization or some other international trade agency to join the firm, but a local land-use lawyer or environmental lawyer whose billing rates are in the range of $370 an hour, the average for Flaster Greenberg partners, could be a good fit.

Yet, the firm would be reluctant to hire the same land-use lawyer if his billing rates were about $150 or so because that would cut into the profits.

Woodcock Washburn L.L.P., a Philadelphia-based firm focused on intellectual-property matters, offers another model. Joseph Lucci, a partner and member of the firm's policy committee, said the 100-lawyer firm focused almost exclusively on patent, copyright and trademark issues, almost as if it were one huge practice group, and felt no pressure to expand into other practice areas.

For more than 50 years, the firm operated primarily out of its Philadelphia office. Yet its intellectual-property work has a national client base, including the National Institutes of Health in Bethesda, Md.

In 2000, it opened an office in Seattle to take advantage of software, biotechnology and aircraft-manufacturing clients on the West Coast.

Since then, the firm also opened an office in Atlanta, where it handles patent matters stemming from pharmaceutical development in the Research Triangle region of North Carolina.

"The thing we hear from law firm consultants is that there is no reason that we can't go it alone," Lucci said.

Ralph Wellington, chairman of Schnader Harrison Segal & Lewis L.L.P., a 200-lawyer firm based in Center City, said the firm had been working on a strategic plan that called for growth to about 300 lawyers over the next few years, but in areas where it believed it had an advantage, such as its national litigation practice.

Wellington said the firm avoided formula-based compensation systems that tie paychecks to billable hours to promote a more collegial atmosphere and to fend off recruiters. Along those lines, lawyers at the firm also are compensated for a substantial amount of pro bono work.

The firm, which has offices in such cities as San Francisco, Washington and New York, is also very careful about how it grows. The firm closed its 50-lawyer Boston office several years ago after a merger with a local firm went sour; the firms' cultures clashed while lawyers in the Boston office were particularly hard hit by the dot-com bust.

Since then, Schnader has stabilized and is in an expansion mode; profits per partner have grown 50 percent in the last three years to $400,000.

"There is no one model for a law firm," Wellington said. "There is clearly a place for very large and perhaps very international firms. And there is a place for very regional law firms focused on small- to mid-market companies."


Contact staff writer Chris Mondics at 215-854-5957 or cmondics@phillynews.com.

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