ParfumGigi@aol.com

June D. Bell and Aric Press
LawFirmInc.
02-12-2007

When the history of the modern law firm gets written -- remember, there are Ph.D. candidates born every day -- one of the key turning points will be the advent of the professional executive directors or as they're now known, the chief operating officers. Today, 30 years after iconic COO Earle Yaffa was just a gleam in Skadden Arps' eye, these executives have established themselves as central figures in the biggest and most ambitious firms, key players who don't always have votes but clearly have voices, who sit at the proverbial adult table and, perhaps as importantly, who receive paychecks that signal their status as partners in everything but name.

Those are among the main findings of Law Firm Inc.'s first survey of the COOs of The Am Law 200 firms. This is the latest in the magazine's series of polls aimed at extracting opinions and benchmarking data from key members of the executive suites of The Am Law 200, the top-grossing firms in the nation according to our sibling publication The American Lawyer. Later this year we will again survey the chief technology officers and head librarians, and for the first time, chief marketing officers. Together the results of these four surveys should form a provocative snapshot of the state of the much-discussed law firm C-suite.

For the COO survey we asked the firm COO or equivalent to complete a 27-question form that ranged from their personal backgrounds to their business plans for the new year. Eighty-five replied, a remarkable response for an initial survey of 200. The replies were anonymous and fairly consistent. Our research department organized the responses by size of firm and found that the same issues ranked among the top three areas of concern across the firms. One significant area of difference: The Am Law 100 firms -- which as a group tend to be wealthier -- and those who reported that their largest office was in New York, paid their COOs a bit better. Here are some highlights:

-- Salaries: Forty-three percent reported earning $500,000 or more, with 9 percent reporting salaries of more than $1 million.

-- Top issues for 2007: evaluating merger possibilities, assessing practice group performance, and making more use of business intelligence.

-- Areas for new investment: business and professional development and, of course, new technology.

The rise of the law firm COO has been steady and driven by business necessity. In its own way, it amounted to a cultural revolution. Where once a skillful law firm administrator could handle everything from one-office payrolls to ordering typewriter ribbons, the spectacular growth of law firms created dramatic new needs and potential problems. While partners retained an interest and often a titular supervisory role, firms facing the onset of branch offices, unprecedented growth, complicated finances and unrelenting technology developments chose to hire outsider -- often nonlawyers -- to manage these areas. As much as anything, these hires brought firms closer to generally accepted business practices and allowed the lawyers to continue being lawyers.

Today, at many firms, growth is a given and so is the COO. Take Doug McLemore, who's starting his 13th year as executive director of Kirkland & Ellis. In the past 18 months, his firm has added office space in each of its eight offices in the United States and abroad. He says that headcount in the New York office is growing at a rate of 15 percent a year, and in 2009 the firm will move its Chicago headquarters to a new building to accommodate more than 1,400 personnel. So it's no surprise that McLemore estimates he spends as much as 40 percent of his time on growth-related issues. Mindful of the ongoing expansion, this year he plans to create an internal communications department to help keep employees connected.

The COO position has evolved into a leadership role blending sophisticated financial analysis, long-range planning and strategic initiatives, says Michael Short, vice president of law firm consultancy Hildebrandt International. As the central figure in a firm's C-suite, COOs oversee everything from the planning, development and construction of new offices to the investment of millions of dollars in software. On average, survey respondents reported that six chiefs reported to them.

They've got mergers on their minds. When asked to identify the issues that they expect will demand a significant amount of their attention this year, 49 percent of the respondents indicated that evaluating a possible merger was among their top three priorities. Besides mergers, other top issues were evaluating practice group performance, at 46 percent, followed by making greater use of business intelligence, at 41 percent.

After the survey we asked several COOs about their priorities. Meredith Mendes, executive director and COO at Jenner & Block in Chicago, plans to oversee the installation and integration of a new VoIP (Voice over Internet Protocol) phone system. This mirrors the trend we saw in the Am Law Tech survey of Am Law 200 CIOs ["Coming of Age," Sept./Oct. 2006]. She'll also be busy coordinating the move of the firm's primary data center to an off-site location, and rolling out business intelligence software and a new financial system.

Technology is also on the agenda at Latham & Watkins. COO LeeAnn Black mentioned several IT projects, noting that the firm invests $10 million to $12 million annually to stay ahead of the tech curve. She says that the firm will be among the early adopters of Microsoft's new operating system, Windows Vista.

The "ferocious competition for talent" and the increasing consolidation of the legal industry are dictating COOs' priorities, says Peter Zeughauser, a legal consultant with the Zeughauser Group. Of the respondents who expressed that a potential merger is a priority, 59 percent are at firms with between 250 and 499 lawyers, and 13 percent are at a firm that has its largest offices in the Midwest. Because COOs have their hands in all facets of firm operations, they often play a vital role in determining whether a proposed match goes forward.

At Townsend and Townsend and Crew, a 175-lawyer San Francisco firm that specializes in intellectual property work, executive director Dennis Gavin sees both sides of the growth imperative. With profits per partner in the top 15 percent of The Am Law 200, the firm is regularly invited to consider merger offers from larger firms and Gavin is regularly part of those discussions. At the same time, Townsend has sought to grow itself. The firm has increased its patent litigation, prosecution and consulting work by 40 percent in the past five years -- a strategy Gavin calls "an offensive play" to prevent general-practice Silicon Valley firms from elbowing Townsend out of its lucrative niche. Townsend also acquired 13 lawyers from a Northern California practice called Legal Strategies Group in 2003, the same year it launched its fifth U.S. office in San Diego. Throughout, Gavin has been a key adviser.

Growth is also on Dick Bigelow's agenda. Last year the COO of Luce, Forward, Hamilton & Scripps in San Diego helped his firm acquire an 11-member trust and estates litigation practice group from Holland & Knight's Los Angeles office. Bigelow's on the prowl for a similar acquisition in San Francisco, where the firm wants to double its size to 50 lawyers. With five offices in California, the 200-lawyer firm is making lateral hires but is also eager to merge when it finds the right partner -- a San Francisco or Los Angeles firm with strong real estate, corporate and litigation practices. "We're not looking to become a thousand-person law firm necessarily," Bigelow says. "California is a huge legal market with a lot of business that's not Fortune 100 or Fortune 500 clients, though we have those, too."

A CPA with 30 years of experience, Bigelow works with Luce Forward's strategic growth committee of eight partners to identify opportunities. One thing he's watching for is compatibility in operating philosophy. For example, Luce Forward openly shares data about compensation and profits with its partners. A firm that is averse to such candor would be a poor fit. In his four years at Luce Forward, Bigelow says he's spent about 20 percent of his time each year analyzing opportunities for mergers or acquisitions, and he expects to do the same going forward. And it's no wonder: For every deal announced, another 15 to 20 merger discussions at any given firm go nowhere, says Hildebrandt's Short.

Chief operating officers also expect to spend a good chunk of their time this year evaluating firm performance. Chicago-based Jenner & Block recently purchased business intelligence software to measure profitability several ways, including by attorney, client and practice matter, says Mendes. Last year the firm also hired a consultant to examine the firm's profitability, billing rates, realization and utilization -- and then to compare the firm's data to that of other large, national, litigation-heavy firms. Jenner & Block's policy committee is reviewing the consultant's findings before deciding on a course of action.

Mitchell Wallsh, executive director of Cadwalader, Wickersham & Taft in New York, uses an internal model to assess profitability. Financial data is downloaded into spreadsheets and analyzed based on models the firm created. The firm uses the Elite Accounting System to collect raw data, which is plugged into Excel spreadsheets by the director of strategic planning, who reports to Wallsh. He says the firm runs monthly and quarterly reports to determine revenues per lawyer, realization and average billable rates.

Investigating the greater use of business intelligence software rounds out the top three issues identified by survey respondents for 2007. What's more, when asked what three areas of their firms would receive the most additional investment in 2007, the top three responses were business development/sales (49 percent), technology (43 percent) and professional development (40 percent). Understanding IT is an inextricable part of a COO's duties.

Ask COOs about their spending on technology and they'll launch into detailed explanations of their firm's latest initiative. COOs say they work closely with their CIOs to be sure their firms are well equipped with software and hardware that help lawyers and support staff work more efficiently, be more responsive to clients, and better manage documents. Technology to meet those goals is constantly improving, requiring steady expenditure. Getting the most out of expensive technology requires an investment in training, support and upgrades -- and occasionally some negotiation.

"Tech people like to install the next gadget," says Wallsh, Cadwalader's executive director, while he's always looking to squeeze the most value out of existing technology at the 640-lawyer firm. Wallsh works closely with CIO Scott Bravi, whose three-year technology plan steers the firm's spending on technology. Both men try to maximize Cadwalader's technology investment. They say that last year's spending on IT was "in excess of $22 million." That amount includes staff salaries, capital investments and the ubiquitous wireless devices.

Wallsh says that some negotiating is required. For instance, Bravi wanted to replace every printer in the firm this year, even those less than two years old. His aim was to ensure a smoother transition by converting the entire system in one shot, but Wallsh opted instead to replace half this year and half next year.

Townsend's executive director, Gavin, touches on an interesting aspect of working with lawyers on technology issues. He says that he has been working with consultants to implement an automated litigation support system, adding that he considers himself the project manager "because the IT guy can't tell attorneys what to do. It has to come from management."

Like other executives interviewed for this article, Gavin says he thrives on the multidisciplinary challenges of his job. He views his role as that of an innovator, a financial expert and a persuader who can carry management's message to the firm. "The primary role of the COO is to be a change agent," he says. "To be the person who has aspects of change management mastered, because people don't like change."

Mendes of Jenner & Block says she gets the most satisfaction from boosting the firm's efficiency, whether it's adding a paycheck direct-deposit plan or overseeing long-range planning that will help the firm manage its real estate and personnel needs a decade from now. "I like dealing with strategic issues, but [the job is] also operational and policy-oriented," she says.

So what skills does it take to get all this accomplished? Mendes is a lawyer and CPA, who also has an MBA. She sums up what's required by saying, "You have to be able to hold your own with people who don't have a lot of time and tell you to 'Just fix it!'"