ParfumGigi@aol.com

Julie Triedman
The American Lawyer
05-14-2007

Nancy Lasersohn, Dechert's chief marketing officer, pauses at a Lucite magazine rack in the firm's Philadelphia offices and notices that something is amiss. "Oh," she says, grabbing a fistful of glossy brochures touting the firm's state tax practice, "I guess we should get rid of these."

Less than a day has passed since CEO and Chairman Barton Winokur sent an e-mail to the firm's 1,007 lawyers announcing that the state tax practice -- with Dechert's blessing -- was moving to Reed Smith. Though the three-partner group had posted $10 million in revenues (and turned a tidy profit) the year before, Dechert had declined to make it a national practice. "For a variety of reasons, the development of a nationwide state tax practice is not a strategic priority for Dechert," Winokur wrote in his e-mail.

In Dechert-speak, that means that the state tax group wasn't going to help build one of the practices the firm sees as having the most profit potential: corporate, hedge and mutual funds, real estate finance, antitrust, securities litigation/white-collar enforcement, product liability and most recently, IP and arbitration. And if it wasn't serving those practices, it wasn't going to get much in the way of resources from the firm. Such a hard-nosed focus on a few core areas has pushed Dechert from a Philly-based also-ran to the top tier of profitability among The Am Law 100. In 2006 Dechert's revenues grew faster than all but a few firms that scored big contingency fees or had a merger (up 27 percent over 2005). Profits per partner hit $1.99 million, just a tick below the top Wall Street players an hour's Amtrak ride away in New York. And the firm showed above-average growth rates in revenue per lawyer and value per lawyer.

Dechert's formula has been fairly simple: Raise rates aggressively, expand head count while tightening up the equity partnership, focus on a few core practice areas, and grow the ranks in London, where the firm has 121 lawyers, and New York, home to 223 more. Dechert has also been in the right practices at the right time. The firm is one of four leading Merck & Co. Inc.'s national Vioxx defense; it recently scored the antitrust work in the $16.5 billion sale of Pfizer Consumer Healthcare to Johnson & Johnson; and its client roster -- once dominated by Pennsylvania-based clients -- now includes names like GlaxoSmithKline plc and Merrill Lynch & Co. Inc. "A number of firms have tried to reduce their practice areas to only the profitable ones," says Thomas Sharbaugh, managing partner of crosstown rival Morgan, Lewis & Bockius. "But Dechert's clearly been successful in doing that."

Partners credit Winokur, 67, with shaking things up. "It's as if he's taken an underperforming company and turned it around," says Robert Helm, a funds partner and deputy chair. Winokur helped sell rank-and-file partners back in 2001 on a five-year plan to mold the firm into a more profitable one -- and he's helped keep the equity partners focused on those goals.

Not everyone has come along for the ride. Nearly 40 percent of the partners who were at Dechert in 2001 have since left. Many have exited because the firm was no longer providing resources to build up their practices. "They made it clear we were welcome to stay," recalls William Stock, an immigration partner who left with three others in 2003 to start a boutique. "But they did not want to make the effort to add to it."

The firm is now embarking on a second five-year plan that will incorporate many of the goals outlined in 2001. But Dechert faces a stiffer headwind now. Premium niches can disappear, and the firm doesn't have a broad, public company M&A practice to fall back on. "We'd like to be a player in that market," says one recent lateral to the firm. "We're not there yet." There are only so many times that a firm can get away with double-digit rate increases, and competitors are hungrily eyeing the firm's marquee practices. Dechert's next five-year plan may be less about achieving momentum than about holding its own.

Every week, Dechert partners crowd into meeting rooms from San Francisco to Paris for a teleconference led by Winokur. On a mid-January afternoon, it was standing room only in New York as Winokur congratulated partners on surpassing 2006 financial targets. A month later, inside the same room, Mark Shapiro, a law firm consultant now at Blaqwell Inc. who helped put together the firm's last strategic plan, prodded Winokur and several practice group heads to come up with a new set of financial targets. Competition, they sense, is getting tougher. As John Gillies Jr., a real estate partner and policy committee member, put it later: "When you get into this rarefied air, you've got to run faster just to stay in place."

Winokur has already issued a 12 percent "rate challenge" to practice group heads for 2007, saying the firm still has some room to sell a rate increase to clients. Citing survey data from the private banking arms of Citigroup Inc. and Wachovia Corp., Winokur says that rates still lag behind key competitors a bit. He acknowledges, however, that "we are way closer now, this year, to where our peer group is." In 2001, as the firm embarked on its first goal -- to grow revenues 20 percent a year over five years -- partners were prodded to be up front with clients that the firm was interested in their meatier matters. At the time, surveys showed Dechert's rates lagging behind those of competitors by as much as 30 percent. Rates were hiked 10 percent in the first year of the plan, and then 6 percent to 7 percent a year, forcing partners to initiate the kind of financial conversations with clients that most lawyers avoid. It also priced the firm out of more rate-sensitive matters, such as environmental work and property sales for large real estate management companies. "It's been a very good discipline in making sure we have the best lawyers doing the very best work," says Peter Astleford, a top London hedge funds partner. "If you don't, then your lawyers will not be busy. And if they're not busy, you know you've done something wrong in your business."

But clients aren't necessarily thrilled with the idea of another big jump in rates. A 12 percent increase "doesn't bear a relationship to the economic realities under which we, as a business, are operating," says William Ohlemeyer, vice president and associate general counsel at Altria Group Inc., for whom Dechert does tobacco-related litigation work. He declined to discuss Dechert's rates, but said that "many firms are at the point where they have started to price themselves out of the work. The mistake they make is thinking that their work is irreplaceable."

Clients aren't the only ones who have to be sold on the plan. Partners were willing to pitch increases to clients when they were a third behind comparable firms. Now there's less of a sense that the firm is missing major opportunities. "There will be a big fight to convince people to buy into that idea now," says corporate partner G. Daniel O'Donnell. "[And] when people make as much money as we make, the idea of financial incentives kind of loses its power."

That's a seismic shift in attitude from the days when few outside Philadelphia had ever heard of Dechert. When Winokur, a rainmaker who made his name doing leveraged buyouts and mergers in the 1980s, took over as chairman and CEO in 1996, the firm's revenues were growing -- but others' were growing faster. "We could slowly have drifted down-market and been a very nice Philadelphia firm with maybe 200 lawyers," Helm recalls. Twenty years down the line, Winokur and other longtime partners believed, just 10 to 20 firms would represent the world's largest companies in their most important matters. Dechert wanted to be one of them.

But the firm, known then as Dechert Price & Rhoads, was still suffering from the "Dechert who?" complex. When securities litigation partner Steven Feirson competed for matters against firms like Debevoise & Plimpton or Skadden, Arps, Slate, Meagher & Flom, "I didn't win that much," he admits. "Being at Dechert was not a big help."

Those frustrations were compounded by an increasing struggle in the 1990s to keep the firm's best clients from being poached. "There was a real push by general counsel to hire the best counsel for the job," O'Donnell says. "That put pressure on firms like Dechert that were used to doing everything for their clients."

Dechert partners saw expansion in Europe as one way to boost the brand and prove to clients that it was more than just a player in Philadelphia. The firm first opened an office in London in 1972, initially to serve just one client, The Franklin Mint. In 1996 the firm struck a joint venture agreement with London's Titmuss, Sainer & Webb, a 165-lawyer mid-market firm, and four years later, the two firms merged. The firm believed that U.K. lawyering "was going to dominate the European legal practice. Therefore, we wanted to be a full-service firm there," says O'Donnell. (Concurrently, the firm dropped Price and Rhoads from its name.)

But the Titmuss bet looked like a long shot out of the gate. The firm was largely domestic in focus, and its lawyers billed an average of around 1,300 hours annually. "There was a lot of concern that we were 'marrying down,'" says Feirson, a deputy chair. But the partnership was sold on the deal because of the success of a model hedge fund group led by Peter Astleford, 45, a former Linklaters partner who joined Dechert in 1997 during the joint venture and drew on Titmuss associates to grow his practice. "But for Peter's building of the financial services group, I'm not sure we would have gone through with the merger," says Feirson.

Ultimately, Dechert declined to give seven Titmuss partners equity status. Lawyers there were asked to redirect their practices toward higher-rate niches, and associates and partners were asked to increase their billable hours (to 1,750, according to two London associates). Most of the real estate and litigation partners -- 22 in all -- eventually left. And Titmuss associates, who had been accustomed to a shorter partnership track, found it nearly impossible to rise at the new firm. Twenty-eight of 53 London associates listed in 2005 were gone by early 2007.

But Dechert lawyers worked to jump-start the merged firm by introducing its London lawyers to U.S. clients with U.K. operations. When its client GMAC Mortgage LLC was looking for a firm to handle its U.K. transactions, "we were the obvious one to take their work to," says Ciaran Carvalho, a Titmuss partner who made the transition. Last year the firm was appointed global and U.K. counsel to Capmark Financial Group Inc. (as GMAC has been renamed).

Astleford, meanwhile, has built a powerhouse hedge funds practice, worth roughly $30 million last year, up from $2 million in 1997 (out of $79 million in total U.K. revenues). The firm has had recent success in attracting laterals, among them Graham Defries, 39, and Wayne Rapozo, whose transactional work at Weil, Gotshal & Manges has evolved into cross-border capital markets work for funds clients. "It was clear this firm was on a dramatic trajectory," Defries says. "And that there are a lot of people here with genuine practices, not just a few partners." The strong returns have also bolstered associate hiring: Associate ranks have rebounded, to 71.

London may have helped polish the firm's international credentials, but its high-flying financials depend on success in New York. In 2005 Dechert lured 57 lawyers from the New York office of Swidler Berlin Shereff Friedman, among them 25 litigators who gave Dechert instant traction in securities class action and white-collar work, two premium-rate practices. Winokur consummated the deal within a month. "There were some people who felt the minimerger was rammed down their throats," recalls a former New York partner. "Those are the same people who are now making boatloads of money because of the deal Bart made."

Andrew Levander, 53, a former prosecutor in the Manhattan U.S. Attorney's office who is already viewed by some partners as Winokur's heir apparent, has brought several new matters to the firm by many accounts. In one of several examples cited, he has used his connections to Symbol Technologies Inc. -- after two years leading an internal investigation, he was appointed Symbol's outside general counsel -- to steer $6 million to $8 million in new work to Dechert. When Symbol announced that it was being acquired by Motorola Inc. in a $3.9 billion sale last September, Dechert got all the IP, bank financing and M&A work. (It continues to work for Motorola on Symbol-related matters, Levander says.)

Levander says that Dechert offered the greatest visibility of the three firms interested in the group. At Swidler, "I can remember one pitch where I went in, and at the end, the general counsel came in and said, 'You gave the best pitch,' but an old director said, 'I've never heard of that firm,' and we weren't picked," recalls Levander. "With Dechert, for the first time in my career, when I go in, I have some wind at my back." The wind seems to be blowing at hurricane force, particularly in funds-related work. Billings for financial services clients hit $110 million last year. Of the 20 largest asset management firms worldwide, Dechert counts 18 as clients, whether in corporate, regulatory, litigation or funds work, Helm says. In 2006 the firm won fund work associated with Fidelity Management and Research Co., according to a competitor; it also was appointed counsel to the funds of Goldman Sachs Asset Management, L.P.

It's part of the wider explosion of finance work firmwide. Dechert's structured finance practice has mushroomed from around 15 to 20 lawyers in 2000 to 180 today in New York, Philadelphia, London, San Francisco, Boston and, more recently, Charlotte, N.C. From "basically nowhere," according to Gillies, the firm has muscled into sixth nationally in securitizations.

The surge in private equity in the M&A market has also worked to Dechert's advantage. The current practice dates back to 1982, when Winokur advised a client that was bought out by Citicorp Venture Capital, Citibank's leveraged buyout arm. Afterward, Citibank, the acquirer, hired Dechert to handle its next deals. Twenty-five years later, the Citibank connection alone has sprouted into work for private equity firms holding several billion dollars in capital, including CVC Capital Partners Limited, Court Square Capital Partners and One Equity Partners LLC. The firm is also getting a foot in the door in larger M&A deals; it handled both M&A and funds-related issues for a Canadian conglomerate, Power Financial Corp., in its acquisition of a mutual fund group, Putnam Investments, for $3.9 billion last year. It also counseled a private equity group, Fillmore Capital Partners LLC, in its $2.2 billion acquisition of Beverly Enterprises Inc. Clients like these "wouldn't have been represented by us eight years ago," says Winokur.

On top of the corporate work, the firm continues to bring in millions from product liability defense. Last year Vioxx work for Merck accounted for at least $37 million, more than 5 percent of the firm's revenues. But the firm is hoping to avoid a repeat of the late 1990s, when Philip Morris USA Inc. (now Altria) accounted for 9 percent (roughly $33 million) of its gross. Robert Heim, who represented Philip Morris and headed the practice group, was asked to diversify the practice and reduce the firm's reliance on smoking litigation.

While the firm continues to represent Altria -- as lead counsel in a mass action in West Virginia and in the Blankenship medical monitoring class action, which resulted in a defense verdict in 2004 -- revenues from the company had dropped to about $10 million by last year. "There were assignments that we didn't go after that other firms did," says Winokur. In 2006, moving to further diversify, the firm won lead status in AstraZeneca PLC's Seroquel product liability litigation, as well as a major consumer fraud class action from a new client, Sunoco Inc.

In recent years, Dechert has added IP litigation and international arbitration to its list of must-have practice groups. In 2003 it lured a group from Oppenheimer Wolff & Donnelly, and opened its Palo Alto, Calif., office for them; two years later, it kicked off its arbitration group with the acquisition of 32 lawyers, including 20 arbitration attorneys, from Coudert Brothers in Paris. Last February, winning out over several national firms, it convinced a seven-partner Dewey Ballantine IP litigation group to join, including two prominent trial lawyers, James Elacqua and Bryan Farney. (Dechert opened an Austin office just to accommodate Farney.) "Clearly, they felt we were on the short list for IP litigation, and if they brought us in, they might be," says Elacqua. Within a month, members of the Dewey group were leading a high-stakes International Trade Commission action facing Advanced Analogic Technologies, an existing client of Chris Scott Graham, who heads the Palo Alto office. "We couldn't have handled that matter before," says Graham.

The Dewey coup is just the latest indication that the firm is increasingly competing for, and getting, talent from Wall Street firms. In many instances, it has done so by going after relatively young partners, lawyers that Feirson identifies as "builders." The firm has resisted -- with one exception, Winokur says -- offering candidates more money than they left behind (this was confirmed in numerous conversations with recent laterals). In return, partners who grow the firm's business may get performance-based bonuses to correct imbalances. For several years, the bonus pool represented around 6 percent of profits; in 2005 some $22 million was distributed to a small number of partners. Last year the bonus pool was halved to 3 percent because the baseline partnership draw increased so much, says Winokur. The firm operates on a modified lockstep with a rather wide spread, with the most junior equity partner earning roughly $800,000, Winokur says, and the highest-paid partners -- among them Winokur, O'Donnell, Heim and Levander -- making closer to $8 million, according to a former partner.

But getting to equity status has become harder: Equity partner numbers have remained flat while head count grew 73 percent from August 2000 through April 2007. That has driven up leverage numbers from 3.2:1 in 2000 to 5.8:1 today. Associates can now spend five years or more on the nonequity partner track before making it to equity status (if they make it at all).

The longer ladder to partnership and emphasis on premium practices has made Dechert's revolving door spin much faster: 37 percent of the 192 equity and 20 income partners listed in a law firm directory in 2001 have departed, replaced by 96 lateral and 43 homegrown partners. (There are currently 174 equity and 114 nonequity partners.) Associate turnover, meanwhile, has been as high as 35 percent.

Practice groups that couldn't keep up with rate hikes withered. "Every year, the rates were going up substantially," says M. Joel Bolstein, a former environmental law partner who left for Fox Rothschild in 2002. "It was a sustainability issue. We were competing with other state and regional practices, but at Dechert, everybody's rates have to go up at the same time." In a one-on-one meeting in 2002, Bolstein recalls, "Bart said, 'We're really going to be taking a closer look at the environmental group and how that fits in with our vision for the firm.' It was pretty obvious that the group wouldn't be getting resources." Dechert gradually priced itself out of the running for laterals in that and other practices. "Very recently it became difficult, if not impossible, to hire at Dechert at the partner level," says Lee Zoeller, a former state tax partner. "It's hard to find someone with a $5 million book of business."

Winokur and his team don't seem too worried about the churn. Though he acknowledges that turnover can have an impact on the firm's culture, Winokur says the effect on finances has been negligible. The firm is hiring now in Europe, he says, and planning for an office in Hong Kong -- Dechert's first in Asia. It can afford to. With a 25 percent required annual capital investment by all partners, the firm carries virtually no debt, Winokur says. And it is awash in cash from its record returns.

That's not to say that the firm isn't looking over its shoulder. It faces competition on every front as it tries to hold on to premium work. In hedge fund work, for instance, Schulte Roth & Zabel is fighting Dechert for dominance; Kirkland & Ellis is muscling in, meanwhile, on private equity. "There are huge peer-group issues now," admits Feirson. "If you look at Dechert's Am Law 100 numbers now, you say, 'Isn't that unbelievable, isn't that great.' But if you look behind you, it's terrifying."