By
Roy Strom
Jeremy M. Downs knew after his first summer associate job that he wanted to work at a law firm that gave him hands-on work as a young lawyer.
Before he graduated from Northwestern University School of Law in 2000, Downs asked some associates he knew in Chicago for the names of some midsize firms he could apply to.
Each list he got back differed, but one firm made every list: Goldberg Kohn, where Downs ended up the next summer.
"I started immediately working on real, live work that needed to be done," Downs said. "I got to go to depositions, I got to be in court and I got to be involved in some of the strategies."
Downs still works at Goldberg Kohn, where he is now a fourth-year partner in the bankruptcy and creditor's rights group as well as head of the business development committee and a member of the compensation committee.
If Downs worked at a larger firm, he probably wouldn't be invited to join those committees at this stage in his career, he said.
A more senior lawyer from a different firm recently asked Downs: "You're on the compensation committee with only four years as a partner?"
Downs said that statement "confirmed for me what's a little unusual about our place."
Many midsize firms rely on top young lawyers who seek out other midsize firms, perhaps as an "unusual" alternative to working at big firms. But the midsize business model only starts with recruiting top legal talent. Chicago's midsize firms, in the midst of a struggling economic recovery, manage unique business models and typically resist the urge to merge or grow beyond the title of midsize firm.
They differ from large and sometimes other midsize firms in how they recruit and compensate their employees, generate new business and what rates they charge. Not to mention how they define midsize firm in the first place.
To start, pinning down what constitutes a midsize firm in today's Chicago market can be tricky. The market ranges in size from, for example, Goldberg Kohn's 74 attorneys to Neal, Gerber & Eisenberg's 161. The firm's range in longevity from, for example, 41-year-old Much Shelist to 14-year-old SmithAmundsen.
Chicago Lawyer interviewed seven firms that consider themselves midsize: Freeborn & Peters; Goldberg Kohn; McAndrews, Held & Malloy; Much Shelist; Neal, Gerber & Eisenberg; SmithAmundsen; and Ungaretti & Harris.
Recruiting top talent
Michael A. Moynihan, co-managing partner at Freeborn & Peters, said his firm's business model "has to have top lawyers, because that's expressly what we sell."
He described his firm's business model as: "Big firm alums who are providing partner-level service at reasonable rates."
Lawyers from all the firms interviewed in this article expressed similar beliefs regarding their business model and all agreed that recruiting and hiring top legal talent remains an important aspect of these models.
But recruiting strategies vary from Goldberg Kohn's near-exclusive mix of summer program and lateral associate hires to Freeborn & Peters' model of taking on big firm alums as partners or associates.
Neal, Gerber & Eisenberg; Goldberg Kohn; McAndrews, Held & Malloy; SmithAmundsen; and Ungaretti & Harris maintain summer programs.
Tom Fahey, managing partner at Ungaretti & Harris, said his firm brings in three to six summer associates a year. He said the firm's summer program accounts for their associate hires at about a 2-to-1 ratio with lateral associate hires.
"Most of our growth comes through our summer program," Fahey said. "But there are notable exceptions to it. Our last two associate hires were laterals from Jones Day and one from Mayer Brown."
None of the firms in this article who historically recruit through a summer associate program reported cutting its size in recent years. Rather, some say they want to take advantage of excess talent that became available as some big firms recently trimmed their summer associate pools.
Much Shelist, after being out of the first-year hiring arena for about 15 years, recently started an apprenticeship program for first-year lawyers, said David T. Brown, chairman of the management committee.
Brown said the firm hired one apprentice for the program with plans to hire at least two more.
He said the program will feature a different compensation structure and less demanding billable hour requirements than for other first-year associates at the firm.
"There (are) a lot of really talented people in the legal job market," Brown said. "Our view was they could be a tremendous resource for our firm."
Michael Sullivan, member of the management committee at Goldberg Kohn, said, "Normally we would get a couple of people (a year) from Harvard, let's say. In a year like this we'll get several."
Freeborn & Peters, then, becomes the only midsize firm of the bunch to steer clear of a program to hire and train new lawyers.
Moynihan said his firm scrapped its summer associate program in 2005 because traveling to schools for on-campus interviews and staffing employees to review candidates became too costly.
Moynihan said the top-of-the-class crop of fresh lawyers Freeborn used to target and hire often became the first to leave.
"We ended up getting exactly who we wanted, which were these very confident, open-minded law students who were the very first to leave the law," Moynihan said.
"We tended not to lose people to other law firms, but we lost them to entrepreneurial activities; we lost them to academia; we lost them to in-house opportunities."
Despite not being in the market of hiring new lawyers, Moynihan said the struggling economy helps his firm's recruiting.
"The economy has improved our ability to attract lateral talent because more lawyers with established practices are seeking relief from higher rates and persistent problems with conflicts," he said, adding that the past two years proved to be two of the best recruiting years in the firm's history.
Hiring talent on a budget
But top-notch talent should still be looking toward working at the largest firms, the conventional thinking goes. After all, they tend to pay more, don't they?
Last year, six of the seven largest firms in Illinois reported paying $160,000 a year for rookie associates, as reported in the August 2011 Chicago Lawyer "Large Law Firm Survey."
Of the five firms in this article that provided that information to Chicago Lawyer , only McAndrews, Held & Malloy matched $160,000 as a starting salary.
Goldberg Kohn and Neal, Gerber & Eisenberg reported paying $145,000; Freeborn & Peters, $140,000; and Ungaretti & Harris, $125,000.
Much Shelist's Brown said, "We've been able to fairly compensate people as a midsize law firm and keep them here for a long period of time."
John Held, a founding partner from McAndrews, Held & Malloy, said the firm maintains first-year salaries in line with general firms, currently at $160,000 a year, "to be competitive" with larger firms.
Sullivan from Goldberg Kohn verbalized the challenge of competing with larger, deeper-pocketed firms: "How does a midsize firm go out to some of the best law schools in the country and get some of the talent? How in the world? Why would they come to you?"
An economics class will teach you they won't; the best talent would line up for the best-paying firms. But Sullivan said young lawyers exist, like Downs, for example, that seek the challenge of "(hitting) the ground running right out of law school."
Finding that group of motivated lawyers demands a rigorous interviewing process, Sullivan said. For example, before he joined the firm as one of its rare lateral partner hires, he interviewed with all 30 partners in the firm.
"It was a couple of very long days," Sullivan said.
Growing a book of business
As leaner enterprises, these firms dedicate a lot of thought to which practices they want to grow. Most of the time, midsize firms select specific practice areas and develop a recognized expertise in that field.
Moynihan, from Freeborn & Peters, said his firm's strategy boils down to being "a foot wide and a mile deep" in niche practices.
"You have to take an area of the law, a particular competency, a particular type of work and you have to be the very best you could possibly be at it in order to compete in today's market," Moynihan said.
"So it's better for us to do a limited number of things very, very well than to do a long list of things in an only competent way. Avoid trying to be everything to everyone."
Moynihan noted that the firm's real estate practice focuses solely on the developer and owner side of large, commercial real estate.
"Outside that part of the real estate market, the firm's name might not be familiar to people," he said. "But if you went to the trade shows that focus on that section of the market, we're all over the place."
Larry Schechtman, managing partner at SmithAmundsen, pointed to the firm's labor and employment practice as an area with "recognized authority."
"We have lawyers who specialize in employee benefit compliance," Schechtman said. "It's a subspecialty within the labor and employment field.
"There's even subspecialties … so you've got to show that you know your stuff in those areas and then you get recognized."
Fahey, from Ungaretti & Harris, said the firm's health-care practice doubled in size in the last five years.
"Some practices will thrive better than others," Fahey said. "Where the demand is for sophisticated services but (potential clients are) looking at rate structures that are reduced from what the largest firm charges. Those are our sweet spots."
Brown, from Much Shelist, said his firm's banking, private equity and merger and acquisition practices attract many Fortune 1000 companies.
Goldberg Kohn's Sullivan said his firm likes to focus on drawing more work out of existing clients.
The firm early on sets up a compensation method that rewards less than most firms for bringing in or "owning" clients.
Whereas many firms view each lawyer as a profit center developing his or her own book of business, Sullivan said his firm encourages lawyers to share clients from their books with other practice groups.
Sullivan said by placing less compensation incentives strictly on the amount of cases or hours one attorney bills, it encourages attorneys to lead their clients to the most knowledgeable attorney at the firm on any given case.
"The effect of all that is it expands our book of business and it introduces clients into an atmosphere where they don't feel like they're not getting the best lawyer for the job for any sort of internal political reason," Sullivan said.
"There are firms where that's not the case. Lawyers at some other firms think, 'If that happens, I don't get any credit for it, why am I going to focus my time on that?' That's sort of the nuance that's hard for the outside world to pick up on."
Big firms compete in most, if not all, of the same areas that midsize firms develop specialties in. But higher overhead costs at big firms often mean higher rates for their services, lawyers from the midsize firms interviewed said.
In the tough economy, cost-conscious companies want to lower their legal fees. Midsize firms' fee ranges become attractive when companies put to bid some of their legal work, these lawyers said.
Brown, from Much Shelist, said his firm's higher end lawyers charge around $500 an hour, as opposed to bigger firms that he said could range from $900 to $1,000 an hour.
"Some bigger firms have associates charging $500 (an hour), and that's where our partners are at," Brown said.
Fahey, from Ungaretti & Harris, said his firm's associate rates tend to carry a bigger discount to a large firm than his firm's partner rates. On average, he said the firm's rates tend to be about 20 percent below the biggest firms.
SmithAmundsen's Schechtman said big companies seem to be warming to the idea of working with midsize firms.
"General counsels who are reporting to their boards are much more willing to say, 'Hey, we can go beyond that bigger firm and we can find a firm just as good, who might be able to save us a little money from what we're used to paying,'" Schechtman said.
"We're meeting with far more general counsels of Fortune 500 and other corporations than we've ever had inroads to meet with before."
Moynihan said Freeborn & Peters pitched itself to large companies as a low-cost alternative to big companies long before the recession.
"When the economy first started getting shaky in late 2007, we said, 'OK, not sure how long this will last, but at some point this is going to speak exactly to what our marketing pitch is,'" Moynihan said.
"And that's exactly what happened. We've doubled the size of our marketing department and we've hired the most lateral partners in the last two years than we have at any other similar period frankly ever."
So, are midsize firms here to stay?
A report from Altman Weil MergerLine, part of the Altman Weil law firm consulting company, says law firm mergers in the first three quarters of 2011 went up 79 percent compared to the same period in 2010.
Of the 50 mergers that Altman Weil Mergerline recorded in 2011, only three firms that coalesced into a bigger firm could be considered midsize. Those three firms consisted of 67, 93 and 160 attorneys, Mergerline says.
Chicago-based Wildman Harrold Allen & Dixon, the 160-lawyer firm in the report, merged with the 500-plus lawyer firm Edwards Angell Palmer & Dodge.
On the other hand, seven deals involved midsize firms taking on smaller firms. Before the deals, the midsize firms ranged from 63 attorneys to 140, Mergerline says.
SmithAmundsen accounted for two of those seven, as it took on the seven-attorney firm Madsen, Farkas & Powen and two- attorney firm The Garry Law Firm, Mergerline says. Both of the smaller firms operated in Chicago
In addition to expanding through local mergers, Schechtman said SmithAmundsen may look to expand into other Midwest cities.
In late 2010, SmithAmundsen opened a St. Louis office that Schechtman categorized as "part of our geographic expansion."
"What we're finding is our clients want to use us wherever they can," Schechtman said. "So if we have clients who need us in Indiana for instance, we can cover northwest Indiana but don't presently cover all of Indiana, so that might be a natural expansion area."
Jerry H. Biederman, managing partner of Neal, Gerber & Eisenberg, said his firm considers itself midsize because the firm tailors its business model to being a one-office, one-city firm.
"We really, frankly, glorify in the fact that we are a single-city midsize firm," he said. "We've never felt (expanding or merging) would enable us to either attract business or talent better in this market. Our business model has really been well served by staying who we are."
Moynihan said Freeborn & Peters shies away from picking up smaller boutique firms because of possible oversight problems.
"If you, as a manager, don't understand the nuances of the business, and the nuances of the law in that area, you can't oversee that new business unit appropriately," Moynihan said.
Goldberg Kohn takes that view to the extreme. Its biggest lateral hire remains one person from one law firm at one time, Sullivan said.
"It would be a very foreign concept for (the firm) to pick off a practice group from somewhere else," Sullivan said. "It's just a very foreign thought to the way we've grown."
While Goldberg Kohn has so far resisted merging with bigger firms, most lawyers from these midsize firms said they get contacted by larger firms looking to get into Chicago's legal market.
Biederman said he gets calls "every month" from big firms who want to snatch up Neal, Gerber & Eisenberg as a way to get into the Chicago market.
The phone calls last "a good five or 10 minutes," he said.
"We've done our own internal analyses over the years and it's difficult for us on balance to see how it would be to our advantage," Biederman said.
"We don't think that we would make more money. We don't think that we would attract lawyers that we want that we don't already get. We don't think that we would get classes of business that we don't already get."