In Heller HandOff, Something Was Lost

Lehman and Merrill, brought low by leverage. Heller Ehrman, brought low by … term limits?

It's too early to declare Heller Ehrman's fate. But it may also be too late for the firm to avoid it – about four years too late.

That's when the firm's wildly successful former chairman, Barry Levin, handed the baton to Matt Larrabee. 

In a Recorder story four years ago, Bruce Pym, then the chair of Heller's business department, said Levin "may be one of those really extraordinary leaders that only comes along occasionally. He's been able to keep focus and direction for the firm and get the firm as a whole to join him in that. With that consensus, we've accomplished a lot in the last six years."

Indeed. On Levin's watch, revenue more than doubled, and its revenue per lawyer moved from 55th on the Am Law 100 to 17th.

But Heller had, and still has, term limits. Two three-year terms – that's all you get.

As we noted in that story four years ago, Heller was alone among California's top 10 firms in limiting its chairs' time at the top. And for good reason: Consultant Brad Hildebrant said then that most firms are loath to let effective leaders go. "Firms have very few people who are good at these jobs," he told us. "Lawyers are lawyers."

"If one person is working," added consultant Carl Whitaker, "and that person likes it, I think there is a real business reason to continue that. There's a learning curve at the beginning."

But as the story explained, Heller partners didn't see it that way – even Levin professed to think term limits were smart. They were, he and others said, a reflection of the democratic ideals that still governed at the firm, ideals that had kept the partnership remarkably intact over the years.   

By 2004, the year Levin's term ended, Heller reached its high water mark: 35th on the Am Law revenue list.

At the end of 2007, it was at 56th. The firm started leaking lawyers. Then they started pouring out.

That's not all Larrabee's fault. Nor does he deserve all or even most of the blame for the firm now falling apart. 

In re-reading the old clips, it's striking to see the degree to which, under Levin, Heller partners seemed to think they could resist the market forces that were turning all the other big firms into top-down autocracies. Levin and others seemed to think there was something special about Heller; in hindsight, it seems just as likely that there was something special about Levin, something that allowed him to improve financials despite the democratic culture. 

"We are plainly different from many law firms around," Levin said four years ago. 

Not any more.

—  Greg Mitchell

Comments

[Former Hewller employee]

The top-down, bloated middle management, that erroded the "old Heller",was initiated under the Rosenfeld tenure. Levin merely promoted the status quo. To imply that Levin "by force of will" led Heller towards success is ridiculous. Heller, like many firms, is suffering the consequences of unprofitable mergers, acquisition of lateral partners with dubious books, and a overzealous adoption of the "International Firm" model. See Davis Polk for a well managed firm. And please cease the love fest for Barry Levin.

[Anonymous]

It's worth noting that the firm was doing relatively well after the reigns were passed on to Matt Larrabee. Everything started unravelling when Matt Larrabee fired Phyllis Gardner, who had guided the firm so brilliantly for nine years.......

[anonymous]

So if Larrabee had the guts, he would hand back the reigns to Levin and get Phyllis Gardner back on staff and get this firm rolling again. If they give in, and let it dissolved Baker wins and they ended up with what they wanted for alot less money

[anonymous]

Terms limits had little to do with the fall, as Matt Larabee only carried out the plans made years before. (Someone in another blog suggested that Bill Clinton's term limit had an affect and that is somewhat true because under the last 8 years of Bush, Heller's antitrust group has atrophied from a 90s powerhouse to just a shadow of its former self).

In fact, the policy shifts that began during Levin's tenure (i.e., growth as a top priority, the bottom line (PPP) as new the top priority, rejection of "smaller cases" and "smaller clients", etc.) sowed the seeds of a deep cleavage among the partnership that grew to a deep chasm during Larabee's tenure. (It also killed associate morale because it became clear that with only "huge" cases, associates would never get substantive experiential opportunities because the stakes were always going to be too high. The same proved to be true of junior partners, who fought to take/defend depos or stand up in court, etc.) The firm was ultimately converted from a collection of California attorneys who worked together with the primary goal of practicing law (a law firm) to a collection of east and west coast attorneys who were more interested in making money as a business that practiced law to generate revenues and boost profits. Heller morphed from a "kinder, gentler, west coast" BigLaw firm to a firm that was trying so hard to move (culturally, financially, etc) to NYC and ended up getting stuck somewhere in the Midwest (metaphorically).

Many partners didn't like, and weren't interested in, that move. In the 80s and 90s Heller partners could have made more money at other firms, but didn't want the extra money if it came with working somewhere else. Heller also intentionally avoided paying top dollar (it paid just below top dollar) to law grads because it didn't want to recruit those grads who were guided primarily by money--it wanted people who were choosing Heller, not just the highest paying firm of the moment. That all began to change with Levin's tenure.

The small cabal that ran the firm was committed to increasing profits and believed that the best way to do that was to emulate NYC firms and to "move" the firm eastward in all respects (e.g., open offices on the east coast, raise rates, raise billable requirements, work associates harder, etc). With that came higher rates (to boost PPP) that forced out some partners whose clients could no longer afford their services at Heller. Other groups (e.g. employment, environmental, soft IP (trademark), etc.) were given a signal that they were marginal to Heller's future, causing further defections. Then, some "old school" partners began leaving because they saw the writing on the wall due to the new greed that had taken over the firm's management. They liked the old Heller community, where attorneys were individuals and people instead of being perceived solely as profit generators.

When the big cases settled last year it became clear that the whole gig was up, and that spawned a renewed interest in a merger to save the ship. Failed mergers and divisions among the partnership made matters worse. The old power core consisted of the antitrust group (Popofsky, Bomse, etc) and the new power core had shifted to IP Lit (Haslam, Fram, etc). Heller's recent inability to satisfy the members of the IP Lit group was the straw that broke Heller's back. The IP Lit group was the source of the conflicts that broke up the Baker marriage and the IP Lit group had already committed to leave before Mayer opted out (which is probably a primary reason why Mayer opted out).

A tragic tale, where the greed and short-sightedness of few left a lot of people in the lurch. Best of luck to all involved.

[Scott Graham (Cal Law editor)]

Wow, great comments here, thank you. I think opinions will always differ on the performance of leadership, and certainly some of the commenters here are more knowledgeable than us about the inner workings of the firm. I do think it's worth considering, though, that the large California-based firms that seem to have had the most success over the last decade -- Latham, Gibson, Orrick, MoFo, Paul Hastings -- have kept the same leaders in place for the last 14, 6, 18, 8 and 8 years, respectively.