Failure turnaround: How Patton Boggs became a management success story

Lessons from failed law firms teach us that, to ensure survival, the major manageable components of a law firm - its leadership, governance, culture, compensation, policies and procedures, and strategy - should not only be in harmony but also in sync with each other. In the event of disharmony, issues can and will arise; this was certainly true in
all of the 42 firms that I evaluated as
part of my research into failed law firms.

The most common causes of law
firm failure are:

1. ineffective leadership;

2. poor practice and strategic management;

3. incongruent governance and/or weak performance management;

4. overexpansion and/or issues of debt;

5. cultural fractures;

6. failed merger attempts;

7. scandals; and

8. mass defections.

One turnaround case study of a healthy law firm which was deteriorating but able to survive and thrive thanks to its strong leadership and management is Patton Boggs. This medium-sized, Washington-DC-based firm had about 400 lawyers at one point. While it boasted a broad practice offering, it was best known for its litigation and public policy practice, which acted as a powerful feeder for the firm.

The firm suffered from a number of structural and practical issues - six of the eight listed above - leading up to that point. But, it was able to turn things around with a strategic plan in 2011 that ultimately resulted in it merging with Squire Sanders in June 2014 to create a new top-30 global law firm which retained its name; the new firm is now known as Squire Patton Boggs.

Management challenges

Like most firms during the financial crisis, Patton Boggs was feeling fee pressures. Also, due to its smaller size relative to the requirements of the large multinational clients it serviced, there was significant pressure to bolster its practice offering and, in particular, grow its footprint.

Ed Newberry took over as managing partner in January 2011 and, on that day, one of the firm's largest engagements, the World Trade Center case, dropped from US$50m to US$18m; it was on a $330m budget. This was an unwelcome start for Newberry and, in retrospect, quite predictive of the years to come. In that year, leadership and management took a step back, assessed where they were, where they wanted to go and put together a strategy for getting there.

1. Strategy

While Patton Boggs' leaders had done a great job in managing the small to mid-sized firm in acceptable-to-great economy, they did not set the firm on the right path to being competitive in the changing landscape.

Importantly, they didn't develop and integrate enough true diversity into their practice portfolio, leaving it less-than-ready to buffer the huge dips that their litigation and public policy groups ultimately suffered during the global financial crisis.

Further, prior to 2011, although they had considered the need for a succession plan, one had not been instituted for Tom Boggs's impending retirement. As a name partner and chair, he was an intensely magnetic force within the firm and its reputational capital was heavily centred on him rather than on the firm's knowledge bases, human capital, processes, systems or technology. This posed a significant challenge when trying to predict what clients might do following his retirement. (Tom Boggs has since passed away, post-merger.)

2. Culture

The second management issue was an increasing fracture within the firm's culture. A growing number of partners had not been producing for some time, but were allowed to stick around due to strong cashflow and a values code that lingered from the firm's earlier days.

Up until the past couple of years, performance modifications and layoffs were not instituted and a more
aggressive and active group was becoming increasingly disenfranchised with the situation; the firm was starting
to balkanise.

3. Compensation model

The third issue was Patton Boggs' eat-what-you-kill compensation model which, while not necessarily a problem in and of itself, didn't support underperforming partners, especially in a down market. This posed myriad problems during the financial crisis and exacerbated the firm's cultural separation.

Further, its compensation model was going to make integration with a desirable merger partner - that is, one with a more collaborative culture - difficult, if not impossible.

4. Financial management

Despite the firm's conservative stance
on debt, banking pressures arose
when a number of lawsuits settled and wound up through the normal course of business, but in very close proximity to each other, constituting about $80m of
the $330m budget.

While the firm never breached any
of its loan covenants, it drew a more watchful eye from its lenders, adding to
its stress and the media frenzy circling it.

5. Mass defections

Before its merger with Squire Sanders, Patton Boggs experienced mass defections. Several big-name partners left the firm and it lost nearly half of its Dallas office and much of its Washington DC healthcare group. These were among other, less notable defections and layoffs, all serving to significantly reduce the firm's population within a brief period.

6. Scandal

Lastly, Patton Boggs was haunted by a scandal in the form of the Chevron oil contamination lawsuit in Ecuador, which followed the firm right up until the day before the merger.

Firm strengths

Any one of these issues could be destabilising to a law firm; jointly, they should have been devastating. But, while Patton Boggs suffered from these leading up to its transformation, it also did a couple of critical things right prior to 2011. Further, its management made some sound and difficult business decisions which were deployed against a strong headwind as
the pressure continued to build on them.

1. Branding

Though the firm was ultimately struggling as the merger approached, it had previously alchemised a truly powerful brand on the back of Tom Boggs and its public policy practice; it got the algorithm right.

While all major firms have a material brand in some way, shape or form, there
is a significant difference between a brand
that magnifies its partnership's capability
to develop business and a brand that
develops business on its own; Patton Boggs's brand did the latter. This was powerful glue within the firm's ranks
and bought considerable loyalty from
the partners, especially during the
down economy.

2. Culture

The firm had a very aggressive, clean and effective recruiting strategy which created a homogenous and cohesive culture that ultimately stood the test of time.

While the firm's culture did eventually begin to crack under pressure, the following circumstances should be factored in: a less-than-ready practice portfolio and footprint; the global financial crisis; and 24 per cent of its budget vanishing. That the partnership didn't ultimately break under this pressure is a testament to the strength of its culture.

Survival tactics

Once the firm knew that changes needed to be made and began its transformation,
it did a number things right.

1. New leadership

First, it put the right guy at the helm. Leadership choice is crucial in a law firm and Newberry fit the bill very well for Patton Boggs. He was the prototypical rainmaking partner, was habitually ranked as a top-10 lobbyist in DC and had a sizeable book of business before taking his seat.

As a result, based on the values and attitudes that help to generate the firm's prevailing organisational culture, Newberry was well respected within the firm and the client community. Further, Newberry is an aggressive student of leadership and business management principles. Importantly, he knows what he doesn't know and seeks guidance and help from others in those areas.

2. Quick decision-making

Newberry and his management team assessed the firm's problems quickly:
the lack of an effective future-proofed
strategy; a lack of a succession plan;
and a less-than-ready practice portfolio
and geographic portfolio.

With timing of the essence at that point, it rendered a decision quickly, which included finding the right merger partner. This would dilute the necessity for Tom Boggs' presence in the firm's day-to-day operations and decrease the firm's reliance upon a couple of practice areas. With the right practice mix and footprint, it would be able to better service its clients and develop its client base.

3. Losing dead weight

Once the decision to merge was made,
in order to get in shape for the merger,
the firm needed to shed some pounds,
rally around the producing population
of its culture and straighten out its compensation appetites.

This entailed layoffs, a shift in profit distribution and changes to some of the primary attitudes and values that underpinned the firm as a whole. These
are incredibly big and scary things for
any leadership to deploy, especially in
a mature market and a down economy.

4. Banking support

Management worked very closely and intimately with the firm's banks during the final hours. Often, in tight spots like this, it can be much easier to build walls, especially for lawyers. But, they instead opted to bring in help in the form of Al Togut and Joff Mitchell - a highly respected restructuring team - to build a strong business plan and to create cooperative terms with the firm's banking consortium.

5. Scandal management

As far as the scandal was concerned, Patton Boggs made what was, to some,
a shocking decision to settle with Chevron and pay $15m for its involvement in the fraud. But, when looked at through the eyes of a Fortune 100 CEO, this was an easy and somewhat inexpensive fix to a temporary problem that was impeding the progress of a permanent solution. Business minds would not second-guess this decision.

6. Media coverage

Management handled the defections and media coverage of them as well as could possibly be expected from a firm in that position. While defections are a problem, the media's coverage of them is even more so; they can arouse suspicion within the partnership about management's and leadership's intentions and motivations. And, while firm loyalty may override that, it can incite suspicions in clients, who are less moved by such sentiments and may force rainmakers to leave, lest clients leave without them. Situations like this require availability, delicacy and transparency; Patton Boggs achieved all three.

Further, Newberry and Boggs provided personal loans to the firm; $3.5m to be exact. While the motivation for the loans may have been out of necessity for their operational utility, the true value came in the form of removing media-incited suspicion that may have surrounded management's and leadership's decisions - they effectively put their money where their mouths were. In fact, Jim Maiwurm, global CEO of Squire Sanders, noted this was one of the criteria in his decision to vote 'yes' on the merger.

 

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Lessons from Patton Boggs’ successful turnaround

1. Build a truly powerful and independent brand

2. Do whatever is necessary to get the right person at the helm

3. Know what you don’t know – both as a firm and in your leadership – and bolster your blind spots

4. Be ruthless in developing a future-proofed strategy

5. Run lean and mean, regardless of the state of the economy

6. Fiercely grow and protect your organisational culture

7. Keep in the good graces of those that can help or hinder your existence, mainly banks and rainmakers and particularly the media

8. Avoid playing in mud, as you will get dirty

9. Walk your talk as a leader

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David Parnell is a legal search professional, columnist and author of The Failing Law Firm: Symptoms and Remedies (www.davidjparnell.com)