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Lawyers Joining the Real World

THE BALTIMORE SUN

From his 16th-floor office on South Pratt Street, Cleaveland Miller enjoys a splendid view of Oriole Park at Camden Yards, but it's a pleasure he no longer takes for granted.

As managing partner of Semmes, Bowen and Semmes, Mr. Miller knows his clients are more impressed with bottom lines than baselines. For this and other reasons, he recently presided over a painful downsizing, giving up space and generally re-engineering or right-sizing his old-line Baltimore firm.

Semmes avoided capsizing, in part, because it was not the first in Baltimore to find itself threatened by an unprecedented array of economic forces: the collapse of commercial real estate, the decampment of banking and other business to other cities, the lingering recession, demanding clients in search of the best for less and start-up competitors able to offer lower fees via technology and modest space with no view.

Mr. Miller offers one more factor: a profession-wide blindness that came with 50 years of uninterrupted prosperity.

"Lawyers forgot the bad times. Some had never been through bad times," he says. One New York firm was obliged last year to pay its partners about $700,000 each, down from $1 million. Most make far less, of course, and the payments are sometimes geared directly to income generated. Lawyers becoming more like everyone else, their incomes no longer guaranteed.

"There's real ferment in this business and it's not going to change. These trends will last another five or 10 years," Mr. Miller predicts.

Semmes has seen a good bit of the churning already: in April Thomas J. Manning Jr. and Wendy Widmann quit Semmes and began work at Smith & Downey, a Towson law firm specializing in employee benefits law. Smith & Downey, which grew to nine attorneys with the pair's arrival, was formed in 1992 by partners who left Piper & Marbury.

Managing partners at a number of Baltimore's other firms, large and small, agree that running a law firm in the 1990s is nothing like it was in the days when the work and the fees rolled in via the old-boy institutional networks. All say the 1990s demand forward thinking, nimble positioning and ax wielding.

Adjustments have been nearly universal, though not always painful.

"The proper response is not to be focused too exclusively on what's happening in metro-area Baltimore but to adapt to a strategy that is more fluid," says James L. Shea, once a lawyer at Semmes, now managing partner at Venable, Baetjer & Howard, one of the largest of Baltimore's firms.

While many of his colleagues were pessimistic, Mr. Shea says that Venable's fortunes are rising.

"We're having a nice year. Our Washington office is doing beautifully. We're hiring new lawyers out of law school. We have a program to hire slightly more senior associates and a vigorous search on for new partners. We've hired eight new ones this year."

If law firms had been oblivious, they are no longer: If you have a big real estate unit, you suffer in a slump unless you can shift your talent into bankruptcy law and creditors rights. Venable downsized, too. "We let some attrition occur without replacing those who left. We weren't particularly happy, but it was necessary. We did it and profited from it."

Lawyers are no longer insulated, but they're not isolated either.

"Adjustment is happening in virtually every other industry," says Charles O. Monk II, managing partner of Weinberg and Green. "You can survive with good business judgment and a vision of what sort of firm you want to be."

And whom you want in it. "The days of paying people on the basis of how long they've been able to stay alive are over," says John Moag, managing partner in the Baltimore office of Patton, Boggs, a firm with 250 lawyers in a half-dozen offices across the country. "Partners that are 40 or 50 years old and productive will no longer stand by and subsidize a nonproductive partner."

As difficult as they are, these changes are compelling when the ground seems to shift beneath your feet.

Cleaveland Miller had always done a lot of work for Maryland National Bank, sharing it with another Baltimore firm. But that work dried up when NationsBank swallowed Maryland National.

"Life was simpler then," Mr. Miller says ruefully. "Now all the corporate work is done in Charlotte," where NationsBank has its headquarters.

Semmes also was hurt by defections: Experienced partners started peeling off to join other firms, to take law jobs with government or banks, jobs with less pressure; or to open smaller operations, commonly referred to in the trade as "boutique" firms, offering special services at lower fees. Often, they took the parent firm's clients in the bargain. The large or mid-sized firm was left with big charges for nice views, partners who expected princely compensation -- and the need to get fees down.

At the same time, the law schools were pumping out a stream of eager, smart hustlers, potentially bringing the hourly rate down even further.

But clients generated the most pressure. Struggling to find their own new identities, corporations began to negotiate fees -- in advance! And maybe they'd like to pay for the work at a contracted price, leaving hourly rates aside altogether. Maybe they'd just bring on enough in-house legal talent to stop dealing with the old firm.

And don't even think about copying charges.

Mr. Moag of Patton, Boggs says law firms do a brisk business in copying the records generated by virtually every court case. They also seek reimbursement for on-line computer time as their lawyers increasingly use expensive research services. Now the client's chief counsel -- sometimes a big firm defector -- argues that these costs should be absorbed as overhead by the outside law firms.

When all of these things hit a firm like Semmes, the view of the future is cloudy at best. Mr. Miller had to let people go. He had to talk to creditors. He had to talk to his landlord. He won't say what happened, but the possibility that a law firm could, indeed, fail helped him in his negotiations.

"We were fortunate not to be first along that route," he says. He suspects landlords, like lawyers, themselves, could not take in the new reality at first. A law firm's appeal for better lease terms was not heard with much sympathy until a couple actually folded. That, coupled with Baltimore's oversupply of Class A office space, helped Semmes work out a plan.

The process is a delicate one.

"You have to convince them you're hurting but also that you can survive and thrive," Mr. Miller says.

Some say medium-sized firms like Semmes will be sized all the way down to boutique level, maintaining the cherished name and a specialty or two -- but little of the earlier heft.

"We are still looking to grow in the right areas with the right people," Mr. Miller says. Labor law and international business development are two of these, he says. Nothing like this has happened to law firms since the 1930s, Mr. Miller believes. Companies always had legal needs, particularly when they were were failing.

Now lawyers know how it feels. And it could be worse. If federal tort reform legislation had been enacted, requiring losers of civil suits to pay the winners' bills, the game would be up, Mr. Miller says. The U.S. House of Representatives passed sweeping tort reform legislation in March, but it bogged down in the Senate.

"For every frivolous suit that is brought, there has to be someone to defend it," Mr. Miller says.

As long as the push for tort reform lives, the future for many lawyers is far from guaranteed. It depends on Congress. It depends on the health of the community the law firms serve. If a city such as Baltimore does not offer reliable services and amenities, its law firms will have trouble attracting the most talented new practitioners.

"If you don't have lots and lots of talented people to support you, you start to lose position. It's not good enough to just have adequate young lawyers if you want to do the best stuff. Your 25-year-old associate has to be better than their 25-year-old associate and your 35-year-old partner has to be better and more experienced than theirs," says Piper's managing partner, Francis Burch Jr.

What it all means, says John Moag, is that law firms have to be more like corporations.

"Those who are creative, entrepreneurial and willing to make tough decisions will survive. And prosper."

D8 C. Fraser Smith is a reporter for The Baltimore Sun.

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