Quote:
Originally posted by Sidd Finch
Perhaps someone could post the Fenwick article from today's Recorder, and see if that defribillates this board.
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Your wish is my command.
The tech player says it's doing just fine, but is the future so certain?
Renee Deger
The Recorder
07-21-2003
Fenwick & West
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Lawyers: 271
Partners: 82
2002 revenue: $142 million
2002 profits per partner: $650,000
Offices: Mountain View, San Francisco
Major clients: Apple Computer Inc., Cisco Systems Inc., Intuit Inc., Verisign Inc.
Gordon Davidson isn't ready to hit the panic button just yet -- even though Fenwick & West is showing all of the standard signs of trouble for a law firm.
In recent months, Fenwick has closed its Washington, D.C., office, frozen staff salaries and seen a cadre of high-profile partners exit. Plus, the 271-lawyer Mountain View mainstay is a corporate player that depends on technology companies for much of its work, and that has not been a reliable revenue generator in recent years.
But Davidson, the firm's chairman and chief cheerleader, contends Fenwick is weathering the stormy economy and that the recent moves to shutter its office in D.C. and freeze salaries are simply smart business decisions. The defections, he said, have nothing to do with the firm's finances, but were governed by the partners' personal circumstances.
In other words, Fenwick is most certainly not going to end up in the law firm graveyard like its recently departed tech law competitor Brobeck, Phleger & Harrison.
"People who know us know our practice is strong and our partners are committed," Davidson said. "We have found a steady increase in our business since the fall [of 2002]."
Not all agree with Davidson's rosy assessment. Valley competitors believe that Fenwick faces some real challenges. It's a not a big firm; it's corporate driven; and it no longer operates in a market largely ignored by large East Coast and Midwestern firms. In the past year in particular, larger national firms have taken advantage of the economic downturn to move into Silicon Valley at bargain prices.
"It's a great firm, and it has some great lawyers," said R. Todd Johnson, who runs the Silicon Valley office of Cleveland's 1,700-lawyer Jones Day, "but over time you have to wonder whether the go-it-alone model for a firm like that is sustainable."
Fenwick is in a tight spot, Johnson said. The firm is too big and too concentrated in the Bay Area to be an attractive merger candidate, he said. And it's those qualities, plus a limited array of practice specialties, that he says make it vulnerable to poaching by larger firms looking to lure away clients or lawyers.
"When the economy comes back, the competition is going to be fierce," Johnson said.
Not surprisingly, Davidson sees it in a more positive light. The firm's concentration in the Bay Area and on emerging growth companies is evidence of focus, he said. Besides, the firm isn't interested in a merger.
"Ten years from now, we could easily be a strong, independent firm or we could possibly merge," Davidson said. "But that's not the goal of the partners who are here today."
He predicts competition from out-of-towners will wane as the larger firms aim for bigger clients or areas where the firms have a traditional emphasis, like investment banking work. And he's confident that his firm measures up against local players.
"All of the legal issues our clients face are similar," to what they were up against in the pre-tech boom days, Davidson said. "What's different now is us; we're a lot stronger and we have much more depth."
ACCURATE FORECASTS
So far, Davidson's predictions have come true for Fenwick. In 1993, Davidson -- who has helmed the firm since 1995 -- lobbied his partners to lease the handful of floors they didn't already occupy at Two Palo Alto Square in Palo Alto. Davidson was convinced the firm would grow from its 100-plus lawyers.
It did. The firm brought aboard lawyers to take on the influx of corporate work that came when the Internet boom hit. Fenwick swelled to a 2001 peak of 301 lawyers -- outgrowing the original space and the additional floors in Palo Alto. In December, the firm moved to larger, more modern digs in nearby Mountain View.
The larger cast of lawyers during the boom helped Fenwick into the upper echelons of major Bay Area firms. In 2000, Fenwick logged $800,000 in profits per partner, making the firm's partners the fourth-highest paid in the region, behind Brobeck, Wilson Sonsini Goodrich & Rosati and Cooley Godward.
Still, the firm was a much smaller player. It grossed $148 million in 2000 -- less than half what Cooley did that year. And it had half as many lawyers, as well.
As tech has lost its luster, Fenwick has seen profits and revenues sag. From 2001 to 2002, Fenwick's profits per partner dived 10 percent. Only two other major California-based firms suffered larger losses -- Brobeck and Gray Cary Ware & Freidenrich. Per-partner profits now stand at $650,000, 19 percent below their 2000 peak.
Lawyer headcount is also down by 10 percent from its tech-boom heights. Davidson, however, said the firm has reached an optimal size. It's small enough for the partners to interact and make quick decisions but large enough to service clients no matter how large they become.
"I think we have enough lawyers to do what we need to do for our clients, and our clients include very big companies," Davidson said.
He offered as evidence the decision by technology bellwether Cisco Systems Inc. to select Fenwick as its primary outside counsel after Brobeck dissolved earlier this year.
Legal recruiter Avis Caravello said Fenwick's practice offerings, including a big-ticket patent litigation group, make it more diverse than many corporate firms. "I think it's going to allow them to weather these difficult times better than other technology-oriented firms in the Valley," Caravello said.
In the past five years, the firm has roughly doubled its litigation group to 85 lawyers. While second in size to the corporate group, litigation generated one-third of the firm's revenue last year. The 92-lawyer corporate group kicked in 31 percent of revenue, the firm said.
Intellectual property, with 74 lawyers, generated 26 percent of the revenue while the 20-lawyer tax group, which specializes in premium, high-stakes tax disputes, kicked in 10 percent.
Davidson said the firm continues to hire partners, most recently Mark Stevens, who left Fenwick in 1999 to work for now-bankrupt client Excite At Home Corp. Davidson credited Stevens with scoring a handful of new clients in his first month back with the firm.
However, since December, Fenwick has lost four senior litigators. Fenwick partners downplay the departures, chalking them up to a series of unrelated life changes. One departing partner became a judge, and one changed his practice specialty and joined a firm aligned with his interests.
But two others left to practice with other firms. The most recent, and most visible, was rainmaker Claude Stern, who left last month to join litigation shop Quinn Emanuel Urquhart Oliver & Hedges.
For his part, Stern said that Fenwick's falling profits weren't a factor in his leaving, and it's not likely to be an issue for the other partners, he said. The firm's partners are bound by a strong fabric, which will hold them together through the downturn.
"It's a place where people have stuck together, and that will serve them very well as it faces the challenges it has," Stern said, adding the leading challenge is the depressed technology sector.
"It's hard for any organization to make the hard choices, and to the extent that Fenwick is making them, I applaud them," Stern said. "It shows a real commitment to the people of the firm."
LAGGING REVENUES
Firm managers say the measures to hold the line on costs by closing in D.C. and freezing salaries are simply prudent management decisions.
John McNelis, the firm's co-managing partner, said the firm evaluates its staff salaries annually. This year, he said, the firm found it was paying some staff more than other firms. But despite the freeze, about 50 staff members got raises after all, because their pay was below market, he said.
As for Washington, D.C., Davidson said the firm had laid out a strategic plan for the office in 2000 to tap into the local telecommunications industry. But telecom has suffered as much as the Internet sector, and Fenwick's strategy failed. The firm announced it was pulling the plug earlier this month.
The firm is letting its D.C. lease run out in November, though it is considering keeping a skeleton crew on hand to maintain some sort of presence in the capital.
But Davidson says the firm overall has been exceeding its budget targets each month. In June, for example, the firm's associates billed enough hours to put them at an average of 1,950 for the year, he said.
Still, business is down. Corporate work has lagged for most of the year, and Davidson said he expects annual revenues will be off slightly from 2002.
The firm is also expecting a bite in the profits because of its lease at Two Palo Alto Square. The firm moved into its new Mountain View building while still paying rent on its old space.
Although a revenue decline -- even a modest one -- puts the firm one step further from its peak, Davidson said he isn't worried that it will make his partners ripe for plucking by competing firms.
"We have a group of partners who chose to be here because they enjoy practicing law here," Davidson said. "If making the absolute most money were their goal, they wouldn't have chosen this practice."
Fenwick & West Chairman Gordon Davidson
image: Jason Doiy/The Recorder
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