Reed Smith was the best law firm in Pittsburgh at a time when that status really mattered. Then steel became a Japanese import, Gulf Oil an M&A victim, Westinghouse a media company that moved to New York and was never heard from again. For more than a decade Reed Smith has tried to rouse itself, desperate not to be left behind. With Mellon Financial as its base and an ambitious leadership demanding growth, the firm opened six new East Coast offices, added more than 300 lawyers, and pushed some partners out of the firm. Despite that strenuous effort, the firm has slid in comparison to its elite competitors. On The Am Law 100, it ranked seventy-sixth this year, down 33 slots since 1984. More troubling: Measured over 16 years, Reed Smith's profits per partner have not kept pace with inflation.
That's yesterday's news, insists Gregory Jordan, the 42-year-old litigator who became managing partner of the 124-year-old firm in January. "Ours will be a great story a year from now," he says repeatedly. In his view, the firm is poised to lift off from its "financial plateau" and make substantial gains in a year when other prestigious firms are struggling. Although The AmLaw 100 reported firm revenue to be $193 million in 2000, Jordan now says that the figure was $210 million, and he predicts 20 percent growth on top of that in 2001.
Reed Smith has reorganized. "We've changed just about everything we could change without burning down the building," says Jordan. The firm has branded itself with an attention-getting, million-dollar campaign featuring the slogan "It's not just business. It's personal." And on this day late in August, as Jordan ambles through Gatwick Airport, the final piece of the plan is falling into place. He's flown in for a strategy session with the leaders of his new, robust London office, the product of a January merger. Reed Smith now has the fifth-largest contingent of solicitors of any U.S. firm. In one stroke, the firm might have finally transcended its past and charted its future. Or, maybe not. He pauses to consider his firm's slogan. That line "isn't a trial balloon," he says. "It's my career."
Jordan's career is inextricably bound up with that of his mentor and predecessor, Daniel Booker, who for nine years served as Reed Smith's controversial master builder. After Jordan made partner a decade ago, Booker drafted him into management. Together they united behind Booker's strategic vision for the firm, which can be summed up as one imperative: Get out of Western Pennsylvania! Booker wanted his partners to "focus on markets where the economy is strong . . . where pricing margins are better." By 2000, as Booker's term wound down, there were few Pittsburgh isolationists left. The internal debate instead was over where the firm would move next. Many partners wanted to follow the New Economy herd to Boston or California, building on their new Northern Virginia practice. Booker pointed east. The final road out of Pittsburgh, he thought, would lead to London.
His target was 60-lawyer Warner Cranston, a boutique known for doing an impressive amount given its relatively small size of high-end work for U.S., French, Swiss, and Middle East corporations. The two firms had shared a handful of clients, including General Electric, Swiss Re, and Allied Sweepers. And for years they had referred work to one another. They also were compatible in average profits per partner, with Warner Cranston's only a bit higher than Reed Smith's $335,000.
Reed Smith was eager to get into Europe, and, as it turned out, Warner Cranston was eager to find an appropriate American partner. According to one British lawyer familiar with the firm, Warner's chairman, Ian Fagelson, feared that referrals from U.S. law firms would fall rapidly as the Americans opened their own London branches. Nearly a quarter of its work came from U.S. clients or subsidiaries of U.S. companies.
By many accounts, Warner had its pick of suitors. The London partnership had rejected several overtures from other U.S. firms, including Chicago's Sonnenschein Nath & Rosenthal, and rumored to include Los Angeles's Latham & Watkins and Minneapolis-based Dorsey & Whitney. Fagelson kept returning to Booker's bid. Besides their history together, Fagelson says, he thought the two firms shared a work ethic that would mesh well. "They're not a sweatshop," he says, adding, "I thought, Here are some people I can work with.' " In January the deal was done.
As Jordan sweeps through the London office, he greets his partners by name, thumps them on the back, and congratulates them on their progress. The lawyers still work in Warner's old cramped quarters; most share small offices. That will change soon. Warner Cranston was unwilling to move into nicer quarters. Now, as Reed Smith, it's signed a lease for better space. Says Fagelson: "This is one of the benefits of the merger."
There appear to be others. According to Jordan, the combined firm is now getting business that would have gone elsewhere last year. For instance, Warner represented NRG Energy, Inc., a Minneapolis-based power company, in its U.K. deals. This year, when NRG went shopping for U.S. lawyers to handle a major acquisition, Warner pointed it toward Reed Smith's corporate department. Reed Smith also has been able to expand its work for Mellon Financial. Before the merger, the firm's assignments always stopped at the water's edge. Now, Jordan says, the firm is doing "a whole range of financial transactions work [for Mellon] in London."
This is the sort of business that Jordan says will increase both the firm's top line and partner profits. He says that his lawyers are now "able to charge higher rates for higher-value work. It's less commodity, local work." Beneath the clutter of the Warner Cranston offices beats a palpable enthusiasm. On this brisk and bright morning, laughter filters among the cubicles. Jordan greets Thomas Todd, an influential partner and stalwart on the Pittsburgh social scene who is head of the city's highly acclaimed symphony. Todd, who helped broker the merger, is the only U.S. partner Reed Smith has sent to help oversee the merger process in London. He didn't assume control over the office that still seems to lie with Fagelson, who also has been given a seat on the firm's 16-person executive committee. Neither was Todd tasked with the "spread the firm culture" job that sometimes follows an international merger. Instead, Todd is working with London partner Peter Alfandary to help coordinate client referrals back and forth over the Atlantic. Todd's tour ends in December, and Jordan doesn't plan anything dramatic in his wake. "You don't fix what isn't broken," he says.
According to current and past partners, Reed Smith has been trying to fix itself for years. The firm pursued growth and encouraged rainmaking. It branched, it pruned, and it brought in a succession of brand-name consultants. A once-collegial culture became known for competition and the jealous hoarding of clients. In the 1990s, morale dropped. Reed Smith morphed into a "condominium of law practices everyone kept things close to the vest, no one shared work," says one former partner.
It was a difficult decade for the firm. First, there was disappointment after the firm's merger in 1989 with Pierson, Ball & Dowd, a 65-lawyer firm in Washington, D.C. Worried about the bottom line, Booker pushed his new Washington office to shed partners who weren't earning their keep. Washington agreed, on one condition: The same tough rules must apply firmwide, even in Pittsburgh. Between 1991 and 1995, one-third of the partnership turned over. According to Booker, partners who didn't feel up to snuff decided to leave, while others retired. "There was an establishment of higher expectations. We were raising the bar," he says about the unusually high attrition.
Still, two partners who left the firm in the mid- to late nineties challenge Booker's claim that the departures were due solely to increased expectations. These partners, who asked to remain anonymous, say that many of the partners who left were frustrated with the firm's compensation structure, which deterred them from pitching business to companies that were already clients of the firm. At the same time, the lawyers were reluctant to bring in less-established companies as clients, because they were held accountable for their receivables.
Even as the firm struggled internally, Booker kept pushing for expansion and convinced his partners to open offices in New York, New Jersey, and Northern Virginia. "We were very heavily concentrated in Pittsburgh," he says. And although the mergers and openings didn't spawn a new wave of defections, many within the firm questioned whether the firm would ever make a move that actually added significantly to its bottom line.
How bad was morale? To find out, Booker hired Jaffe Associates to survey the partners. The criticisms were cutting. In a report obtained by The American Lawyer, the partners complained about the firm's "vision," or lack thereof. They complained that Pittsburgh was too controlling, while at the same time not sufficiently inspiring. They complained that the leadership cared only about revenue but had also killed entrepreneurial spirit. It was a grim report but not a surprising one for Booker, who himself was running out of patience. Jay Jaffe declined to comment about his work for Reed Smith.
Last year Booker decided it was time to step down as managing partner. Jordan, who had run both firm marketing and personnel committees, was his obvious successor. In a contested election, Jordan defeated John Smith III, a Philadelphia partner. "I am very pleased with the outcome of the election process,"says Booker. "I felt Greg was ready, and in any event our model of change needed a boost. You get that by injecting fresh people in the management."
Looking back, Booker says that he did as much as he could, given his partners' reluctance to embrace fully a bottom-line ethic. Likening his role to that of a scientist training a pigeon in a lab to take steps, he says, "You put one seed in front of [the pigeon] at a time. I felt, and still feel, it was the right model for us, but we need to make the incremental steps longer."
Jordan is still training the same pigeon. But rather than focusing on convincing partners to back more expansions, he is concentrating on turning the firm that Booker built into a well-oiled machine. Booker may have compiled all the pieces, but it's now up to Jordan to assemble them.
After taking office, he moved quickly on three fronts. With the consent of the executive committee, he quietly enforced demotions of six of his partners to nonequity status. "We're in a very competitive business," he says, "and it is more important than ever that equity partners help us grow the business and I mean generating more." Even the associates feel the pressure. As one put it: "There is more of an emphasis on billable hours. They haven't said anything yet, but there is a feeling in the air." The firm currently expects associates to bill at least 1,900 hours a year, and more than that to qualify for a bonus. London still plays by different rules. None of its partners have been de-equitized, and the target for associates is 1,500 hours.
Jordan has also revamped the compensation structure. In the past, new business from existing clients was credited automatically to partners who controlled those clients. Now, most of the credit will go to the lawyers who actually brought in the new work. Mark Melodia, one of the new generation of leaders at the firm, says, "There was a lot of self-censoring going on." Changing the credit system, he predicts, will encourage more of his partners to "develop their relationships." Jordan chose Melodia to cohead the firmwide financial services industry team, a job that requires the Princeton-based lawyer to spend long hours coordinating pitch calls to prospective clients.
Finally, following the advice of consultant David Maister, Reed Smith has switched from geographical to practice group management and created industry-focused teams. "Who goes to make a pitch shouldn't be based on who has the shortest drive," explains Jordan. That's a given for many firms that have been operating under a practice group structure for years. For Reed Smith, however, it's revolutionary.
It's also an example of how Jordan plans to transform the firm. At the end of one of his days in London, he and his partner Todd hit a local eatery for a quick dinner. Over fish and chips, Jordan grows animated. "I think about when I was a little boy [in Wheeling, West Virginia,], and I'd go by the steel mills, there were the workers who were constantly adjusting the pressure or tweaking that so that everything ran smoothly," he says, turning imaginary knobs in the air. "That's what I do, except I work at a law firm."
A week later, Jordan is in Baltimore, addressing the biannual firmwide retreat. He is in full town meeting mode, speaking to about 550 of his 700 lawyers in a darkened ballroom. Armed with a wireless microphone, pacing in front of a 20-foot screen, Jordan is followed by a spotlight and a video camera, which beams his image onto two 12-foot screens flanking the 20-foot one. He has purposefully dressed down, in a button-down shirt and chinos, to distinguish himself from his more formal predecessors and to highlight his central messages: That he is going to be a different sort of leader, and the firm is going to be a different sort of firm. This new firm takes business personally, lives by its wits, and, lest anyone miss the message, is transatlantic.
The biannual retreats used to be thinly veiled excuses for vacation, at a venue chosen for its golf course and its tolerance of cigar smoke. This year was meant to be different. Some of the London partners came early and stayed late because Melodia set up appointments for them with U.S. clients, including Fleet Boston Financial Corporation in Boston. The meetings themselves were briskly paced, even slick. The new partners talked shop. One London litigator made a big impression with her tales of seizing assets such as a house, boat, plane, and bank accounts in the U.K. on behalf of a client. When the time came for the new lawyers to introduce themselves to the crowd, there was an air of anticipation in the room. In years past, Melodia said, this tradition was met with grumbles. This time, "it was an energizing moment."
Will it last? Jordan and his partners are convinced that they've seen the future. Together they'll find out if it works.