Legal News

Heller Ehrman and the Fable of Icarus

By Nathan Koppel

Law firm cautionary tales are sadly plentiful these days.

Heller Ehrman’s demise is fodder today for a WSJ front-pager that looks at the sorry state of the industry, as well as the tensions brewing inside Heller over the final years of its life.

Heller’s trajectory mirrors broader trends in the biz. The firm, for years, put great stock in its culture, which prized public service, tolerance of others and collaboration. The firm spread profits evenly among shareholders, to try to foster an esprit-de-corps, and it was also loath to fire lawyers whose productivity had dipped.

That all changed. Like the rest of the industry, Heller began to focus more on growing bigger and more profitable, to try to keep pace with competitors. Many long time Hellerites, however, were averse to the firm’s ambitions, which leadto cultural friction within the firm.

The tension was on display at a 2006 firm retreat, where a Heller attorney staged a take-off on “Macbeth” that featured a policy committee meeting with actors yelling at each other; one argued in favor of international expansion while the other preached restraint. The performance drew a standing ovation.

Heller gradually prodded lawyers to be more productive, firing some of those who weren’t.
In one 2007 meeting, which to some typified the new Heller, the firm’s managing shareholder presented data indicating that work hours were down by as much as 15% on Friday’s, compared to other days of the week. Management’s message: “You need to work a full Friday.” One shareholder, an ardent skeptic of Heller’s growth ambitions, grew irate, suggesting it was inane to chide lawyers about their Friday productivity.

In early 2008, according to shareholders, Heller management circulated a revised compensation list that awarded a greater share of profits to rainmakers and penalizing some longtime Heller attorneys. With Heller’s cultural fabric increasingly fraying, lawyers started leaving in droves, forcing the firm to search in vain for a merger partner.

In August last year, Heller gathered 40 key shareholders at the San Francisco Ritz Carlton to discuss project “Tower,” the code name for the firm’s merger talks with Mayer Brown. Surprisingly, the mood at the meeting was upbeat. After midnight, a group of shareholders, from Hong Kong to London, spilled onto a balcony at the Ritz to drink cocktails and smoke cigars.

Within a month, though, Heller was kaput. “Heller is the fable of Icarus,” one former shareholder says. “We flew too close to the sun.”

Full post as published by Law Blog - WSJ.com on January 26, 2009 (boomark / email).