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A Tale of Two Law Firms
Comments () | Published December 8, 2011
President Teddy Roosevelt consults with Frank J. Hogan, who in 1904 founded the small Washington law practice that would become Hogan & Hartson and ultimately Hogan Lovells. Photograph courtesy of Hogan Lovells

Hogan & Hartson is Washington’s oldest major law firm, founded during Teddy Roosevelt’s first term as President in 1904 by attorney Frank J. Hogan, who was joined two decades later by onetime IRS lawyer Nelson T. Hartson. Hogan became known as one of the nation’s greatest trial lawyers, successfully defending oil magnate Edward L. Doheny in the Teapot Dome scandal. Over the next decades, Hogan & Hartson developed deep ties to the local community, and in the 1970s it was the first major law firm to establish a standalone pro bono practice.

When Hogan & Hartson’s longtime managing partner Bob Odle decided to step down in 2000, there was no question about who the most powerful person at the firm was. Since joining Hogan in 1979, J. Warren Gorrell Jr. had established himself as the hardest-working lawyer there—and its biggest rainmaker.

“He was beginning to develop his own clients as an associate, which is extremely unusual,” recalls Hogan partner Janet McDavid. “I don’t think Warren needs as much sleep as most of us.”

Gorrell built a corporate practice advising major corporations on mergers, acquisitions, and other transactions. He also carved out a niche as the go-to lawyer for real-estate-investment trusts, or REITs, which would become a big part of the economic recession years later.

He took some hard-earned time off in the summer of 2000 to travel with his family through Africa and Italy. When he returned, Odle, who had managed Hogan & Hartson since the year Gorrell joined it, approached him about leading the firm.

“Warren was my number-one choice, as he was for many others,” says Odle.

Under Odle, Hogan & Hartson had begun its own international expansion, opening offices in nine international markets. Gorrell had served three terms on the five-member executive committee, so he had been closely involved in developing the firm’s strategy.

But heading Hogan wasn’t a job Gorrell was after. “I spent a fair bit of time trying to talk the executive committee and Bob out of the idea,” he says.

Odle had sacrificed having an active law practice to manage the firm full-time. That move concerned Gorrell, who wasn’t willing to give up his client work. The firm also couldn’t afford for Gorrell to stop practicing—his work typically brought in more revenue than that of any other partner.

For Gorrell to take the job, Hogan & Hartson’s management structure would have to be overhauled. A compromise was reached to install Gorrell as the firm leader with a new group of senior managers to help him run various pieces of the business, freeing up Gorrell’s time for clients.

To reflect the differences in the role, the head of the firm would no longer be called managing partner. Gorrell became Hogan & Hartson’s first chairman in 2001. Odle would later say that one of his greatest achievements had been convincing Gorrell to take over.

Allies and Power

With their new leaders in place, Hogan & Hartson and Howrey embarked on the decade that would prove to be the most difficult for the legal industry.

During the preceding years, some major firms had begun expansion both nationally and overseas. Hogan & Hartson opened its first office outside the Washington area in 1988 in Baltimore. In 1990, the firm set up shop in London. Howrey reached beyond the Beltway in 1992, when it opened in Los Angeles. The first decade of the 21st century saw globalization accelerate that trend.

Large law firms are generally run in similar ways. Equity partners are required to invest money in the business and are thus owners of the firm. Though partners have to make capital contributions, they share in the firm’s profits at the end of the fiscal year. The size of a partner’s share is determined by the amount of business that person is responsible for bringing into the firm, among other factors.

The degree of authority partners have varies from one firm to another. At Hogan & Hartson, they played a larger role in selecting firm leaders than they did at Howrey. Large firms have at least one subset of partners, often called a management or executive committee, who are responsible for governance. These groups are typically responsible for setting strategy and helping the firm leader with management responsibilities.

At Hogan & Hartson, each member of the executive committee had to be elected by the full partnership. At Howrey, a slate of preselected candidates was presented by firm leadership to the full partnership for an up-or-down vote, thus limiting the power of partners to choose who governed them.

And that wasn’t the only difference in governance between Hogan & Hartson and Howrey. Hogan’s new management structure gave Gorrell a lot of support. A senior-management group of six managing partners handled daily administrative responsibilities. The executive committee was still in place to help set policy and approve big decisions, such as opening new offices.

But Gorrell was calling the shots. Some former Hogan partners say Gorrell doesn’t handle dissent well. One ex-partner describes the group of managing partners as Gorrell’s “acolytes.” Another calls them “his guys, his inner circle.” But even some of Gorrell’s critics concede that the people he installed in management roles were well qualified.

Most important among the senior managers has been Prentiss Feagles, managing partner of finance at Hogan & Hartson, now co-head of finance at Hogan Lovells.

Feagles joined Hogan & Hartson in 1980, the year after Gorrell arrived. The two have been friends ever since. Because their practices are complementary, they often work on the same deals. While Gorrell negotiates mergers and acquisitions for major companies, Feagles takes care of tax questions that arise in the complex transactions. Partners describe both men as brilliant.

“Prentiss has done a phenomenal job on the financial side and the business side,” says Hogan’s Ty Cobb. “He’s a huge ally of Warren’s. They’re great collaborators.”

Gorrell is a savvy businessman in his own right. Before he went to law school at the University of Virginia, he got an economics degree from Princeton. But Gorrell wanted someone to focus exclusively on the firm’s finances, and Feagles was his first choice.

Law firms generally rely on banks and credit lines to help cover costs through the year because the push to collect fees from clients isn’t made until year’s end. But Gorrell and Feagles were nervous about depending too heavily on loans. They made a key decision in 2002.

“The banks are your friends, but when things become difficult, they have their own interests to protect,” Feagles says. “You’re much better off preserving yourself by not depending on outside financing.”

So Gorrell and Feagles increased the amount of capital that partners were required to put into the business. Capital contributions were raised gradually over an eight-year period as the firm’s reliance on banks was reduced. Today Hogan’s partners say the firm is debt-free.

Next: Ruyak finds an ally in Mark Wegener

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Posted at 04:31 PM/ET, 12/08/2011 RSS | Print | Permalink | Comments () | Washingtonian.com Articles