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A Tale of Two Law Firms
Comments () | Published December 8, 2011

Ruyak says he thinks the contingency committee made “sound decisions.” But when demand for non-contingency work dropped, the contingency work became too large of a percentage of Howrey’s workload. Howrey historically had tried to limit contingency matters to 4 or 5 percent of its total workload. Ruyak says that proportion grew to 8 percent throughout 2009 and 2010. Other partners put it at 11 percent.

The hours devoted to contingency matters could skew the picture of Howrey’s health. Taladay remembers looking at an assessment from 2009 of the hours worked by one group of associates. On paper, they appeared to be billing more than 1,700 hours each on average. But when pro bono and contingency work was stripped away, the number of cash-generating hours dropped below 1,300 hours.

When the 2009 books closed, the firm had come up 30 percent short of projected profit. It had been a disastrous year, yet partners say there had been no warning.

“In December of 2009, I remember Bob Ruyak sent out a memo that said, ‘We can still meet our goals,’ ” Boland says. “He just was so optimistic that instead of sending the message ‘Hey, we’ve got to try to collect every damn penny,’ the message the way most people read it was ‘Hey, we’re going to be okay.’ People can take bad news, but you need to prepare them for it. People were just shocked.”

The most consistent criticism of Ruyak’s leadership is that he couldn’t make tough decisions or deliver bad news. “Bob sometimes had a hard time telling people no,” Taladay says.

As Howrey began to founder, some partners perceived Ruyak’s optimism as deceitful. When firm profits dropped dramatically, partners felt blindsided. One of them, Jeffrey Gans, says, “We got a picture of a firm that was more financially strong and stable than actually existed.”

Yet during Ruyak’s tenure as firm leader, he became known for launching new initiatives, such as an innovative training program for first-year lawyers. And for the most part, his colleagues liked him.

“Even at the point in time where people started questioning his every decision,” Taladay says, “they still personally liked Bob in a way that I don’t think anyone else could have achieved.”

"Bob sometimes had a hard time telling people no."     

The full extent of the 2009 performance wasn’t explained until the annual partners’ retreat in March 2010 at the Ritz-Carlton in Key Biscayne, Florida. The retreat was historically a lighthearted affair—a chance to bond with colleagues in a tropical place. Key Biscayne was a popular destination for the Howrey partners, though the annual meeting had also been held in Puerto Rico, Grand Cayman, and other locales. But this year, as the partners filtered into the Ritz’s ballroom to hear Ruyak’s presentation, the mood was tense. Whatever their managing partner said here would be critical to the firm’s future.

Ruyak’s message was that no one—not even he—could have anticipated the 30-percent shortfall. Ruyak had always been known as a superb salesman, and that skill was on full display as he reassured the crowd that the firm would do everything it could to get back on track for 2010. Many partners left the meeting feeling better, though several who attended say a group of Howrey’s European partners couldn’t be consoled. They felt they had been misled by Ruyak and had started to discuss their exit strategy.

Ruyak also failed to mention a critical detail at the Florida meeting. Partners who joined Howrey in late 2008 and 2009 had been required to make only a limited investment in supporting the firm’s contingency cases because those cases had been initiated before they arrived at the firm. As a result, when the 2009 profits were divided among Howrey’s partners, the new lawyers who weren’t heavily invested in the contingency work got bigger checks than did the older partners who had more money tied up in the contingency work. During his financial presentation, Ruyak said that partners would take home an average of about 70 percent of their projected profit shares in 2009. Ruyak didn’t mention that this number was buoyed by the new partners, who made closer to 80 percent. After the retreat, some of the older partners looked at their reconciliation statements and saw that they had made closer to 60 percent. Some assumed that the 70-percent figure had been a lie. If Ruyak’s assurances during the meeting had eased their concerns, this realization shook them up again.

An exodus of Howrey partners began—though not all of the departures were unwelcome. The firm’s management finally had decided to thin the ranks, pushing under-performing partners out the door. Though the move was clearly necessary for the long-term health of the firm, it cost about $22 million in severance and other expenses.

In September, a group of seven partners—mostly in their forties—determined that more drastic changes were needed to save Howrey. Taladay, a young star in the antitrust practice, organized and led the group. Colleagues say that at this point Taladay was one of the only members of Howrey’s executive committee willing to speak up and ask tough questions. Another of the seven was Matt Wolf, a partner in the intellectual-property group who was widely thought to have his sights set on becoming managing partner of Howrey one day.

“I think we all realized that when we looked at the next 20 years, the people we wanted to practice with were sitting down the hallway,” Taladay says. “We really wanted to try to make this work.”

These fortysomething leaders were regarded as part of the heart of the firm and certainly necessary to its future. They came to be known as Young Turks, though their goals stopped short of revolution.

The group set out to effect changes. It wanted Howrey to be more democratic when it came to making big decisions. The seven partners wanted the full partnership to vote on future office openings and additions of significant groups of lawyers. They also thought Ruyak was no longer a credible source for financial information. They told him they wanted Sean Boland, at that point a vice chair of the firm, to take over responsibility for communicating financial information. But they stopped short of demanding that Ruyak be removed from power.

“The firm could not have survived Bob Ruyak being removed as managing partner,” Taladay says. “To the external world, to the bank, he was managing partner of the firm. To pull that straw out would have been devastating.”

Not everyone agreed. When members of the group began going from partner to partner to spread the word about the plan and met with Andrew Ness—who already had survived the collapse of his previous firm, Thelen, in 2008—Ness told them he didn’t think the changes were radical enough.

“You’re not going far enough, fast enough,” Ness says he told the Young Turks. “What this firm needs is a major change at the top that’s branded as such—and announced as such—so that people have the confidence to stay the course and see what new management can do.”

Next: "It was all downhill from there."

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