No matter what happens, we’re all going to learn something.
In 2014, I was invited to lunch with Joe Andrew, the chairman of Dentons, in his DC office. The invitation came from John Fernandez, an Indiana Law alum who joined Dentons a couple of years earlier after two decades in government. Joe and John came up through the ranks together in Indiana Democratic politics, with Andrew eventually becoming Chairman of the Indiana Democratic Party (from 1995-1999) and Chairman of the Democratic National Committee (1999-2001).
Query: how relevant is political experience to building a global law firm? More on this below.
My lunch with Joe focused primarily on the law firm of the future. Joe took out a clean sheet of paper and drew two figures next to one another (see above replica). The pyramid, Joe explained, is the traditional law firm model with partners at the top and associates at the bottom. However, with law firms fighting for market share and clients skeptical of the value of junior associates, most large firms now function as diamonds. That’s unstable, observed Andrew, because it pushes firms to rely upon older lawyers. Thus, finishing his drawing, Andrew explained how the diamond could be “shimmed up” by new talent models and world-class technology.
Andrew then commented on a recent conversation he had with a senior leader of a Big Four accounting firm (remember, the year is 2014), who told Andrew that they were again focusing on the legal services market, after a hiatus following Enron and WorldCom. Their renewed focus was not because of the premium rates charged by elite law firms doing M&A work but because of the immense volume of operational and commodity legal work, particularly with a cross-border component, that was ripe for managing through high-quality process. The accounting executive told Andrew, “We’re really good at process.”
A new type of national law firm
I recount the above story to provide some depth and context to Dentons’ announcement of Project Golden Spike, see Dan Packel, “Dentons Combines With Two US Firms in One Go, Launching New American Strategy,” Law.com, Oct. 7, 2019, which seeks to build out a new type of U.S. national law firm with a geographic footprint that more closely resembles the Big Four than any firm currently in the AmLaw 100. The official launch of Project Golden Spike began yesterday with the announcement of combinations with Bingham Greenbaum Doll, a 176-lawyer firm with offices in Indiana, Ohio and Kentucky, and Cohen & Grigsby, a 140-lawyer firm with offices in Pennsylvania and Florida.
I learned about Project Golden Spike (a reference to the gold spike that completed the first transcontinental railroad) back in July when I visited Joe Andrew for another lunch. When I asked how things were going with Dentons, Joe went next door to his office. He then walked back in with two massive tabloid-sized books. The first book summarized Denton’s growth and various operational metrics. The second book, with a distinctive gold cover, laid out out an immense amount of market data and strategy frameworks that supported the creation of a new type of national law firm.
The ensuing conversation reminded me of our 2014 meeting, albeit one thing had definitely changed. Since 2014, Dentons had become the world’s largest law firm, growing from 2,400 lawyers in 2014 (the headcount shortly after the merger with Salans) to 10,000+ with offices in 177 locations in 79 countries. If I was skeptical of Joe Andrew’s vision in 2014, I was less skeptical now.
According to Andrew and the law firm leaders at Bingham and Cohen, the “combinations” are not mergers. Rather, it is the beginning of a new national law firm model with a fairly complex operating structure designed to (a) maintain local culture and autonomy while (b) incentivizing collaboration across a national and global platform and (c) enabling formerly local and regional firms to leverage Dentons’ technology, shared services, business infrastructure, and growing global brand.
Lawyers operating in the new Dentons national law firm will be members of two partnerships — their legacy firm, which will continue to exist under a different trade name and continue to make local governance decisions, and Dentons US, which will be a pass-thru entity for combined receipts and also a member of the Swiss verein that knits together the Dentons global network. Like I said, it’s complicated.
To make this more concrete, as of January 2020, Bingham Greenbaum Doll will operate as Dentons Bingham Greenbaum. They will follow Dentons branding guidelines, as will “Dentons Cohen & Grigsby” and other U.S. firms that eventually become part of Project Global Spike. For consistency purposes, emails will change and every member firm will use a unified engagement letter and clear conflicts through a unified global system. Likewise, the existing Dentons law firm (with 23 US offices) will exist as a single member firm that is parallel to legacy Bingham and legacy Cohen in the Dentons org chart.
What are the economics?
For each member firm, a fixed percentage of revenues (low single digits) is allocated to business overhead and global operations. If economies of scale truly exist, this overhead allocation will increase the quality and value of the overall business infrastructure available to member firms while simultaneously reducing per-lawyer operating costs. But perhaps what is most interesting and provocative is that each operating firm retains the ability to hire, fire and set rates.
The lynchpin of this model is economic transparency between operating firms. Cross-unit legal work (which, in some cases, will also be cross-border work) is divided into two parts — a cost basis, which is based on the operating firm’s cost basis, including local firm overhead, and an operating margin. After an operating firm is paid its full cost basis, the two operating firms share the margin, one effectively being paid for managing and performing the legal work and the other for originating it. (Note that these concepts are neither new nor unfamiliar; many law firm compensation plans operate on very similar principles, as many partners prefer the resulting transparency and certainty.)
Why might this work? Foremost, firms like Bingham and Cohen regularly lose legal work because their client has a need, based on geography or legal specialization, that they cannot cost-effectively or competently service. Likewise, in my experience, leaders of regional firms with revenues of $25 to $200+ million often lie awake at night worried about their ability to keep pace with technology (especially IT infrastructure requirements demanded by clients) and their ability to attract and retain high-quality talent, particularly diverse lawyers. Conversely, many of the senior partners, who functionally control the firm, are making a lot of money and have limited appetites for large-scale investments that are unlikely to benefit them.
The Dentons combination strategy addresses all of these challenges simultaneously without asking firms to raise rates, relinquish local control, or pony up capital. To close the loop, below is a graphic from one of Dentons’ briefing books, which obviously springs from the same DNA as the drawing Joe Andrew made for me back in the 2014.
Dentons’ unconventional strategy
Project Golden Spike is part of a larger strategy that is fundamentally different than the strategies pursued by other global law firms, almost of all of which boast higher profits per partner. But is maximization of short-firm profits the best strategy for all lawyers? Further, does a law firm risk its franchise by failing to build a sustainable model that is attractive to the next generation of lawyers?
According to Andrew, Dentons’ strategy of building a global platform has worked remarkably well primarily because of the firm’s “polycentric” approach, a term that tends to generate snickers from lawyers at other firms. Again, per Andrew, the polycentric approach, or management philosophy, enables incoming firms — firms perceived to be very strong within their local or regional markets — to feel respected and substantially in control of their own affairs.
“We’ve been very successful in adding global capacity,” Andrew told me, “because we don’t pretend we’re better or more sophisticated lawyers.” Instead, the focus is on creating incentive structures that enable local lawyers to obtain more interesting, inbound cross-border work and to obtain credible ways to help their local clients navigate outbound business opportunities.
Dentons’ U.S. domestic strategy, explained Andrew, is based on the exact same approach. In the Project Golden Spike materials, a key statistic is the fact that the U.S. makes up 46% of the global legal market yet it’s remarkably fragmented. Andrew offers the example of Canada, which is 1/11th the size of the U.S, yet the largest U.S. law firm based on domestic headcount (1,912) is not eleven times the size of the largest Canadian law firm (772). This is because U.S. law firms have focused on markets that are most likely to yield premium rates.
The top 100 U.S. legal market based on spend
The first few pages of one of Dentons’ briefing books contain some very provocative tables. The first column lists out the top 100 U.S. Metropolitan areas based on legal spend (companies with at least $10 million per year in total revenue). The first row lists out the Top 10 U.S.-based law firms based on headcount. The result is a summary of the geographic footprint of the largest U.S. law firms based on size of local legal market.
Below is sample directly pulled from several pages of the briefing book.
What we see, of course, is lots of zeros, which makes the point that outside the largest legal markets, the geographic coverage of large firms varies from sparse to nonexistent. For example, #15 Fayetteville has zero Top 10 law firms, as does #18 Omaha, #19 St. Louis, #20 Cincinnati, #26 Milwaukee, #27 Kansas City, #28 Indianapolis, #29 San Antonio, and #30 Nashville.
The analysis does not materially change when the focus is the domestic geographic footprint of the world’s largest global law firms (DLA Piper, Hogan Lovells, Norton Rose Fulbright, Dentons, Baker McKenzie, Squire Patton Boggs, Eversheds Sutherland, CMS, and King & Wood Mallesons). The map below shows the thin overlap between corporate headquarters for companies listed in the Russell 3000 (the 3000 largest US-traded stocks based on market capitalization) and the geographic presence of the nine largest global law firms.
But here is the kicker: According to Dentons’ research, there’s at least one Big Four office in 75 of the Top 100 US legal markets. In contrast, the largest US law firms are present in only 31. From the perspective of the Big Four, what’s the economic reason for this higher level of market penetration?
“In and of the community”
As we piece together these data points, we see the contours of Dentons’ strategy. Simply stated, Dentons believes it can provide an onramp to high-quality global legal services within markets that are substantially overlooked by the large global players. Further, the best entry points are likely mid-sized local and regional law firms with longstanding relationships with the businesses and businesspeople in their communities.
Hence, as shown in the figure to the right, a cornerstone of the Dentons’ strategy, both domestically and globally, is to have member firms that are “in and of the community.”
As part of the Dentons platform, these firms retain control over their local rates, yet they also become a go-to resource for triaging legal issues in specialty areas of law or that touch on foreign jurisdictions. If successful, this strategy interrupts or diverts at least a portion of the legal work that currently goes to the largest firms in the biggest markets. This is because most clients value their existing lawyer relationships, many of which are local.
Thus, over the next several weeks, Joe Andrew is reaching out to several pre-identified local and regional law firms throughout the US — likely of the caliber and profile of Bingham Greenbaum Doll and Cohen & Grigsby — to gauge their interest in a possible combination under Project Golden Spike. Part of the pitch is a detailed Golden Spike pitch book that provides a remarkably deep market analysis that signals Dentons’ core competencies in strategy, marketing, and business.
The view from Indiana
During my lunch with Joe Andrew in late July, I was told that a firm with a strong Indianapolis presence would be one of the first member firms of Denton’s new U.S. platform. Further, I was given copies of the briefing books in anticipation of writing this deep-dive analysis for Legal Evolution.
In late August, I got a call from Toby McClamroch, the long-time managing partner of Bingham Greenbaum Doll. McClamroch was aware of my prior conversation with Andrew and wanted to pass along his and his partners’ enthusiasm for the combination with Dentons. For a variety of reasons, I was not surprised.
Back in 2012, I spent time with McClamroch and his partners shortly after Indianapolis-based Bingham McHale merged with Louisville-based Greenbaum Doll & McDonald. One of the features of the merged firm is a six-person partnership board that regularly evaluates and refines the firm’s strategy. Then, in the fall of 2016, I participated in the firm’s partner and associate retreat. In conjunction with that work, McClamroch and the rest of the firm leadership acknowledged a low-grade but persistent worry that the firm needed a larger revenue base to support greater investments in technology and professional staff.
Last week, when I visited McClamroch in his office in Indianapolis, I asked him how the dialogue with Dentons began. McClamroch commented that in the fall of 2017, a former Bingham partner, who is now at Dentons, reached out to him and said, “I want you to talk to Joe.” McClamroch respected his former partner’s judgment. Further, McClamroch and Andrew had known (and respected) each other since the early 1990s when both were active in Indiana politics, with McClamroch chairing the Republican Party and Andrew chairing the Democrats.
McClamroch describes the first video call with Andrew as overwhelming, as it hit on virtually very pain point he had as a managing partner. “Drop in demand caused by decreasing litigation, more talent going in-house, work moving to alternative services, the struggle of medium-sized law firms to invest in cybersecurity, our lack of sophistication to understand and utilize A.I. Pretty much everything that was on my mind.”
Within a couple of weeks, McClamroch pulled together the full partnership board for the same presentation from Joe Andrew. According to McClamroch, they all had a similar reaction. “Part of their function is to be skeptical, right? But they all acknowledged that Andrew had identified the key business challenges along with some real solutions.”
Over the course of the next 18 months, McClamroch, Andrew and others worked to formulate a business model that could not only integrate Bingham Greenbaum and Cohen & Grigsby in the national and global firm, but eventually other similarly situated local and regional law firms. This was the origin of Project Golden Spike.
Doing a combination with Dentons
According to McClamroch, Dentons has developed a core competency in expansion. A key part of this formula is having a conversation about things that matter to clients (which matter to every partner) and finding structural ways (here Project Golden Spike) to navigate around the bottlenecks that make law firm mergers so difficult.
“When you’re in a merger discussion,” said McClamroch, “you’re talking about: what’s the name of the firm; who the managing partner be; what will the comp system look like; what will the governance model be; who’s in charge of associate raises and associate evaluations. All of which clients don’t care about [but partners do.]”
McClamroch says that under the Golden Spike model, his partners will retain control over the local law firm. However, “client-facing” functions, such as practice groups and business development, will be consolidated at the national and global levels to communicate a single organization that operates under a global brand. Because of the local control component, McClamroch said that at no point during the combination dialogue did Joe Andrew ask, “What are your profits per equity partner?” This is because the renamed entity, Dentons Bingham Greenbaum, retains its existing profit pool. Yet, because the partners now have a geographic reach and capabilities that they lacked in the past, and the likelihood of increased inbound work, McClamroch and his partners believe that the local profit pool will grow.
Will it work? It’s hard to say, as it’s a complex plan that requires law firms to take a risk. Nonetheless, it’s a bold and creative plan that plausibly solves a very real set of problems for local and regional law firms. As a result, thanks to the high-profile nature of Project Golden Spike, five years from now, the entire legal market is going to be a whole lot smarter.
A word about political skill and branding
My experience with the Dentons juggernaut dates back to 2013, when I first had a meal in Bloomington, Indiana, with John Fernandez, the city’s former mayor and later a member of the Obama Administration, to discuss his new job at Dentons focused on innovation. Over that lunch, I learned of John’s longtime connection to Joe Andrew and the long throughline of state and national politics that have kept them in contact over the years.
Two years later, I was invited to the Dentons’ global partners retreat in Las Vegas (very few venues can accommodate a meeting that big) and witnessed what I could only describe as a well-choreographed political event with Joe Andrew (former DNC Chair) and Elliot Portney, the firm’s Global CEO, doing a truly compelling job of communicating a mix of market data, operational results, and firm vision through words, graphics, and self-deprecating banter that conveyed respect to the audience. By 2015, I had been to over a dozen law firm retreats, and I had never witnessed anything similar.
So, how important is political and communication skills to running a global law firm? And if the answer is “crucial,” is it any wonder that the political pros have an advantage? Law firm partners are a brutally tough audience — smart, skeptical, time pressured, and sensitive to their perceived status in the world. How is it possible to thread this needle without tremendous insight into partner-stakeholders and tremendous skill and intellect to find and communicate a plan that commands substantial support among such a disparate group?
Likewise, it’s my observation that lawyers, including talented equity partners at major law firms, systematically misunderstand and undervalue the power of effective branding. Skillful politicians, however, don’t.
In the briefing books on Project Golden Spike, there is an immense amount of data on brand awareness and market perceptions of Dentons and other global law firms. One clear takeaway is that stronger brands are growing faster than weaker brands; another is that this is a game limited to law firms that have found a way to get onto the global stage, usually through sheer headcount and global presence.
For example, in the Acritas Global Elite Brand Index, Dentons has climbed from below the Top 100 in 2011 to #10 in 2017 and 2018. The graphic below appears in a 160-page tabloid-sized briefing book that is not about Project Golden Spike but, instead, just about Denton’s track record in pursuit of their global strategy.
Lawyers working in law firms are reluctant to give rival firms credit for anything. And in the case of Dentons, many law leaders I know have been quick to dismiss them as irrelevant. However, there are large number of local and regional law firms who understand that the legal market is changing. I’d love to know their strategy for staying relevant, prosperous, and independent over the long run. At least some of them, I suspect, would welcome a call from Joe Andrew.
Disclosure: During my time at Lawyer Metrics, Dentons and Bingham Greenbaum Doll were occasional clients. I left Lawyer Metrics (now LawyerMetrix) in 2016. As editor of Legal Evolution, which began publication in 2017, I don’t hold an economic interest in any law firm or legal service or product organization, nor do I advise such entities as a paid consultant. Instead, my views are offered here at no charge. I do occasional paid speaking engagements in a non-advisory capacity, but none for Dentons or Bingham Greenbaum in the last three years.