Natasha Harrison and Nick Gravante of Boies Schiller Flexner. Photo by Carmen Natale/ALM

Despite the exit of 80 partners and of counsel in the last 18 months, Boies Schiller Flexner managing partners Nick Gravante and Natasha Harrison say the firm's restructuring is going according to plan.

As Boies Schiller looks to transition from its first-generation founders David Boies and Jonathan Schiller, the managing partners say few aspects of the firm will remain untouched.

Its compensation will be overhauled to encourage more collaboration and appease contingency attorneys, while at least three offices will be shuttered, including in Santa Monica, Palo Alto and New Hampshire. With a diminishing head count, Gravante and Harrison said the firm will boast a higher revenue per lawyer and profits per partner in the coming year.

But more attorneys will leave, both expected and unexpected, they said in an interview earlier this month, and the firm will continue to shrink for a while before it begins growing again.

"People aren't going to always agree with the new direction of the firm," Harrison said. "But we are confident that we're on the right track. And I would anticipate, post-COVID, there are going to be other [firms] that have to restructure more than we already have done."

The most public and immediate feature of the restructuring has been the steady drip of partner departures. Partners who have left the firm in recent months include executive committee members Karen Dunn, Bill Isaacson, David Willingham, Damien Marshall; and young office leaders such as Quyen Ta, Kathleen Hartnett and Stacey Grigsby. Among the exits include those with key relationships to clients such as Goldman Sachs, Facebook, Uber, Amazon, Oracle, American Express and Apple.

Gravante and Harrison said the vast majority of the departures have been "planned or expected" as part of the restructuring. Only 12 or 15 of the firm's departures, they added, have been "regrettable." They would not disclose the names of the unwanted departures, save for Washington, D.C., partner Robert Cooper, who in July became the 20th Boies Schiller attorney to join King & Spalding since April.

"It was always expected that certain partners would leave who we did not want to leave," Gravante said. "I don't believe that you're able to cherry-pick the X number of partners."

Former Boies Schiller attorneys dispute the idea that the majority of those departing to other firms have been planned exits. Instead, these sources say the main drivers of the departures have been David Boies' controversial representations of Harvey Weinstein and now-defunct tech startup Theranos, which they said damaged client relationships; an opaque, unfair compensation system; and an unwillingness on leadership's part to address grievances.

Money talks

While proud of the firm's roots in staking itself as an elite litigation boutique led by one of the most famous living litigators, Gravante and Harrison concede that the firm needs to modernize and change.

Offices are too siloed, with what Gravante calls office "fiefdoms" that encourage office leaders to prioritize becoming the most profitable outpost. Contingency attorneys are not properly compensated to account for their contributions to the firm, they added.

The managing partners are hoping to address complaints related to both contingency work and collaboration with an overhaul of the firm's compensation systems. "Compensation drives behaviors in law firms," Harrison said. "It's designed to encourage collaboration, not a collection of individuals."

Harrison said the new system is in the final stages and will be implemented early next year, if approved by the partnership.

The firm currently uses a formula that gives lawyers credit for realized hours as well as 2.5% of fees paid by clients they originate, 5% of fees paid in each specific matter they originate and 5% of fees for each matter for which they are the "responsible lawyer," according to three sources.

"You can work three years at our firm and derive no revenue from those cases, then in year four you have a flood of money coming in," Gravante said. "[That] can sometimes be tough in particular for younger partners, some of whom are our best contingency producers. We want to even that out."

While all the details of the new compensation system are not clear, the incoming compensation system will also account for nonbillable time such as work on diversity initiatives and charitable work. And the new system will also encourage greater collaboration between firm attorneys, which the managing partners hope will also encourage the institutionalization of clients.

Moving away from a formula-based system isn't "bleeding edge," as most of the legal industry has moved onto either merit-based or subjective compensation systems, said Kristin Stark, a principal at Fairfax Associates. Still, it'll be a dramatic change for the partners at Boies Schiller, she added.

"There are best practices [in compensation], but even within firms, we see quite a bit of variation due to their cultures and core values," Stark said. James Cotterman, a principal at the law firm consultancy Altman Weil, separately noted that he has seen identical compensation systems prevail at one law firm but fail in another.

The firm already made some changes for associates. In May, Law.com reported that Boies Schiller had changed its associate compensation system to allow for associates to choose between its traditional system, which put a premium on billing hours, and a market-based system that pays out associates based on their seniority.

The market-based change benefited associates who work contingency cases, midlevel associates and California attorneys, whose clients often held them to more stringent billing standards than their East Coast peers, two sources previously told Law.com.

Office space

Boies Schiller's office closure plans, the managing partners say, has been accelerated by the coronavirus pandemic.

The firm is engaged in a general review of its real estate portfolio, Harrison added.

The firm's New Hampshire office is set to close, following the upcoming retirement of partner Rich Drubel. In California, where the firm lost the majority of its Los Angeles partnership to King & Spalding in April, Boies Schiller had decided to close its Santa Monica and Palo Alto offices. Last year, the firm shuttered its Orlando office.

While the office closures can only go so far in stabilizing expenses, consultants said, it could also be seen as the beginning of a broader trend in the legal industry. With the ongoing COVID-19 pandemic forcing the legal industry to work remotely, law firms have been reexamining how much they've been spending on real estate, generally the second-largest cost any firm faces.  "The smartest thing a law firm can do is to make sure it's managing its space effectively," said Stark, at Fairfax Associates.

"The Boies Schiller example is not going to be unique in the near future," added Ryan Hoopes, director of the legal sector advisory group at real estate services firm Cushman & Wakefield.

Meanwhile, Harrison and Gravante say they also want to invest in certain areas, targeting growth is intellectual property, white-collar defense, antitrust, international arbitration and bankruptcy and restructuring. The firm, whose attorneys have long prided themselves as being trial lawyers before anything else, plans to elevate practice area branding.

Even as partners left the firm this year, including in practices the firm was seeking to grow, Boies Schiller added some partners.

Its recent hires include New York-based Lawrence Brandman, most recently the former head of derivatives bankruptcy strategy at Lehman Brothers Holdings, as well as London-based Neil Pigott, who held several leadership positions at financial institutions, including BNP Paribas and Morgan Stanley.

The additions come after the June hire of Lauren Bell, the senior counsel to the head of the Justice Department's criminal division, and John Kucera, a federal prosecutor in California, who will join in August. This fall, 16 associates are joining the firm.

Still, Gravante said departures will also continue. "I expect the firm will get net smaller before we increase in size," Gravante said. "I anticipate we will lose some people. Some expected, some not."

More questions about Boies Schiller's financials arose this month after government data revealed that the firm applied for a $5 million to $10 million paycheck protection loan. The firm has declined to comment on the loan.

One legal consultant said he would reverse his skepticism about Boies Schiller's future if the firm can put a stop to the stream of departures and grow its areas of strength, noting the hires the firm has announced since June are bright spots.

"I can't think of another example of a firm of what's happened at Boies Schiller happened to another firm and they turned it around," the consultant said.

But transitioning from the first-generation firm to the next is never easy. Partner departures and systemic changes are fairly common among firms undergoing a generational shift, legal consultants say. What worked for the founders of the firm may not work for the following generation that takes up the reins.

"Founders are unique. They hold a very special place in an organization's history and culture," said Cotterman, at Altman Weil. And with second-generation leadership, he said, "there's a very different dynamic that goes into play."

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