Once-booming Boston law firm struggles to survive
Boston’s Bingham McCutchen may resort to merger
One of Boston’s most prominent law firms — buffeted by partner defections, shrinking demand, and changes in the legal industry — is struggling to stay in business after a storied 123-year run of representing shipping magnates, bankers, and other corporate titans.
Bingham McCutchen LLP, which has handled cases from the Pentagon Papers to the Deepwater Horizon oil spill in the Gulf of Mexico, has watched more than 50 partners leave the firm since last year and cut 225 lawyers since 2012, according to legal trade journals.
Revenues last year declined for the first time in a generation following more than a decade of rapid expansion, aggressive acquisitions, and rising costs.
Now, Bingham’s best chance for long-term survival appears to be selling itself to a Philadelphia law firm, Morgan, Lewis & Bockius LLP. Bankruptcy is a distant, and far less desirable, option.
In his first interview on the firm’s status, Steven Browne, the recently named managing partner, said Bingham is exploring a variety of options, including the remote possibility of bankruptcy.
“I’m not going to pretend things aren’t out there and the world isn’t a real world,” Browne said.
“It’s certainly not any strategic alternative that I’m interested in pursuing,” he added.
He declined to comment on the merger proposal, as did Morgan, Lewis. Bingham’s remaining 307 partners are scheduled to vote on the merger in the coming weeks.
Bingham McCutchen traces its history in Boston back to 1891.
Over the years, it grew by taking over struggling smaller practices. Its name comes from the 2002 merger of Bingham, Dana & Gould and the California firm McCutchen, Doyle, Brown & Enersen.
Legal industry analysts say Bingham’s problems stem from growing too big, too fast.
Under the leadership of its chairman Jay Zimmerman, Bingham merged with 10 law firms in less than 15 years, growing to more than 1,000 lawyers from 200.
Zimmerman declined to comment.
Its client base (including The Boston Globe and the Boston Red Sox, principally owned by Globe publisher John Henry) grew beyond Boston and banking.
Bingham transformed into an international firm with offices in New York, Tokyo, London, Los Angeles, and Hong Kong, offering legal expertise in financial services, energy, environment, and technology.
Also expanding were its costs, including multiyear, multimillion-dollar contract guarantees it used to entice new “rainmakers,” the term for partners who bring in high-paying clients, according to former employees.
There were expensive perks, too, including company apartments for top partners in cities around the country.
At partner retreats, some of the most senior partners were chauffeured in Lincoln Town Cars while others were shuttled in buses, according to interviews with current and former employees.
Bingham’s last merger, with McKee Nelson in 2009, included big, guaranteed contracts for the partners from the incoming firm, which had offices in New York and Washington and specialized in tax law.
These contracts are common in the legal industry, but they fostered divisions with Bingham partners who had no such guarantees.
Bingham did well during the recession as its large roster of financial industry clients demanded its services.
But as the crisis passed and banks became familiar with new regulations, they needed fewer services, according to Browne. Other cases the firm handled, including the 2010 Deepwater Horizon oil spill on behalf of its client Anadarko Petroleum Corp. of The Woodlands, Texas, and intellectual property disputes involving another client, Oracle Corp. of Redwood Shores, Calif., ended.
Billings slowed. At the same time, Bingham last year opened a $22.5 million facility in Kentucky, moving several secretarial, accounting, and information technology positions from Boston to the South where rents and salaries are cheaper.
Bingham, like many law firms, is trying to manage costs as corporate clients bargain shop, pushing back against standard hourly rates that can reach up to $1,000 an hour, and demanding discounts for routine legal services. But the costs of the Kentucky offices hit Bingham just as revenues were squeezed, said Browne.
This meant lower profits for the firm, and lower pay for partners without guaranteed contracts, adding to the strains in the firm.
Unhappy partners began to leave, 56 in the last year, including several lawyers who work in securities regulation, according to the trade journal American Lawyer. Last month, 19 partners, most in the highly profitable London office, departed.
If too many partners leave, taking too much client business with them, it can cut a firm’s profits and encourage other partners to look around too, said Dan Binstock, a Washington-based legal recruiter.
“There are a lot more people taking calls [from recruiters] and listening than there were three months ago,” he said of the partners remaining at Bingham.
Browne, who was named managing partner last year and took over day-to-day operations this summer, said Bingham has gained control of expenses as some of the high-cost partner contracts have expired and perks such as the apartments are no longer offered.
“Our expenses are down substantially,” Browne said. “We hit a rough spot. We expect improved profitability for our partners who are remaining with us.”
The number of lawyers has fallen to about 750 from more than 1,000 two years ago. The firm, in terms of revenue, ranked 26th in the nation in 2012; it fell to 37th last year, according to American Lawyer.
Morgan, Lewis is the nation’s 12th-largest law firm. If the merger goes through, Bingham would be swallowed up by the larger firm.
Jeff Coburn, a Boston legal consultant, said the transaction would be more of an acquisition than a merger of equals. “It’s going to be a Morgan, Lewis play,” said Coburn, who is not working on the deal.
Browne acknowledged that morale at Bingham has suffered in recent months as employees wonder what will happen next. But, he said, Bingham is still part of large deals, including representing Oculus VR, a California virtual reality firm, in its $2 billion sale to Facebook.
“The reason I joined the firm is opportunity,” Browne said. “And there’s tremendous opportunity here.”