We’ve all heard the sad news that Joe Flom died Wednesday at age 87. (WSJ, The American Lawyer, The New York Times, DealBook)
Over 20 years ago, on the occasion of the tenth anniversary of The American Lawyer, Steve Brill wrote a profile of Joe, and necessarily of Skadden, that is shockingly fresh and new today. So rather than mourn his passing, perhaps the most appropriate reaction is to revisit his accomplishments and distill what we might still learn as we all continue on in his absence.
Famously, Joe was the Brooklyn-born outsider, with a mother who took in piecework and a father who worked in the garment trade, commuting to a special high school in Manhattan for gifted students (essentially a prep school for City College). He spent three years at City College but stopped short of earning his bachelor’s to enlist in the Army when World War II broke out. Back home after the war, he applied to Harvard Law School on the GI Bill, becoming an editor of the Harvard Law Review.
After graduation and back in New York, in an emphatic sign of the times (1948), Joe couldn’t get interviews or offers at leading Wall Street firms because he was Jewish. While nothing one might say could possibly amount to a defense of or excuse for this blatant anti-Semitism, all one can say is that the law was not alone in displaying such profound bias.
When he gave a talk [in 1986] to the class of Harlem youngsters whom he had just “adopted,” he told them about a company that would not hire him as a messenger as a young boy because he was Jewish. That company “is now one of our firm’s smaller clients,” he reported.
An unassuming, stoop-shouldered, small man, Flom is not a gloater; he told his class the story, he explains, “to show them what hard work and determination can do for you.”
Today, when we take for granted that Skadden is “a leader among law firms” (as their tagline, with admirable pith and deadly accuracy, puts it), it may be hard to reinsert ourselves back to the time before this was true, in order to grasp the magnitude of Flom’s accomplishments in building the firm.
Here’s what Brill had to say 22 years ago, recappping the 1979–1989 period (emphasis supplied):
Perhaps more impressive than the scope of the cases and matters [recently handled by Skadden] is the fact that Joe Flom had no personal role in any of them. All of that work was done by other Skadden lawyers, typically for clients who have never met Joe Flom and don’t care all that much if they do.
It’s not that Flom is retired, far from it; he pulled an all-nighter in January working for Texaco Inc. in its recent skirmish with Carl Icahn, and he was pivotal in the Macy’s–Federated Stores battle. Rather, it’s that Flom and his partners have built the most impressive institutional law firm in America. That they have done so mostly in the last ten years in an industry that’s been around for more than 100 years makes Skadden’s success almost unparalleled in the history of American enterprise. For this is not the story of some leader rising overnight in an industry that arose overnight, but rather of one entrepreneur and his partners turning the tables on some of the most established, powerful businesses in this country.
Indeed, when you reflect on the rise of great businesses, they usually occur at the triangular intersection of serendipity, passion and hard work, and tectonic changes in historic forces.
John D. Rockefeller and Standard Oil? Andrew Carnegie and US Steel? Henry Ford and Ford Motor? For that matter, Bill Gates and Microsoft, Thomas Watson and IBM: All incarnations of supremely gifted, driven men who were also in the right place at the right time. Joe Flom and Skadden were riding no such wave.
Weren’t they riding the proxy fight/hostile takeover/M&A/LBO boom of the ’70’s, ’80’s, and beyond? To an extent, yes, but the unique aspect to Skadden’s success is they were instrumental in creating the very boom they proceeded to excel at. For all the other great businesses enumerated above, you can argue that they had about them an air of inevitability. If not Titan X, then Titan Y would have stepped in, in a sort of exercise in alternative business history. When railroads proved themselves to be a supremely useful development, requiring continent-wide buildouts, what did they devour by the ton? Steel. If not Carnegie, someone.
But Skadden’s ascent was not inevitable in any remotely analogous way. If you still think the M&A boom itself was inevitable (global capital flows, favorable post-war conditions in the US, the growth of financial engineering, the rise of outsized-personality raiders like T. Boone Pickens and Carl Icahn), then you need to explain why Cravath or Davis Polk or Dewey Ballantine didn’t do what Skadden did. (Many of the founding Skadden partners came from those firms, and their equally pedigreed brethren.) To be sure Marty Lipton was equally instrumental, but he was also an outsider, and the trajectory of his building Wachtell-Lipton complements and doesn’t detract from what Joe did with Skadden.
Still, that doesn’t begin to explain what made Joe Flom exceptional, any more than it explains why Rockefeller or Carnegie or Ford were the individuals who were able to capitalize upon trends that were surely evident to hundreds of people equally well-positioned to take advantage of them at the time.
For Flom, and Skadden, it began with client service, but took the cliche of client service up a notch: It was partly an obsession with responsiveness and communication, but it became more than that. Here’s the baseline, as desscribed by Alfred Law, who joined the firm in 1967:
“Flom and Arps always asked us, ‘Have you called and told the client what’s going on?’ ‘Have you called and told them the memo is on the way?””
Now, anyone can do that (although few actually do). But here’s the real secret:
Four of Flom’s longtime partners cite another aspect of Flom’s mania for client service: He never stops thinking about the problem. Or as one puts it, “Most of us are lazy in the sense that once we think of one solution, we’ll stop thinking about the issue. But Joe would keep going. All night. In the shower. On the way to the office the next day. And he’d come up with three better solutions, which would drive people crazy, but which was marvelous. He couldn’t stop worrying about his clients.”
This is hard. And therefore rare, and therefore valuable. Indeed, if you could train (read: inculcate) an entire firm with that mindset, you would have a powerhouse.
But this shortchanges Flom’s strategy, which can be summed up as “a cluster of boutiques.” This was so far-sighted in the 1980’s that it still sounds fresh (indeed, some people are still thinking they just invented it themselves) today:
The institutional law firm of the future would be, in Flom’s oft-repeated words, “a cluster” of these boutiques. With the law becoming increasingly complex and with specialties often interacting (product liability concerns might affect an M&A deal, for example), the firm would use its entrée with a client by virtue of having a transactional assignment in one specialty to garner work on that assignment in other interacting specialties and ultimately, through effective cross-marketing, to garner a new assignment in a new specialty. The overriding idea–Skadden’s positioning of itself in the market– was that Skadden was the place to go for transactional work in a variety of often interacting “uppermargin” boutique practice areas.
We can never replace a Joe Flom, and his vision.
But we can take a moral away from his life: If you think the landscape is settled, that incumbents are here to stay, and profound change can never happen, history is quite prepared to leave you by the side of the road.
Not only is it prepared, it’s already working on it.
When I first heard word of Joe’s death, a friend asked me if I’d known him, and although we had only the briefest of meetings which was surely forgotten by Joe by the next day, I never forgot the impression he made on me. So in response to my friend, I said that in the long-standing debate over whether men make the times or the times make the men, Joe constituted, for me, irrefutable proof of the truth of the former.
In the same article written in 1989 that reflected on Skadden, Steve Brill reflected on what he’d seen during those ten years of The American Lawyer. His thoughts are worth repeating in full.
THE TEN-YEAR REVOLUTION
Skadden’s rise these last ten years has come amid a revolution in the law business. The forces at work in this upheaval involve the following nine overall trends, all working in combination with one another:
1. Law And Lawyering Become Much More Important To Corporate Clients:
By the late 1970s the law and lawyering had become more than a side issue to corporate America. Lawsuits in areas ranging from products liability to antitrust to employment discrimination were starting to make or break balance sheets and affect the viability of products. Meanwhile, corporate deals and complex financings–conceived and negotiated by lawyers–were rocketing to the top of boardroom priorities.2. Lawyers Price Themselves Into The Market:
As a result of the ascending importance of law and lawyering, by the late 1970s legal fees had become such an important part of any corporation’s budget that clients started worrying about fees and about the relationship of fees to quality of service. In short, clients were pushed to become tougher customers.3. New Firms Compete In The Newly Rich Marketplace:
In free markets, people and businesses tend to go where the money is. It’s called competition. So as the demand for lawyers increased and as the fees paid to them skyrocketed, more people became corporate lawyers and more firms were formed to compete for the business.4. The Lawyer-Client Relationship Is Deinstitutionalized:
As clients became more discerning customers–and as upstart lawyers and law firms entered the fray, chasing the new riches of the profession–clients began being more choosy in their selection of counsel, often abandoning their longtime general counsel in favor of specialists. Lawyer-client relations became increasingly transactional rather than institutional.5. The Law Becomes More Specialized:
As the law became more complicated it became more specialized, exacerbating the trend toward lawyer-client deinstitutionalization.6. Law Firms Are ‘Forced’ To Grow:
In part to continue to provide opportunities for associates to become partners while still maintaining a profitable ratio of partners to associates, and in part to keep up with the needs of clients for expertise in a proliferating array of specialties (often in a variety of locations), law firms found themselves expanding beyond their wildest dreams, or fears.7. The Deinstitutionalization Of The Law Firm Partnership:
As competition increased among firms, they began to see that in the age of the deinstitutionalization of the lawyer-client relationship, clients hire lawyers, not law firms. Therefore the real competition in the law business was for “product”–that is, lawyers–rather than directly for clients. So law firms began raiding one another for partners who had recognized abilities. Raiding even became a part of a strategy for growth among many firms–even “respectable” firms.This created a difficult paradox for law firm leaders: While client loyalty to the law firm as an institution could no longer be counted on, thereby requiring the firm to promote the talents of its individual lawyers, at the same time these firms had to figure out some way to strengthen their partners’ loyalty to their firm as an institution.
8. Law Becomes A Management Challenge, Too:
Ten years ago no firm in America had more than $61 million in gross revenue. Today nearly 100 do, and as many as 900 have revenues of more than $10 million. These increasingly larger businesses have felt the pressure of increased competition and galloping costs over the last ten years. From 1977 to 1987, according to data collected by law firm consultants Altman & Weil, Inc., revenue per lawyer at midsize and large firms rose 87 percent, while overhead rose 129 percent.In that new environment, cash flow, support staff productivity, capitalization, marketing, training, partner compensation, technology, strategic planning, recruiting, and governance have become issues that can no longer be ignored. And they have to be confronted within the cherished structure of the law firm as a collegially oriented partnership.
9. New Public Attention On Law Firms Quickens The Pace Of All The Other Changes:
As the law became more important and law partnerships more lucrative, lawyers and their firms attracted attention in a new trade press and then in the general business press. This exacerbated the competition already afoot, especially the competition among firms for “product.” Partners could now read about other firms where their practices might be more lucrative and more challenging, and raiders could read about firms ripe for the raiding.
Words to recur to more than once every ten years.
