If you’ve never run across Arnie Jacobs, a partner at Proskauer in New York, and a "dean of securities law," I hope the stars may align that you will. Early in my career as a lowly associate at Shea & Gould, I had the privilege of working with Arnie starting the day I arrived at the firm. His career has spanned a period during which firms, and our industry overall, have changed to an extent impossible to imagine when he graduated from Cornell with a JD/MBA in the 1960’s.
Arnie is both an astute observer of our profession, with an insider’s perspective benefiting from his many tours of duty on the executive committee, and a perceptive judge of human nature. For now you’ll have to take my word on that, but if you read to the end of this article I hope you’ll have formed your own opinion congruent with mine.
Last month I decided it was time I sought out Arnie’s perspective on some of the larger trends he’s witnessed, and what he anticipates. This is a report on our conversation.
When he started in the ’60’s, there was no associate movement between firms, much less partner movement—associates could go to clients, or leave the profession, but those were the options. Arnie believes that the lateral movement of large groups of lawyers has had a profound effect on our industry, "making the strong firms stronger and the weak firms weaker." He also observes that, from an interpersonal point of view, this might not be what you’d like—innocent people who are not readily mobile on their own can be trapped in declining firms—but "from a Darwinian perspective" it’s inevitable.
Of course there are ways to acquire laterals and then there are ways to acquire laterals. One model, the "revolving door," might see a firm take on 100 laterals and be fortunate to have 75 still around a year or two later. Arnie is quick to point out this is not a model he endorses, but he observes that it can be successful in the short run. Successful in the long run? Both Arnie and I have our doubts.
His own firm, Proskauer, is "at the other end of the spectrum:" While 60% of their partners are laterals, they do not make as many lateral partner offers as some other firms: But those who come stay. And like any good lawyer he has the evidence to back up the claim: 60% of Proskauer’s lawyers are in its New York office, and over the last 15 years a grand total of two partners (lateral and home-grown) have left for another law firm.
What, then, keeps a firm cohesive?, I ask.
"It’s a conjunction of two things: (1) partners who are great lawyers; and (2) knowing that they’re not going to leave." If you have those two things, you know you can cross-sell your partners’ expertise to your clients, that they’ll perform, and that they won’t try to walk out with the client.
I ask him for his view of the "segmentation" hypothesis, that our industry is moving towards global vs. boutique, with very little in the middle. He has a nuanced view: "There will be more and more concentration of talent at the high end, and boutiques will always be with us." But he also believes that middle market corporate work, middle market litigation, will be a defensible niche. These firms may not be super-successful, but they will be reasonably successful, and he sees no reason they can’t survive for a long long time.
"Every firm says it’s competing for the high-end, premium, price-insensitive work: How much of that is there really to go around?"
Actually, a fair amount, he opines: When there’s a large deal on the table, with lots of money at stake, time-constrained, rates don’t seem to be an issue.
One of the most "material" (as we securities lawyers say) changes during Arnie’s career has been Sarbanes-Oxley. I ask his opinion of it on several dimensions:
Re the impact it had on his own practice: "Great!" It came at a time of a general slow-down in transactional work, and not only did it mean the securities lawyers at Proskauer had to get their arms around the statute, they had to understand the real, on-the-ground, practical ramifications.
For public company clients? "It’s increased their costs, sometimes dramatically; I honestly don’t know whether that has been a wise use of resources." With smaller clients, the costs have been disproportionate; but very few have actually gone private—fewer, Arnie suspects, than the critics of SOX aver, but more than the SEC would like to admit.
What about the partnership ethos within firms? How has it changed?
Partnerships by and large used to be far more partnerships. Today it’s evolving towards more of a corporate model. Yes, there’s a broad range of firms, but this has been the seismic shift: More command, less collegiality. He puts Proskauer strongly on the "collegial" end of this spectrum, and tells the story of how he periodically gives a speech about the firm’s insistence on, and living of, that value. Sometimes after he gives such a talk a recent lateral will come and say to him, "You know, I really didn’t believe that, but it’s true."
I ask Arnie to talk about this a bit more; culture, I’ve always believed, is perhaps the #1 ineffable whose impact you can actually observe every day. He reports that 25 years ago the Proskauer culture was decidedly different, but that a real change was driven starting then, from the top—from autocracy to democracy. (He avers that undemocratic management styles can work, as well, but he’s discussing Proskauer.) "It’s ironic, but laterals such as me treasure our high ‘collegiality quotient’ even more than the home-grown partners do: They’ve experienced the unhappy alternative."
How does Proskauer maintain this?
"We reject the 800-pound gorillas; that’s a lot of it." Even those with a big book of business? "Especially those, if their personalities won’t mesh."
What advice would he or does he give to associates?
"Oh, my, the law is a wonderful profession. As I was riding down Fifth Avenue in a cab this morning on the way to work, looking at Central Park, I had the thought—which I have 3 days a week out of 5—that I’m one of the most fortunate people alive to be able to do what I’m doing. People think this is hokey, but there’s a real intellectual challenge to it; that’s tremendously attractive to me.
"And another thing: In how many professions can one be truly creative at a young age? Maybe investment banking, certainly research, maybe some doctors, but there are very few. Lawyers have that opportunity.
"Finally, there’s the societal importance, which is deeply satisfying. Litigation is not all and only about who has the deepest pockets; there’s an element of justice to it. And doing corporate deals actually accomplishes goals for clients. I look forward to coming in to work every single day."
I ask Arnie for his perspective on how law firms build themselves and grow, since every strategic plan of the AmLaw 100 places that objective front and center.
"Build on your strengths."
Don’t try to work on your weaknesses? "No—build on your strengths." For example, Proskauer was active in private equity well before many other firms, but when we decided it was going to be increasingly important in a post-Sarbanes Oxley world, with tremendous liquidity sloshing across the globe, we devoted even more resources to it. Case in point: When the Testa Hurwitz firm closed its doors in Boston three years ago, Proskauer picked up a number of that firm’s private equity/fund formation specialists, which they could do because Proskauer already had a strong practice in New York: The attraction was mutual. Result: From a standing start (that is to say, zero lawyers) three years ago, Proskauer’s office is now the 19th largest in Boston.
Moral: Concentrate on your strengths; don’t try to build something from the ground up just because it’s sexy and everybody else seems to be doing it.
"How have the challenges facing law firm management changed?"
The most obvious change has been the emergence of full-time law firm CEO’s, who do not practice at all. "Twenty or thirty years ago, the managing partner used to ‘manage’ during his commute, and maintain a full-time practice. Today people don’t do that, can’t do that, and shouldn’t do that." The second most obvious change is that more power has been concentrated in the Chairman, with the benefit being that firms actually are run more efficiently and economically.
"Will we ever see a non-lawyer CEO of a law firm?"
No.
First of all, the CEO needs respect from the partners. He or she must be not only a lawyer, but a practitioner they can respect. Second, a non-lawyer would lack the knowledge base indispensable to actually understanding a law firm. Sure, you might get somebody who was familiar with professional service firms in general, but there’s nothing more horizontal than a law firm’s structure.
So could we ever see it? Sure, it’s possible we could, but I’d wager it would serve as a cautionary tale for other firms not to emulate.
I mentioned that I worked with Arnie starting on Day 1 of my tenure at Shea & Gould, so indulge me in sharing a classic Arnie Jacobs story: That day I arrived, eager as possible, around 8:00 am only to discover that most of the lights were still out and essentially all the offices empty. At 10:00 am my phone rang with a summons to Mr. Jacobs’ office. Grabbing a pad, I thought, "OK, here goes the next month of my life."
Walking in to Arnie’s office, I said, "Good morning, Mr. Jacobs."
"You’ve already made your first mistake," he replied.
"Sir?!"
"It’s Arnie, not Mr. Jacobs."
Some time later that morning, my heart rate found its way back to normal.
One last thing you need to know about Arnie: His intellectual output is staggering. From the Proskauer site:
"Arnie is the author of 26 books and numerous articles on various aspects of securities and corporate law. They have been cited by the Supreme Court of the United States a number of times, as well as in hundreds of other cases and authorities. As a result of one of those articles, he holds the world’s record for the law review article with the most footnotes (4,824 footnotes, to be exact).
His books are:
- Disclosure and Remedies Under the Securities Laws , a six-volume, 5,000-page treatise discussing what disclosure is required under federal and state securities laws, and the remedies for noncompliance.
- Litigation and Practice Under Rule 10b-5 , a six-volume, 5,000-page treatise dealing with securities fraud.
- Section 16(b) of The Securities Exchange Act , a two-volume, 1,000-page treatise dealing with short-swing profits.
- Manual of Corporate Forms for Securities Practice , a four-volume, 2,000-page treatise setting forth forms to be used.
- Opinion Letters in Securities Matters , a four-volume, 2,000-page treatise dealing in depth with opinions lawyers are to render.
- The Impact of Rule 10b-5 , a three-volume, 1,500-page treatise explaining various aspects of securities fraud.
- The Willliams Act—Tender Offers and Stock Accumulations, a one volume, 1,000 page treatise on tender offers and filings by large stockholders."
And to show that the apple doesn’t fall far from the tree, a few years ago his son, A. J., published "The Know-it-All: One Man’s Humble Quest to Become the Smartest Person in the World," which was on The New York Times best-seller list for nine weeks (as Arnie the proud father points out), recounting A.J.’s (successful) effort to read the entire Encyclopedia Britannica, A to Z, and thus to "redeem the family honor" given that Arnie had fallen off the bus somewhere in the "B"’s when he tried many years before.
