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Partners Streaming Out Of The K&L Gates?

On multiple days over the past week or so, one of the top ten search terms bringing visitors to Above the Law has been K&L Gates. For whatever reason, people seem keenly interested in what’s going on right now at this major international law firm.

(But maybe we shouldn’t read too much into such queries. Also in the top ten search engine terms: “pictures of tacos.”)

So what is going on at K&L Gates? A significant amount of partner attrition, as various news outlets have recently pointed out….

Earlier this week, we saw this report in Law360 (sub. req.):

Partners nationwide have been fleeing K&L Gates LLP at an alarming rate and more departures are expected as attorneys increasingly lose faith in the firm’s leadership and strict compensation policies, former partners said Tuesday. Although reports have centered around the recent personnel losses at K&L Gates’ Chicago office, multiple sources speaking on condition of anonymity said Tuesday that a disproportionate level of attrition from the firm was occurring on a national scale.

Former K&L Gates partners and sources familiar with the matter revealed a firm culture in which control rested with a select few and partners were required to make “astronomical” capital contributions, all while operating with a “revolving door” of arrivals and departures.

That’s a dramatic opening. What are the details or data to support it?

While firms naturally experience partners coming and going throughout any given year, K&L Gates — which said it had 1,800 attorneys in over 17 countries as of March — has seen at least 45 partners flee within the past six months, while gaining back less than half that number during the same period, according to Kinney Recruiting. [Disclosure: Kinney is an ATL advertiser, as sponsor of the Asia Chronicles.].

Given the sheer size of K&L Gates, it’s not clear that 45 is a huge number. And not all partners are created equal. Who were the partners in question? Were they equity or non-equity partners? In which practice areas, and with what kind of business?

According to the latest Am Law 100 rankings, which came out in May, K&L Gates has 264 equity partners. A loss of 40 partners would amount to about 15 percent of this total. But remember that (1) the 45 departing partners weren’t all equity partners and (2) some of them have been replaced by new hires (listed comprehensively on the firm website). What we’d really like to know is the net loss of equity partners over the past six months, and what kinds of books of business those partners took with them.

Back to Law360:

The departure of a group of seven attorneys in July sparked chatter that not all was well, but sources said Tuesday that those exits were merely the most visible. Lawrence C. Eppley and six others departed to open a Chicago outpost for Sheppard Mullin Richter & Hampton LLP focused on corporate, employment, real estate and finance.

You can read more about the K&L Gates lawyers who left for Sheppard Mullin over at Am Law Daily or on the Sheppard Mullin website. (It should be noted that not all of the seven were partners.)

Before that, James P. Daley led a group of four K&L Gates lawyers to Schuyler Roche & Crisham PC’s labor and employment practice, the firm reported. In addition to the Chicago groups setting up shop elsewhere, a number of partners have left K&L Gates in a steady trickle.

I’m not sure this all adds up to an “alarming rate” of departures. One can’t help wondering if some of the negative media coverage is being fueled by disgruntled former partners who lost out in power struggles.

(But I’m willing to be proven wrong. If you have additional details about recent or future K&L Gates partner defections, lawyer or staff layoffs, or other possible signs of trouble, please drop me a line.)

So what’s behind the partner departures? Here is Law360’s take:

Some of this attrition can be explained as a natural result of K&L Gates’ merger with Bell Boyd & Lloyd LLP in 2009 and mergers with Kennedy Covington Lobdell & Hickman LLP and Hughes & Luce LLP in 2008, one former partner said, noting that a firm undergoes changes after a merger and may no longer support certain partners’ practices as well as the alternatives.

But a majority argued that attorneys had chosen to leave now because of a number of troubling trends that K&L Gates was experiencing, including its attorneys’ lack of faith in the platform and recent pay curbs….

The firm’s active lateral movement and post-merger atmosphere has led to a lack of cohesion, several former insiders said, adding that the atmosphere is “high school cliquish” and the process behind promotions and equity partnerships is very political.

Cliques and office politics. Umm, welcome to Biglaw?

K&L Gates’ rapid expansion, particularly overseas, was also a cause for concern, several insiders noted. Within the past 15 months, the firm has opened new offices in Sao Paulo; Milan; Doha, Qatar; and Charleston, S.C., and said that it had paperwork filled out to open offices in Seoul, South Korea, and Singapore. Early in August, K&L Gates further announced it was discussing a possible merger with the Australian firm Middletons in a deal that would add 2,000 lawyers practicing across 45 offices on five continents.

Hmm, that does sound pretty aggressive. Next thing you know, they’ll be in Zagreb and Maghreb. As for the merger talks with Middletons — the law firm, not the topless duchess — you can read more on the K&L Gates website.

As we recently reported, many law firm partners are unhappy with their pay. It should come as no surprise, then, that financial factors may be playing a role in some of the attrition:

But perhaps the greatest motivator for attrition is K&L Gates’ strict compensation policies, several sources said. Partners are expected to contribute up to 60 percent of their yearly compensation as capital payments. On average, partner capital contributions can range from 20 to 60 percent, making K&L Gates’ levels on the high end. “You get to a point where your practice can’t be supported,” one former partner said.

Attorneys in the firm also face mounting pressure to raise client rates in order to generate more revenue, insiders said. One source added that before his departure, the firm had increased his rates on a yearly basis with no plateau in sight.

“On average, partner capital contributions can range from 20 to 60 percent.” That’s a rather large range, no? Does some of this turn on equity versus non-equity status? Do particularly powerful or well-paid partners get the right to make lower capital contributions? Inquiring minds want to know.

UPDATE (9/21/2012, 6:30 PM): The Law360 piece isn’t perfectly clear, but I may have misread this passage. Perhaps the sentence should have been written this way (alterations in brackets): “On average [across large law firms], partner capital contributions can range from 20 to 60 percent, making K&L Gates’ levels on the high end [at 60 percent].”

Law360 isn’t the only outlet covering happenings at K&L Gates. Earlier this week, K&L Gates received coverage in Crain’s Chicago Business, which sounded similar themes:

Lawyers have bolted in groups, unhappy, they say, with stricter compensation policies, higher overhead or client conflicts under the new regime. K&L Gates currently lists 128 Chicago attorneys—partners, associates and other types—compared with 170 in mid-2011. Bell Boyd had 218 here before its name disappeared and 233 in 2006.

Putting a positive spin on developments, K&L Gates Chairman Peter Kalis declares in an email, “Law firms, like other business enterprises, can achieve addition through subtraction.” He says Chicago revenue, up 13 percent this year, will match or exceed 2008’s $110 million.

Peter Kalis

Translation: sometimes lawyer departures are welcomed by firms, especially if the partners who are leaving aren’t big revenue generators. That’s certainly true, in some cases. On the other hand, sometimes it’s an excuse. As you may recall, when Dewey & LeBoeuf first started losing partners in significant numbers, the firm claimed that many of the departing partners were underperformers unhappy with their pay.

Peter Kalis, by the way, is known for his candor and strong views. His approach isn’t always well-received by fellow partners, according to Crain’s:

Mr. Kalis’ allegedly autocratic personality also was a motivating factor for some departures. “I don’t care about your prior acculturation,” he wrote to K&L Gates personnel in one email posted on the web [cough cough, Above the Law]; in another, he criticized an employee for “self-absorption and obliviousness” for coming to work with what was later diagnosed as the H1N1 flu.

Trusts and estates specialist Eileen Trost, 61, says she found the latter memo “harsh” but justified. She was more concerned about K&L Gates’ spending to support intellectual property and national litigation and to vet client conflicts when she left last year for Freeborn & Peters LLP, where her rates are 15 to 20 percent lower. “The whole cost structure is not favorable to private clients.”

Trost is Chicago-based, but partners in other parts of the country have left K&L Gates for similar reasons. Check out this August article from the National Law Journal:

San Antonio, Texas-based Cox Smith Matthews has added two more partners from K&L Gates, this time to its Dallas office. The addition of corporate attorney Eduardo Espinosa and litigator Michael Napoli followed a move in April by three K&L Gates partners to Cox Smith’s Austin office.

Napoli said the move would enable him to represent mid-tier clients that don’t necessarily need the big-firm platform and prices of K&L Gates.

“If we’re doing mid-tier deals, we need to be at mid-tier prices,” he said. “K&L Gates has offices in Moscow and Sao Paulo, but if you’re a Texas-based client or a client in New York with an issue in Texas, those are capabilities you’re really not using.”

The rate structures at large law firms are a real issue, but certainly not unique to K&L Gates. They are one reason so many Biglaw partners are leaving their firms to start their own boutiques.

So what should we make of all the partners flowing through the K&L Gates? It’s too early to say. Sometimes partner departures spell big trouble, as we saw in the case of Dewey, and sometimes they don’t really spell anything. For example, back in 2010, White & Case witnessed significant partner attrition. Two years later, the firm remains alive and well.

We reached out to K&L Gates, mentioning the Law360 and Crain’s articles. Through a spokesperson, the firm declined to comment.

If you have information you can share about K&L Gates, whether positive or negative or somewhere in between, please feel free to email us, subject line “K&L Gates,” or text us, at 646-820-8477 (texts only, not a voice line). Thanks.

UPDATE (9/21/2012, 11:30 AM): Peter Kalis, chairman and global managing partner of the firm, has issued a forceful response to the recent negative media reports.

Expect More Exits From K&L Gates, Ex-Partners Say [Law360 (sub. req.)]
As big law firm mergers roll on, there’s some fallout – and K&L Gates is Exhibit A
[Crain’s Chicago Business via ABA Journal]
With Lateral Hires from K&L Gates, Winston, Sheppard Mullin Launches in Chicago [Am Law Daily]
The Churn: Lateral Moves and Promotions in the Am Law 200 [Am Law Daily]
Sheppard Mullin Opens Chicago Office [Sheppard Mullin (press release)]
K&L Gates and Australia’s Middletons Eye Combination [K&L Gates (press release)]

Earlier: Law Firm Merger Mania: K&L Gates and Bell Boyd Merge
The Two Faces of K&L Gates
Peter Kalis Wants K&L Gates Associates To Show Common Sense

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