Candace Beinecke, turnaround artist

AUGUST 2003
www.americanlawyer.com
Second
Wind
Candace Beinecke,
turnaround artist
SECOND WIND
By Amy Vincent
K
ENNETH LEFKOWITZ NEEDED
somebody to cover for him. It
was July 1999, and the Hughes
Hubbard & Reed corporate partner had just finished a big deal,
the sale of the asset management division of
Liechtenstein Global Trust for more than $1
billion. The former owner, the prince of
Liechtenstein, wanted to celebrate with a
party at his castle in Vaduz. Client relations
had never looked so good. Lefkowitz only
saw one possible flaw in his plans to attend:
a long-simmering deal, the spin-off of
MTV’s Internet arm, The MTVi Group,
Inc., from its parent, Viacom Inc. Stalled by
bickering, the deal seemed far from an
imminent breakthrough. But all the same,
Viacom was a big enough client that
Lefkowitz was nervous leaving it untended.
So he turned the file over to the firm’s
freshly anointed chairperson, Candace
Krugman Beinecke. An experienced corporate lawyer who’d handled Viacom work for
two decades, she didn’t mind—especially
since nothing was going to happen.
Of course, within a week, Lefkowitz got
a 6:30 A.M. call in his hotel room with news
that the MTV deal was back on. In an anxBEINECKE: A HUGHES HUBBARD LIFER WHO’S NEARLY DOUBLED PROFITS PER PARTNER
ious trans-Atlantic phone call, he assured his
Viacom contacts that Beinecke was more than an
Hubbard. But from the outside, it looked as though it had been a while
adornment to front the deal. And she was. Over the next week, while
since anything was seriously right. In 1999 we quoted then-new chair
Lefkowitz sampled the splendors of Old Europe, Beinecke helped hamBeinecke defending her firm’s decision to stay small. “We made a strategic
mer out the deal, pulled two all-nighters, and personally drafted the final
decision last summer that we were going to grow, but grow smart,” she
letter of intent.
said then. “Check in with us next year.”
Everyone at Viacom was suitably impressed. And Beinecke, says
Four years later, Hughes Hubbard still hasn’t jumped back across the
Lefkowitz, has never let him forget it: “Of course, she’s reminded me for
divide between the top 100 and 200 firms, ranked by revenue. After
the last four years how much I owe her.”
falling to number 115 in The Am Law 200 two years ago, the firm
Lefkowitz owes her for more than just that. When she took over
has edged back up to tie at number 109 this year, with revenue of
Hughes Hubbard in May 1999, just two months before the Viacom
$161 million—a respectable gain from $110 million five years ago. But
all-nighters, the firm was flatlining, while its Wall Street counterparts were
Beinecke’s vision of growth has come true where it counts most. The firm’s
enjoying an unprecedented boom. Hughes Hubbard looked marked for
profits per partner have almost doubled in those same five years, rising
extinction if it didn’t merge or specialize its way out of a midsize, fullfrom $420,000 in 1998 to $820,000 in 2002—up 27.9 percent in the
service trap. Once an Am Law 100 firm that peaked at number 58 in 1987,
past year alone.
the firm slid down the list until it fell off entirely in 1999. The firm’s
To rev its old engine that much without a merger, Hughes Hubbard
per-partner profits had remained mired between $300,000 and $335,000
must have had mass partnership bloodlettings and layoffs, right? Nope. Or
from 1989 to 1996, and had just edged up during the late-nineties bubble.
slashed overhead dramatically? Wrong again. The main office’s views of
What’s worse, the firm was so old-fashioned in its lightly managed ways
New York Harbor are just as spectacular as they ever were. Or veered
that it wasn’t able, or perhaps willing, to declare a state of emergency.
sharply into new or narrower practices? Not really. The mix would be
Longtime partners say that nothing was seriously wrong at Hughes
familiar to a Hughes Hubbard partner circa 1983, except maybe for the
PHOTOGRAPHS
BY
MICHAEL J.N. BOWLES
sheer scale of some big-ticket product liability litigation currently making
the meters hum.
In fact, the firm’s turnaround is made of quieter, more prosaic stuff:
incremental improvements and efficiencies, aggressively paring its partner
ranks, more attentive and active management, and good, old-fashioned
marketing. The result: The partners are making big-league money again,
and the firm’s culture—while roughed up a bit by the crackdown and
cuts—was left largely intact. If Lefkowitz were at the prince’s party in
2003 instead of 1999, he still would be able to quaff the wine and ogle the
art while his firm’s leader handled his biggest client. Hughes Hubbard
stands as proof that a mid-size, major-market, full-service firm isn’t
necessarily doomed. All it needs is a client list worth preserving—and the
management smarts to preserve it.
there was probably the most instrumental thing in my decision.”
After a year of debates and entreaties, Beinecke let it be known she’d
take the position. She was voted in as chair in May 1999. Hughes Hubbard
had its new leader, and Candace Beinecke had to take a fresh look at the
only law firm she had known.
M
ERGING LOOKED LIKE THE MOST OBVIOUS
solution. “I do think that there was a feeling in the legal
community five years ago that if you were a medium-sized
firm like ours, you had to do one of two things to survive,”
says Hughes Hubbard’s John Fellas, an international litigator and arbitrator. “One, you had to merge and be big. Or you had to recast yourself as a
boutique.” Others had the same thought. Hughes Hubbard partners say
the calls from potential merger partners had begun to pour in—and still
haven’t stopped. “Some old, established names were gone,” says John
ANDACE BEINECKE HAS BEEN AT HUGHES
Townsend, head of the firm’s arbitration group, of the ever-shifting merger
Hubbard since she walked in the door as a 23-year-old associate
landscape. “You’d have to have been unconscious not to stop and wonder,
on October 2, 1970. At that point, she planned to stick around
are we missing something here?”
a couple of years before leaving Wall Street behind for a
In some ways Hughes Hubbard was a desirable acquisition: a Wall
civil liberties practice.
Street blue blood with a client list that included Christie’s International
But Beinecke was given far more and better opportunities as a young
plc, PricewaterhouseCoopers, and Merck & Co., Inc., with which it has
female attorney than she’d anticipated. She soon established herself as a
had a relationship lasting for half a century. And it didn’t hurt that the firm
powerful corporate lawyer, one with the ability to charm clients and
came with some old-school cachet.
coworkers alike while getting the job done. She grew to be one of the
The firm took plenty of calls, and looked into plenty of potential mergfirm’s leading corporate lawyers, entrusted with core clients such as
ers, including one romance with the firm then known as Pillsbury, MadiALSTOM and Viacom, and became the firm’s second female partner
son & Sutro. But Beinecke’s gut told her that taking on the wrong merger
in 1979.
would forever disrupt Hughes Hubbard’s traditional, collegial culture,
As longtime chair Robert Sisk approached retirement age in the late
which she strongly wanted to protect. “We’re not averse to expanding,”
1990s, and the search for a new chair began, Beinecke didn’t pursue the
Beinecke says. “But our clients are here because of what we are, not beposition. She liked the balance she had struck between her personal life—
cause of what we’re not.”
she married into the family that used its fortune
But who at that point really knew what
from S&H Green Stamps to fund numerous chariHughes Hubbard was? In the customary newtable works and the library at Yale, and she had
chair rounds of client visits in summer 1999,
two sons, now 19 and 24—and her work for such
HUGHES HUBBARD & REED
Beinecke was struck by how little the firm’s best
important clients.
2003 Am Law 200 Rankings:
clients—not to mention potential ones—seemed
But Beinecke soon found herself under siege
109th in gross revenue
to know what the firm might be capable of doing
by partners who, while too loyal to openly criticize
49th in profits per partner
for them if it wasn’t doing it already. Partners
the current management, couldn’t deny that they
74th in revenue per lawyer
had the collegial part down pat—Hughes Hubneeded new leadership, and saw what they needed
bard was generally not the kind of place to
in Beinecke. “Generally, particularly for women,
Highest rank on Am Law 100:
seethe with rivalries—but they had missed the
you’ve got to want those jobs, and you’ve got to go
58th in revenue in 1987
multitude of cross-selling lessons taught since
get them,” Beinecke says. “But I wasn’t thinking,
the 1980s. Litigation partners could have been
‘This is a job I want to take on.’ ”
Chair:
funneling more work to the corporate side and
She kept talking to more people inside and
Candace Krugman Beinecke
vice versa, but they weren’t. “Internally, we have
outside the firm. Sisk encouraged her. John
(since 1999)
to know what each of us is doing,” Beinecke
Fontaine, a former chairman and one of her
Managing Partner:
says. “But nobody knew! Inside the firm!”
mentors, felt Beinecke could balance the chairCharles Scherer
The inattention to detail extended to other
manship and her practice. Close friend Tim Zagat,
(since 1989)
fundamentals. The firm’s rates hadn’t gone up
who was an associate in Hughes Hubbard’s Paris
substantially in years, and practice groups met—
and New York offices before turning his attention
Total Lawyers/Partners on July 1:
well, whenever they felt like it, which might be
to restaurant reviews, pointed out that it was the
303/72
once a month. Or never.
“logical progression” for her career.
Inertia, of course, has its benefits. With
Perhaps the deciding vote of confidence came
Offices:
profits
per partner so stagnant, Hughes Hubfrom Hughes Hubbard partner Charles Scherer.
New York (201 lawyers)
bard
partners
might have been expected to flee
He and Beinecke are close friends, and have been
Paris (25)
to other, wealthier firms. A few people did leave,
ever since October 2, 1970—it was Scherer’s first
Washington, D.C. (24)
but an exodus never happened. Hughes Hubday, too. As managing partner for the firm since
Miami (24)
Los Angeles (22)
bard still retained the traditional idea that when
1989, Scherer would be the person working most
Jersey City, New Jersey (5)
you entered a law firm as a first-year and made
closely with Beinecke, if she took the job. “His
Tokyo (2)
it to partner, you’d entered that firm for life.
whole career, he’s made me look good,” Beinecke
Another benefit of being unhip: The firm
says of Scherer. “Knowing he was going to be
C
never caught the tech train as it left the station,
so it was able to stroll unscathed past the
eventual train wreck. Not that it didn’t try to capitalize on the late-nineties excitement. But the
experiment proved more embarrassing than anything else. “We took a couple of the start-ups, but
to be honest, we were horrible at it,”
says Lefkowitz. Reluctant to assign schools of
associates to handle the work, the firm would
send partners instead; in the process, they ran up
six-figure bills that start-ups couldn’t pay. The
tech business that Hughes Hubbard did end up
with was attached to established clients, such
as Viacom.
Within a few months of becoming chair,
Beinecke concluded that the solution to Hughes
Hubbard’s underachieving wasn’t a dramatic
overhaul. It didn’t need to merge, expand, or
violently contract. It didn’t need to turn into a
litigation boutique. It needed to start running
its old-school law firm like a business for the
twenty-first century.
F
IRST ON THE CURRICULUM:
Marketing 101. Daniel Weiner,
an international arbitrator and
litigator, describes the firm’s attitude until then: “ ‘They’ve been our clients since
the 1930s; they know our phone number, so let’s
just wait for the phone to ring.’ ”
Beinecke saw how badly that needed to
change—and her own appointment as chair
helped begin the process. “She received a sort of
free dose of press attention when she took over,
just because she was the first woman chairman of
an old-line New York firm,” says Townsend. “Just
starting with that little advantage, people were
talking to her and wanted to know what she had
to say. So she began drawing attention to what we
do, and how we do it.”
Beinecke felt that her firm was best at—and
therefore needed to spend more time on—comLEFKOWITZ SAYS THE FIRM’S RATES WERE STAGNANT BECAUSE “WE HADN’T FOCUSED ON OURSELVES.”
plex, high-end litigation and corporate matters.
And Hughes Hubbard already had the kinds of
The firm’s current docket includes a major product liability class action
clients that could generate such premium work. So instead of embarking
for Merck involving arthritis drug Vioxx. The firm, facing opposing counon a flashy ad campaign or aggressive rainmaking, Hughes Hubbard partsel from Armonk, New York’s Boies, Schiller & Flexner, has eight partners
ners got back in touch with their old clients. They started speaking at semand 30–40 associates working on the Vioxx case, and it has hired contract
inars those clients would attend. They began publishing newsletters that
lawyers (from eight to 18 at any given time) to help. Other giant cases on
covered major news and decisions in various industries.
the books include defenses of class actions involving androstenedione (the
Clients started responding; Hughes Hubbard’s financial turnaround
body-building supplement controversially used by St. Louis Cardinals
has, to a great extent, been the result of more work from the existing
slugger Mark McGwire) and polyacrylamide, one of the chemicals in the
client base. Some companies that might previously have searched
treated wood used in outdoor decks, gazebos, and patio furniture. On the
elsewhere for an acquisition or a class action defense chose to stay with
corporate side, even during the economic slowdown, Hughes Hubbard is
Hughes Hubbard instead. Billings started to rise.
seeing solid improvement; one $200 million deal, in which the firm repreTake, for example, Hughes Hubbard’s big-ticket, complex litigation
sented Continental Airlines in the issuance of an enhanced equipment
work. By paying more attention to longtime clients, the firm turned them
trust certificate, was Airfinance Journal’s Deal of the Year in 2002.
into its main moneymakers. “When I was at Hughes Hubbard starting as a
Hughes Hubbard’s international litigation and arbitration practice is
youngster, we had one or two of those [large litigation cases] . . . at any
another success that capitalizes on rising client demand. The firm created
given time,” says litigator Robb Patryk, who joined the firm in 1989. The
an office in Paris in 1968, ahead of the globalization curve. The founder of
count these days is likely to be seven to ten such monster cases at once.
A Flatliner Revs Its Engine
Hughes Hubbard’s turnaround
$1,000,000
Revenue Per Lawyer
Profits Per Partner
800,000
600,000
400,000
200,000
1987 ' 88 ' 89 ' 90 ' 91 ' 92 ' 93 ' 94 ' 95 ' 96
Total Lawyers 210
220
235
247 239
240 230
240
250
240
the Paris office, counsel Axel Baum, has a strong reputation in the
booming area of international arbitration. And it’s translating into
some noteworthy statistics. According to the firm, during 2002 some
47 lawyers (fully half of the litigators) were involved as counsel in a total of
28 arbitrations, and 33 others where partners sat on panels. The roster,
which included 25 international cases, totaled about $2 billion in claims.
Long-standing Hughes Hubbard arbitrators such as Steven Hammond
and Baum have brought new talent into the firm, whether by developing
younger partners (such as up-and-comer John Fellas) or by bringing in a
few new faces (such as June lateral hire José Rosell, a Spanish lawyer
expected to dive into Latin American arbitrations).
N
EXT UP ON THE TURNAROUND AGENDA: CHARGing more for all that additional work. A rate overhaul was
long overdue. Hughes Hubbard rates had slipped far beneath the New York averages. “We hadn’t focused on ourselves,” says Lefkowitz. “We weren’t focused on what was
market value.” By boosting rates by approximately 5 percent each year, the
firm was able to improve the bottom line without alienating long-time
clients. Now the standard first-year associate billing rate is $210 an hour;
top partners charge around $650.
Working on better matters for reliable clients also improved the firm’s
realization rate. “In a business our size, a 1 percent improvement in the
realization rate has a very pronounced and beneficial bottom-line effect,”
says managing partner Scherer. “Our revenue last year was roughly $160
million. If you could improve by 1 percent, that’s a $1.6 million benefit to
the bottom line.” Hughes Hubbard has done better than that, raising its
realization rate approximately 5 percentage points, to around 90 percent,
during the previous three years.
Then came the firm’s leverage. During the past four years, Hughes
Hubbard has shrunk its partnership while holding its head count steady,
“which obviously improves the averages,” says Scherer. The firm had more
than 80 partners during most of the 1990s and hit an all-time high of 90 in
1998; today, it’s just 72. Four partners were de-equitized—not a massive
number by most firms’ standards, but then, Hughes Hubbard had never
before had any nonequity partners. Those partners who have come in laterally have been recruited in carefully targeted areas.
To remain a part of the refocused Hughes Hubbard, partners had
to be sure their practices fit the firm’s new, high-end profile. Weiner
describes the mind-set: “You
have to focus on what you do
best. If there’s an area you’re
thin in that complements the
other areas, you have to build it
up. If you’re going to grow,
you’ve got to be targeted. There
are going to be some oxen that
get gored in that process.”
But not too many oxen, in
this case. The firm didn’t resort
to sweeping layoffs, although
some partners who had low-end
or largely local practices (such
as real estate practitioners in
some branch offices) were
' 97 ' 98 ' 99 2000 ' 01 ' 02
nudged out the door. Other
265 270 275 280 275 290
lawyers were placed in-house at
Hughes Hubbard clients, thus
further strengthening the firm’s
ties to those companies. More
often, partners were simply moved from the aspects of their practice that
weren’t making much money for the firm to more lucrative areas. For example, Patryk estimates that he used to spend a considerable percentage
of his time on labor and employment litigation; now, product liability litigation commands most of his time.
Hughes Hubbard, once more inclined to handle smaller-scale matters
for longtime clients, now began prodding them to take that work elsewhere. (Their new rates, though not exorbitant, helped drive home the
point: Smaller cases were no longer cost-effective at Hughes Hubbard.)
Client requests prompted one of Hughes Hubbard’s few practice
group acquisitions, the recent addition of a five-lawyer white-collar criminal defense group headed by former federal prosecutor Edward Little.
But the firm also looked beyond what was popular or obvious. In the past
five years, the firm has capitalized on an existing relationship with the
auction house Christie’s by developing its art law practice; the firm now
represents many more artists and museums. The result: a practice that
brings in $1–10 million annually. Art law will never be the backbone of
Hughes Hubbard’s success. But a level of specialization in the subject,
formerly underutilized, is now making money for the firm.
Revitalizing the practice groups also required revisiting their
organization and direction—which, in many cases, left much to be
desired. As Patryk says, “Maybe they’d meet, and maybe they wouldn’t.”
Scherer, as managing partner, kept a tight lock on funds for promoting
business, which were doled out only to individual partners on an asneeded basis.
Practice groups were presented with marching orders: They were to
meet each month, drawing up defined goals and communicating their
STRAIGHT TO THE BOTTOM LINE
Key factors in Hughes Hubbard’s turnaround:
Improved leverage without large-scale layoffs.
Kept costs low.
■ Improved revenue per lawyer and realization rate
by going after better business from quality clients.
■ Brought billing rates up to market standard.
■ Increased productivity through stronger financial incentives.
■
■
work and their clients’ needs to other practice groups.
Each branch office was designated as a separate practice
group, to focus them as well. Scherer ceded some control over the purse strings to the practice groups; now, a
substantial portion of business development funds go to
the group as a whole.
The management isn’t strictly top-down anymore,
which encourages investment and innovation. “We’re
giving people an opportunity to come up with a broader
initiative,” says New York litigation cochief George
Davidson. “This is sometimes involved in investing in
associates. It doesn’t do anything to a particular partner
to invest his budget to send the associate across the
country or across the world to some conference or something, but it would benefit the practice group. So this
budget accommodates that.”
Individual partners’ compensation plans reflect the
new priorities. “We compensate people now for their
contributions to the practice group,” says Scherer. “People are rewarded for being good citizens. And conversely, they might be dinged, for lack of a better word, for
not being a good contributor to the practice group effort.
Not to be too mercenary about the whole thing, but
money is a significant motivating factor.”
A
DECADE AGO, HUGHES HUBBARD
toyed with opening a series of foreign
offices. “In the early 1990s, we looked at
Moldavia for a while,” says Lefkowitz. “We
looked at Islamabad once. And then we
said, ‘You know what? This isn’t us.’ ” Instead, in the past
decade, Hughes Hubbard opened only two new branches—one in Tokyo, to work with its preexisting Pacific
LITIGATORS (FROM LEFT) FELLAS, DAVIDSON, AND NORMAN KLEINBERG: THE FIRM’S MAIN
Rim practice, and another in Jersey City, New Jersey, to
MONEYMAKERS TODAY OFTEN INCLUDE UP TO TEN MONSTER SUITS AT ONCE.
assist in litigation in that state. Paris, with 25 lawyers
based there, remains its only European office. The firm
UGHES HUBBARD HAS STUCK AROUND LONG
pursues most of its European work the traditional way, through the cultienough that a strategy of “the slower the better” is once
vation of relationships, via organizations such as the Union Internationale
again seen as a path to law firm success. “We’ve had the
des Avocats (of which Hughes Hubbard partner Steven Hammond has
courage of our convictions,” Beinecke says. “Our clients have
served as president) and the International Bar Association.
appreciated it more and more, I have to say. These days,
Law firm management consultant (and American Lawyer contributing
those values that were underappreciated for a while—I think they’re more
editor) Peter Zeughauser thinks that discretion has definitely proved to be
appreciated in this environment.
the better part of Hughes Hubbard’s valor. The “if we build it,
“In a way, what we do has come back into vogue,” she adds. “We’re
they will come” philosophy of branch office creation is a perilous
through
with the go-go years. People appreciate the basics.”
one, he says: “There’s only about 100 American law firms in London,
Especially
when that basic, old math adds up to $820,000 in profits
who went there for that reason, who are losing money year after year,
per
partner.
pretty badly.”
H
Sometimes the firm’s strategies dictated referring existing clients to
other firms. But as it turns out, many clients appreciate the approach.
Hammond, cochair of the international practice group, learned this lesson
from a general counsel who was offended by another firm’s presumption
that his company should stick with one firm for everything, worldwide.
Giving away business hurts in the short term. But Hughes Hubbard
has begun to see more referrals coming in from European firms in return.
What goes around, comes around.
Of course, you can never say never; partners admit that they may
eventually have to establish more of a presence overseas. “London is
probably inevitable at some stage,” says international litigator Derek
Adler. “But the longer we can put it off, and the slower we are to do it,
probably, the better.”
This article is reprinted with permission from the August 2003 edition of
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