Why Howrey law firm could not hold it together

Monday, March 21, 2011; 8:43 AM

Quietly and unceremoniously, another venerable Washington law firm went out of business last week.

It's official name was Howrey, reflecting the new fashion in legal marketing that favors a single name, much like rock stars and supermodels. Many of us still remember it as the old Howrey & Simon, although that was before the firm embarked on the merger and expansion binge that would eventually lead to its demise.

As recently as two years ago, Howrey appeared to the outside world to be a thriving global enterprise with more than 700 lawyers, quality clients and a tight focus on antitrust, intellectual property and commercial litigation. In that year, it posted annual revenue of more than half a billion dollars, with profit per partner soaring to near the top of the charts, at $1.3 million.

The firm was started in 1956 by Jack Howrey, a Kansas farm boy who grew up to become chairman of the Federal Trade Commission and would later develop a fancy for racehorses, weekends in the Virginia countryside and tennis played in long white pants. For for all his gentility, however, Howrey's firm quickly developed a reputation for bare-knuckle representation that soon attracted big corporate clients such as oil companies and cereal producers looking for protection from federal regulators.

In the 1990s, under the direction of managing partner Ralph Savarese, Howrey was the first major law firm to pursue a branding strategy with a million-dollar media campaign and the catchy tag line, "In court. Every day." With the help of a headhunter, Savarese embarked on what was then viewed as an aggressive campaign to lure partners (and their clients) away from rival firms, creating a climate of free agency in a profession that had thrived on loyalty.

Savarese was succeeded by Robert Ruyak, who shifted Howrey's expansion into high gear with mergers and practice acquisitions that gave Howrey the "global platform" that soon became the industry's strategic buzzword. At its height, Howrey boasted 18 offices worldwide.

Ruyak's instinct for growth was matched by an instinct for innovation. He launched Howrey Bootcamp for second-year law students that stood in sharp contrast to the partying atmosphere of other big firm summer programs. And with his prodding, Howrey ended lock-step raises for young associates, basing pay on competence rather than seniority, and offered young litigators the chance to trade more practice and real-life experience for lower initial pay. Under his leadership, Howrey invested heavily in a state-of-the-art litigation support center in Falls Church, specializing in the hot new field of "electronic discovery." There was also a back office in Pune, India, to provide low-cost legal research. In 2008, Legal Times cited Ruyak as one of 30 "visionaries" of the legal profession.

So what happened?

From a purely business perspective, Howrey expanded too much too fast, its overhead expenses growing even faster than its revenue. There were offices in London, Paris, Madrid and Southern California that were never profitable, and others had stopped being profitable years before.

Corporate clients began demanding lower fees and billing arrangements less favorable to Howrey. And lower-cost competitors entered the market for electronic discovery and litigation support.

Fixed costs are a challenge for all law firms, but particularly so for litigation firms such as Howrey that can't count on a relatively steady flow of work from corporate clients - leases to review, mergers to handle, securities filings to make. Revenue in the litigation business tends to be lumpy. You get paid only when there is a case to be tried and then often only after the trial is over. Howrey, in particular, had come to rely increasingly on revenue from such contingency fee cases, which rose to $35 million in 2008 and then fell to $2 million a year later.

Like many firms, Howrey also discovered that the larger it grew, the more likely it was to run into problems with conflicts of interest - potential clients or cases that it couldn't take on because the firm represented a direct competitor.

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