The law business isn't strictly legal anymore.
A growing number of adventuresome law firms across the country are moving beyond writing wills and drafting briefs to engage in a variety of business ventures, from real estate development to economic consulting to investment banking.
A reflection of a newly competitive era for American law firms, the trend is partly an effort to keep existing clients happy and to attract new ones. Although some lawyers and legal consultants warn that the ventures are fraught with peril, both financial and ethical, the businesses also provide new sources of income for law firms at a time when many predict limited growth in legal business.
"It's the wave of the future," said William M. Isaac, who teamed up with the Washington law firm of Arnold & Porter to form a financial services consulting firm after he resigned as chairman of the Federal Deposit Insurance Corp. late last year. "I think you're going to see more and more firms doing it. You provide your client a fuller range of services, and it can be profitable."
Such ventures include:
*Pechner, Dorfman, Wolffe, Rounick & Cabot, a Philadelphia firm that specializes in labor law, bought a personnel consulting company last year to advise its corporate clients on how to handle problems with employes.
*A major New York firm that does legal work involving China -- Kaye, Scholer, Fierman, Hays & Handler -- formed a consulting subsidiary in July to help Western companies set up projects there.
*Howrey & Simon, a District firm that for years had economists on its staff to provide economic analyses in antitrust and other cases, spun off Washington Economic Research Consultants in April. With eight economists, the company, partly owned by Howrey & Simon, gives economic advice to companies and smaller law firms.
*Manatt, Phelps, Rothenberg, Tunney & Phillips, a Los Angeles firm that represents such athletes as Bruce Jenner and Steve Garvey, has announced plans for a joint venture called Sports Management Co., which will handle everything from lining up endorsements to brokering movie deals to providing financial planning.
*Van O'Steen & Partners, run by a Phoenix lawyer who was one of the pioneers in legal advertising, formed the Van O'Steen Lawyer Marketing Group last summer. The company helps personal injury lawyers sell themselves by providing services ranging from personalized television spots to three years' worth of newspaper columns on legal topics.
*A Pittsburgh firm, Thorp, Reed & Armstrong, operates an office supply, printing and messenger company that started as a way of sharing administrative costs with other companies in its building but has branched out to serve other law firms in the city. Thorp Reed toyed with the idea of starting a limousine service before a client decided to proceed with the plan.
*The D.C. office of Sutherland, Asbill & Brennan joined in January with William A. Vaughan, who was leaving his post as an assistant secretary at the Department of Energy, to form Energy & Environmental Consultants. Vaughan, who holds degrees in both law and engineering, heads the consulting firm and is of counsel to the law firm. Both the energy and environmental fields, he said, "are very strongly controlled by the law. It's an ideal situation for this kind of a synergistic practice."
*The partners of an Atlanta firm -- Asbill, Porter, Churchill & Nellis -- established an investment banking company last year.
"We've seen a lot of deal-making going on and have only been on the periphery," said Asbill Porter partner Carl Zwisler. "We decided we could be of service to our clients and also make money by being involved in [the deals]."
In the case of Arnold & Porter, Isaac, a lawyer, had discussed joining forces with accounting firms and investment consulting businesses before deciding to go with Arnold & Porter, which already does extensive legal work for financial institutions. He broached the idea at a dinner last summer with John D. Hawke Jr., Arnold & Porter's senior banking partner.
"To my surprise, John had been thinking along the same line," Isaac said. "He felt there was a real need for Arnold & Porter to provide services beyond what clients normally expect from lawyers. There was a need, in acquiring a thrift or in counseling a troubled institution, to give them business advice, and most clients wouldn't think to turn to a law firm for that advice."
The result, unveiled in January, was the Secura Group -- from the Latin word for security -- which features other former federal banking officials. Isaac, who was made a partner in Arnold & Porter, is president of the firm. Hawke is its chairman, and Arnold & Porter is a limited partner with a 25 percent interest in the venture.
Arnold & Porter, which with 220 lawyers is the District's second largest law firm, has had other forays outside the law. In 1983, the firm formed the Arnold & Porter Consulting Group (APCO) and MPC & Associates, a real estate development company. APCO's staff of 24 Capitol Hill alumni, business administration graduates and researchers does lobbying, fund raising and financial consulting work for universities, nonprofit associations and others; MPCs five engineers, financial consultants and management experts oversee the development of real estate projects that APCO may recommend to a client.
Myron P. Curzan, a real estate specialist who heads the two companies, said they were designed to offer clients "a form of one-stop shopping."
"The theory really is that, for clients such as universities, they are particularly concerned about finding one entity or person who . . . will take the responsibility for dealing with their problem, not just a particular aspect of their problem," Curzan said.
"When they come in and want to know how to develop something, they're not simply interested in having an architect who can draw pictures for them . . . [but] somebody who has the skill to bring together all the professionals . . . . There's not one of these problems that doesn't require a whole series of legal analyses."
Leonard Schaeffer, managing partner of Pechner Dorfman, the Philadelphia firm that bought the personnel consulting company, terms the concept "holistic law . . . . Just like the medical theory that it's best for the patient to treat the whole patient, we take into account the whole client."
In a typical case, he said, the firm may be asked to represent a company whose workers are trying to unionize. "We advise the client what right the client has to contest the [union] election" under federal labor law, Schaeffer said. At the same time, he said, the company might benefit from personnel consultants to "find out if you have disgruntled employes" and try to do something about it.
"I think lawyers were giving that type of advice, but we realized that we were not experts in personnel consulting," he said. In addition, he said, the firm decided it could keep clients happy by offering that service without charging them hefty legal fees.
The idea of outside businesses is expected to catch on with other firms. "Lawyers see an awful lot of opportunities in their practice; it's a less conservative, more aggressive profession, and there's really nothing to stop lawyers from operating other businesses," said Bradford Hildebrandt, a New Jersey-based legal consultant. "I think we're going to see more of that because it presents opportunities for lawyers to broaden the firm's economic base."
Hildebrandt warned, however, that the businesses -- particularly those that require a large financial commitment -- may backfire. "Lawyers are generally not good businessmen," Hildebrandt said. On the other hand, he said, "There's nothing stopping the lawyers from hiring businessmen to run other businesses, which is exactly what they should do."
Perhaps more important than the financial risk they may pose, the ventures constitute, in the view of some, an ethical mine field.
"I think they are fraught with the risk of conflict of interest and other ethical entanglements," said Prof. Geoffrey C. Hazard Jr. of Yale Law School, a specialist in legal ethics. "If [lawyers] want to go into business, why don't they go into business?" he asked. "Lots of lawyers are in management or financial consulting. They just don't also try to practice law."
One example of a situation where there is a potential conflict, Hazard said, is a law firm and its subsidiary that simultaneously provide financial and legal advice.
"As a practical matter it's hard to see the law firm saying about its own financial or business advice that it was very ill-considered from the legal point of view and would be a course of action that the law firm as law firm would recommend strongly against," he said. "If that is true, it follows that the law firm's interest as business or financial adviser could be in conflict with its independent professional judgment as legal adviser."
A special American Bar Association Commission on Professionalism set up last year to assess the image and reality of the profession is examining the issue, according to its chairman, Chicago lawyer Justin A. Stanley.
While the panel has not reached any conclusions about the propriety of such activities, he said, "Aspirationally, doctors should be doctors and lawyers should be lawyers."
Even lawyers who engage in outside businesses concede that the activities raise ethical issues.
To avoid complaints about practicing law without a license, Pechner Dorfman chose to staff its personnel consulting firm with consultants who had law degrees. For fear of being accused of violating the rules against solicitation, economists at Howrey & Simon's consulting company are instructed to tell clients who ask about legal representation that there are other good firms available, said Robert Abrams, a partner in the two firms.
Although it may not be technically required, several firms will not permit their ventures to do work for clients whose interests might conflict with existing clients of the firm. And all said they fully disclose to clients the connection between the entities.
Philadelphia's second largest law firm -- Blank, Rome, Comisky & McCauley -- has found out the hard way about some of the risks posed by even indirect involvement in outside businesses. The firm has been named as a defendant in several lawsuits by shareholders of a failed Florida savings and loan established by two of the firm's senior partners.
According to the suits, a number of Blank Rome partners invested in Sunshine Savings & Loan, firm members served as Sunshine officers and directors, and the firm served as the thrift's lawyer, receiving more than $7 million in legal fees in 1983 and 1984 alone.
The suits allege that the firm violated federal securities and banking laws, breached its duty to the shareholders and charged excessive fees. In court papers, Blank Rome has denied any wrongdoing.
One Washington firm decided in January that the risks of its outside business were not worth the benefits. Melrod, Redman & Gartlan, a real estate and banking law firm, operated a title insurance company for less than a year before selling it because of problems with potential conflicts of interest, according to partner Allan J. Weiner.
The firm realized that, for example, it could be put in a position where the title insurance company refused to issue a policy that a client wanted, Weiner said. "We thought it would provide an additional service for our clients and additional means to earn profits," he said. While the insurance company fulfilled the latter function, Weiner said, "the decision to go into it was client-related and the decision to get out of it was client-related."