Unique Dreier Business Model Attracts Santa Monica Rainmaker

By Robert Iafolla
Daily Journal Staff Writer

LOS ANGELES - Even before merger talks between Alschuler Grossman Stein & Kahan and Cooley Godward Kronish died last month, rainmaker Stanton "Larry" Stein had already decided he wouldn't be part of the deal.

"I didn't want to be part of a mega national or international law firm," Stein said of the move that would have combined his 84-attorney Santa Monica operation with the 550-attorney, eight-office firm.

Instead, he was looking for a situation where his entertainment clients don't have conflicts with multimedia corporate clients, where he has the billing flexibility to go after midmarket business and where he can mentor young associates.

Stein said he found such a situation with the New York-based Dreier law firm. Or rather, the situation found him.

"I wanted an L.A. practice and a bicoastal firm," managing partner Marc S. Dreier said. "The best way to do that is to start with people of real stature, use them as a lighting rod to attract more talent, and have a meaningful presence sooner rather than later."

Dreier and Stein have agreed in principal to create Stein Kahan & Dreier in January, although nothing is official, not even the name. The Dreier-affiliated firm would include Stein's entertainment litigation group along with longtime colleague Robert L. Kahan's corporate transactional group from Alschuler Grossman. Dreier said he is looking to add a real estate and commercial litigation practices as well.

While the tracks for this new firm have been laid, there is still much left to be determined. For one, it's unclear how many Alschuler Grossman attorneys will join the planned firm. But perhaps more important, its business model and governing structure remains on the drawing board - it may be a traditional equity partnership, or something quite different.

Industry observers have called the Dreier firm in New York a unique operation. It's a 120-attorney firm with just one equity partner: Marc S. Dreier.

"The idea came to me based on seeing how dissatisfied many lawyers are with how large law firms work," said Dreier, a former head of Fulbright & Jaworski's New York litigation practice. "The old formulas and old markers for success don't work anymore."

Instead of earning a share of the firm's profits, partners receive a guaranteed salary. In addition, each partner's contract stipulates either a personal or practice groupwide revenue benchmark; once it is met, the partner keeps a chunk of the revenue over that mark.

The lawyers take on that revenue ranges between 25 percent and 45 percent, Dreier said, explaining that the lower the benchmark the lower the percentage, and vice versa.

Under this model, partners do not bear the firm's expenses. This includes the lease for its office, previously occupied by New York mayor Michael Bloomberg's law firm, in an I.M. Pei-designed building on Park Avenue, complete with a private elevator and lobby.

Dreier founded his eponymous firm with a handful of attorneys in 1996, and began aggressively expanding in 2000. Using lateral hires who often come as intact practice groups, he's built the firm by creating profit centers housed under the Dreier umbrella.

"The firm is basically a lot of boutiques under one roof," according to Marina Sirras, president of the New York-based legal search firm Marina Sirras & Associates. "Usually firms have one common goal - to have the best firm possible - and here it seems to be a bunch of individuals."

However, Sirras noted that "they have a wonderful list of clients, so it must be working."

That list includes Calvin Klein, Guardian Life Insurance Company of America, Merrill Lynch & Co., Nike, Pfizer and Sony Electronics.

"It's a very up-and-coming law firm that's grown remarkably well," said Lynn Mestel, president of Mestel & Co., a national attorney placement and consulting firm. "When small firms are merging into big nationals, here's a guy who's building his own firm on a nationwide basis by taking advantage of lawyers who don't want to join those big firms."

A year and a half ago, the Dreier firm had 45 attorneys; now they've grown to 110 lawyers in New York; 10 in Stamford, Conn.; and three in Albany, N.Y.

Ron Beard, Gibson, Dunn & Crutcher's chairman from 1991 to 2001 who now consults with firms for the Zeughauser Group, said he was impressed by Dreier's rapid growth, especially in light of its nonequity partnership business model.

"Most successful attorneys want to be equity partners," Beard said. "[Dreier] must have its own unique culture that allows it to thrive."

Partner Daniel F. Coughlin, who used to practice at Mintz Levin Cohn Ferris Glovsky and Popeo, joined Dreier in January 2005. He said the firm's unusual business model motivated the move.

"My experience at Mintz highlighted some of the less than perfect aspects to practicing at a large multioffice firm," he said. "Everything had to go through [the firm's headquarters in] Boston, but if you weren't in Boston, you weren't on the radar screen."

Coughlin said he is designing his own consulting firm that will operate within Dreier, a project that "would take two or three years" in a traditional firm.

"There aren't three or four committees that an idea has to pass through," he said. "If you get Marc's ear and justify it, it happens."

Partner Jeffrey A. Mitchell said that Dreier runs the firm "like a CEO."

"Firm committees are a fake democracy anyway, because there's a big elephant in every firm that has the final say," Mitchell said. "Here there's a very clean and clear line of command, and everything runs efficiently."

Partner Vincent Pastore, who left Brown Raysman Millstein Felder & Steiner with a group of attorneys to start Dreier's Stamford office, lauded the managing partner's leadership. He said the flexible Dreier "takes things out of the world of the bean counters" while comparing traditional firm management to "generals back in the Pentagon" far from the battlefield.

Another aspect of Dreier's model is the de-emphasis of the Dreier name by using affiliates and branded practice groups.

Last month, Dreier acquired the attorneys and support staff from the New York bankruptcy and corporate restructuring boutique Traub, Bonacquist & Fox. They are now part of the Dreier firm and share the same office, but are marketed as the Traub Group.

Dreier "is not egotistical in that sense, and he didn't hire me to diminish my name," said group leader Paul R. Traub. "He hired me because my name has brand recognition."

Similarly, former Kaye Scholer trusts and estates chair Sanford J. Schlesinger founded Schlesinger Gannon & Lazetera, which is a distinct legal entity housed within the Dreier firm.

Schlesinger said that keeping the separate identity "was very important. We probably would have formed our own firm group without it, but here we have the opportunity to do that with all of the support from Dreier."

Although the firm has separate affiliates and its partners aren't bound together by common equity, Dreier maintains there are incentives for attorneys to share clients.

First, partners keep a percentage of fees from referred clients, he said. And second, he said keeping business inside the firm enhances client loyalty to the firm as a whole, increasing the chance for more business.

Partner Vincent Pitta, who runs Pitta & Dreier, a labor and employment affiliate, and Pitta, Bishop, Del Giorno & Dreier, an Albany-based government consulting affiliate, agreed that cross-selling is not a problem.

In addition to the financial incentives, he said that the firm has an unusually collegial environment.

"It's all successful lawyers here, and I haven't run into an asshole yet," Pitta said. "And that's saying a lot for this profession."

Dreier did acknowledge some potential pitfalls to his business model.

First, with the 56-year-old Dreier holding 100 percent ownership, the firm faces a looming issue over succession.

Although he said he doesn't yet have a formal plan, he noted he has brought on a number of younger lawyers who joined in part because "they don't have a layer of people ahead of them."

"Many partners here spoke about a plan to become equity partners," Dreier said. "But frankly there hasn't been a big push for it yet."

William Brennan, a principal at the legal consulting firm Altman Weil, said the firm could emulate the business model of Cozen O'Connor, which successfully transitioned from three shareholders to a traditional partnership.

Additionally, while running a firm like a chief executive officer cuts down on inefficient bureaucracy, it creates the potential for spreading the managing partner too thin.

Dreier said that he still enjoys being a trial lawyer, but that his "intention is to devote more time to managing the firm and growing the practice."

He also said it won't be an issue with the planned Los Angeles affiliate because the day-to-day operations will be handled by Stein and Kahan.

The affiliate "will have autonomy, but will have the benefit of being integrated with Dreier in New York," he said. "So hopefully the sum will be greater than the parts."

He did note that he will be making a large investment in capital and other resources, so he will have a hand in "making sure the firm is profitable" and that "a good part of that profit will be mine."

Beyond that, Dreier said, "I have no preference in how the firm is organized."