Law Firm Spinoffs Like Pillar+Aught an Option As Lawyers Look to Go Lean

Pittsburgh Post-Gazette

by David Gialanella and Zack Needles/The Legal Intelligencer

Radical change is not easy to pull off at large or even midsize firms, which often are weighed down by bulky staffs, layers of bureaucracy and decades of tradition.

For lawyers looking to reinvent the way they practice, sometimes the best option is to just start from scratch. Enter the law firm spinoff, examples of which are beginning to mount in Pennsylvania and New Jersey.

“Being part of a larger firm, there is by definition a certain amount of bureaucracy and administrative overlay,” said Michael Tanenbaum, a name partner at Tanenbaum Keale, an 18-lawyer firm formed recently by a group splitting off from Sedgwick’s Newark, N.J., office.

Mr. Tanenbaum knows well the bureaucracy, and he acknowledged being the cause of some of it: He previously spent seven years as firmwide managing partner of San Francisco-based Sedgwick, which has shrunk of late and now has about 250 lawyers.

Starting a new firm can offer attorneys an opportunity to extract themselves from the complex machinery of large organizations.

Something as conceptually simple as uniform office size is not to be taken for granted at a larger firm, according to Anthony Sylvester, a partner at Sherman Wells Sylvester & Stamelman in Florham Park, N.J., which was formed in late 2014 when 16 lawyers broke off from Riker Danzig Scherer Hyland & Perretti of Morristown, N.J.

Being paperless — or “paper light,” when it comes to some transactional practices that require hard copies — is another tough goal at a big firm, he said.

Sherman Wells’ founders endeavored to learn from what “sophisticated law firms” were doing to achieve those modernization goals, Mr. Sylvester said.

“That is something you could never do at a large firm,” he said. “If you want to make more dramatic changes to how your firm is structured, it’s easier to do on a smaller platform.”

Across the Delaware River, the desire to scale down to a leaner and more modernized operation is true even for at least one plaintiffs firm. While the considerations and calculations involved in starting a plaintiffs firm are, in many ways, much different from those attendant to starting a defense firm, keeping client costs down appears to be a guiding principle across the board.

In mid-January, Andy Youman and David Caputo, both partners at 36-lawyer Kline & Specter in Philadelphia, left to form their own shop focusing on catastrophic injury and whistleblower cases.

Mr. Caputo said he and Mr. Youman will now enjoy a small-firm environment, where they have implemented a structure based on greater use of technology. For example, the new firm is paperless and has a secure, online portal for client communication and document exchange.

“When you talk about copying costs — we don’t have a copy machine, everything is scanned,” he said. “We don’t need a copy machine with a big lease or the costs that come with it. Not to mention that, without all the paper, we need less space.”

Also in Pennsylvania, a nine-lawyer group of Harrisburg lawyers left Rhoads & Sinon to open Pillar + Aught earlier this year.

One founding partner, Kate Deringer Sallie, pointed to the “old-guard law firm” characteristics: high overhead costs, antiquated billing systems and outdated compensation policies. And talented young lawyers are rewarded by being removed from a common work space, placed in an office with a fancier chair. Then a bigger office. Then a corner office.

“That wasn’t helping the client and it wasn’t really helping us to give them better value or better service,” Ms. Sallie said. “What it was doing was isolating us.”

Ms. Sallie said she and her colleagues were facing increasing pressure to bill clients and raise rates. Unable to find an existing law firm that modeled the culture they were seeking, they instead based their new firm on successful clients’ businesses.

“We looked to some of our bank clients that are starting to recognize the need for a more collaborative work environment for their employees,” she said.

Of course, along with the freedom to try new things, there’s also plenty of risk involved.

“I wouldn’t necessarily warn people away from it,” but “you have to go into it understanding maybe you’re not branded the way you were before,” said Billie Watkins, district president for Robert Half Legal.

For practitioners with established — and relatively loyal — books of business, the loss of resources from a big firm might seem like a stiff price to pay for flexibility. But it might be a good trade-off.

According to Mr. Tanenbaum, who represents pharmaceutical and medical device clients in mass tort matters, an alternative fee arrangement or discount need not be the subject of multiple meetings at a firm like Tanenbaum Keale.

“Rather than go through a lengthy negotiation, we … can sit down for 10 minutes and say, ‘OK, we’re going to do it,’ ” Mr. Tanenbaum said.

While there may be no impending avalanche of spinoffs, conditions are right. Firm managers and consultants cited a changing market for legal services — one that’s certainly more competitive — as a factor driving decisions.

“Partners now are working longer than they used to,” said Frank D’Amore of Attorney Career Catalysts, who advises on lateral moves and mergers. “For some, they’re working longer because they have to.”

Lawyers “have been hanging onto work more than they have in the past,” but it’s not simply retaining control that causes it — leverage is down at many larger firms, and practice heads lacking successors might deem it wiser to launch lower-cost firms or, to avoid administrative headaches, to merge with a different firm, Mr. D’Amore said.

“I frequently get approached by senior partners in firms who ask me, what options do you think exist?” he said. “It takes a special breed of partner to go out on his own and start a 10-lawyer firm, 15-lawyer firm. … He or she is going to need someone top-notch on the administrative side.”

Lizzy McLellan contributed to this report. David Gialanella: Zack Needles: To read more articles like this, visit