A Quiet Law Firm with a Famous Client | the American Lawyer

11/20/2017 A Quiet Law Firm With a Famous Client | The American Lawyer

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A Quiet Law Firm With a Famous Client Few people know the inner workings of Jones Day, and that's the way the ﬁrm likes it. But taking on Donald Trump as a client is no way to avoid the spotlight. Case Digest Summary Few people know the inner workings of Jones Day, and that's the way the ﬁrm likes it. But taking on Donald Trump as a client is no way to avoid the spotlight.

Jones Day’s oﬃces in Washington, D.C. (Photo: Diego M. Radzinschi/ALM)

As Donald Trump thanked the people of  New Hampshire for his ﬁrst of many electoral victories in February last year, the face hovering over his right shoulder was plastered with a broad smile, turning from side to side, seeming to soak up every second of the moment.

It must have been somewhat surreal for Donald McGahn. He was given a prominent position on stage that night as a reward for helping the campaign beat back an establishment challenge to Trump’s spot on the New Hampshire Republican primary ballot. A former Federal Elections Commission chairman, McGahn had been an early sign-on to

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the reality star’s upstart campaign.

That whirlwind campaign, of course, put President Trump in the White House. McGahn joined him there as White House counsel. And 11 other lawyers from McGahn’s law ﬁrm, Jones Day, followed him into the new administration— the most administration placements by any Am Law 200 ﬁrm.

Inauguration Day was the culmination of an eventful 968-day tenure as a Jones Day partner for McGahn, whose impact will outlast his brief stay at the ﬁrm. His representation of the controversial candidate brought a ﬁrm that has been historically secretive and reticent to discuss its operations into the spotlight.

Although it’s the sixth largest law firm by revenue in the Am Law 100, Jones Day manages to keep its inner workings opaque even to its partners. They aren’t told why they make what they make. Their compensation letters are stamped “confidential,” according to three former partners, even for purposes of discussion among peers. And they rarely vote on anything. Almost every decision, including individuals’ compensation, is ultimately made by Washington, D.C.-based managing partner Stephen Brogan, a 15-year veteran of a CEO-like role that may grant him more power than any other Big Law leader. Just as he was chosen by his own predecessor, he will handpick his successor when his term ends (more on that later). The next leader will be only the eighth managing partner at the 124-year-old firm.

This peculiar arrangement between partners and their leader is the result of a unique, long-running view of how law ﬁrms should operate, spelled out in a more than 12,000-word statement on its website, and reinforced at the annual partnership committee gathering, when Brogan reads a list of ﬁrm principles and reminds the group: “This is what has brought us to this point, and this is what will carry us into the future,” said client service partner Glen Nager, who serves in a role better described as deputy to Brogan, who was not made available for an interview.

The firm’s ideals roughly translate to this strategy: By freeing them from worrying about the affairs of the firm, partners can focus on the one thing that really matters, providing the best “client service” in the industry.

Yet over the past year, this secretive firm has been thrust into the national spotlight by perhaps the most high-profile client in its history: Donald Trump. The firm represented Trump’s campaign for president, billing more than $3 million in the process, according to campaign records. Its support of Trump bucked the trend among U.S. lawyers and law firms, who, as a group, donated nearly 25 times more money to Hillary Clinton ($39.3 million) than to Trump ($1.6 million), according to Open Secrets, a group that tracks campaign contributions.

Now, with Trump in the White House and Jones Day in the spotlight, the law ﬁrm and its star client face the same question: To what extent do they both live up to what they’ve said?

Jones Day’s management structure has remained relatively constant over decades, even as the firm has grown from its original base in Cleveland to more than 2,500 lawyers in 44 offices worldwide. A 1928 partnership agreement gave the firm’s first managing partner, Frank Hadley Ginn, close to the same powers Steve Brogan enjoys today: managing the affairs of the firm; fixing partnership interests; resolving internal disputes; and naming his own successor, according to the firm. “Since then, this governance system has never been the subject of any disagreement within the firm,” Jones Day’s literature said. (Still, a power struggle between Cleveland leadership and government contracts lawyers led by Eldon Crowell in the firm’s Washington, D.C., office led to the 1979 split that created Crowell & Moring.)

Centralized decision-making power has streamlined the firm’s expansion: Brogan has overseen 18 new office openings in his 15-year term. One law firm consultant said that the firm’s single partnership structure, spread over such a diverse geographic range, may make it appear less profitable than it would be if it were structured as a verein,

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since the profitability of the firm’s U.S. practice is likely to be diluted by lower-margin legal markets overseas. “That, I think, causes them to have a smaller profit pool to spend on getting star laterals, on marketing and branding and differentiating themselves, and it also sends a message to sought after talent that you’re going to a less profitable firm,” this consultant said.

On the other hand, the firm’s black-box compensation model theoretically allows the firm to pay a wide range of salaries over different geographies.

“Their compensation is more spread than people would realize,” said one legal recruiter. “But they’re paying the people they need to pay, so they’re able to maintain a steady environment.”

Jones Day’s opaque partner pay is a rarity in the United States, where 92 percent of law firms surveyed by Edge International in 2015 had compensation systems in which partners know what each other make. Mark Jungers, an owner of recruiting firm Lippman Jungers, said the extent of the secrecy in Jones Day’s system goes beyond even other firms with so-called “closed” systems. Many times, lateral candidates coming from Jones Day don’t even tell recruiters how much they make. “They know the black helicopters will come,” Jungers said.

Other recruiters say compensation for each incoming lateral partner is set in a face-to-face meeting with Brogan. Recruiters, who do not participate in the meeting with Brogan, are told how much to bill the firm by calling a staff member in Cleveland, recruiters say. “You have to go the mountain,” one recruiter said of the firm. “It’s a machine.”

Former partners say voicing dissatisfaction about compensation is a career risk at Jones Day, where average proﬁts per equity partner is about $2 million. “You could try to complain to the managing partner, but, boy, if you start whining about it to anybody else, it will get back to [Brogan] so fast your head will spin,” a former partner said.

Nager said compensation decisions are ultimately made by Brogan, who is advised by a small committee that receives access only to the previous year’s partner compensation. Compensation, states the firm’s literature, is based on four criteria: “Superior professional accomplishment, manifest commitment to the firm, leadership and respect for the firm, its culture, its people, its ways.”

“Our managing partner sets appropriate compensation for every partner, every year. Appropriate in the managing partners’ view and hopefully in each partners’ view,” Nager said. “And only the managing partner knows what that ultimately is.”

The previous managing partner, Pat McCartan, was the ﬁrst leader to have his tenure extended past 65, Jones Day’s semi-mandatory retirement age. Brogan also will serve past that age. He was installed 15 years ago at 52. According to three former partners, Brogan was granted an extension past 65, until as late as 70.

In an interview, Nager conﬁrmed that the ﬁrm’s partnership agreement provides that Brogan “will be in his position for several more years.” As for discussions of a successor, Nager said there were none “that I know of. None that I want.”

Jones Day only identifies one class of partners—all of whom are equity, the firm said. “There are no nonequity partners,” said Jones Day spokesman Dave Petrou. “Suggesting anything to the contrary would not be accurate.” However, several ex-partners say that there are functional divisions in the partnership. Some partners, referred to as “percentage participants,” are paid based on a portion of the firm’s profits, according to three former partners. Another group of partners makes a flat salary, creating a structure virtually equivalent to the equity and nonequity tiers at many Am Law 100 firms, they say.

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One former partner who spent more than 25 years at the firm said that at one point the firm sent around partner memos that noted how many partners shared in the firm’s profits and how many earned salary. “To the extent there are any partner classes, it is by the way the compensation is structured and managed. Everybody is a partner. That’s accurate. But do those de facto classes exist at Jones Day? Oh yeah,” said another former partner.

Three former partners say, and an analysis of the current Jones Day roster shows, that the firm has also actively trimmed its partnership in recent years. There are 33 “of counsel” on the firm’s roster who used to be partners at the firm and who would not have been made of counsel as a result of the firm’s mandatory retirement age of 65, according to archives of those lawyers’ web bios. Former partners say that the of counsel role, dating back to around 2010, has been a landing spot for demoted partners who often leave the firm in subsequent years.

The firm would argue that its compensation system also gives it an edge in client service. Jones Day has ranked No. 1 in the BTI Consulting survey of client service nine of its 16 years. This past year, Jones Day ranked about 20 percent higher than the next firm (Dentons) and about 15 times better than the average firm, said Michael Rynowecer of BTI Consulting. “Our experience shows that many law firms that are very good at client service have a closed or more closed compensation system,” Rynowecer said. “It gives firms more flexibility to reward certain behaviors that, if you have an open or lockstep system, you can’t vary from.”

“The difference between us and all of those competitors is we’re offering our clients something that’s designed to serve them as opposed to solely and only serve the owners of the law firms,” Nager said.

Competitors say there is more than one way to incentivize collaborative client service. For instance, some law ﬁrms require that all origination credits be split among multiple attorneys. Jones Day’s model is just one in a wide variety of approaches to client service, one Am Law 100 managing partner said.

“They don’t have the magic keys to that kingdom, and neither do we and neither does anyone else,” the managing partner said.

One former partner agrees: “By saying everything is driven by the best interest of the client, the implication is that in other law ﬁrms, everything is driven by greed,” said this former longtime partner. “If we were doing shit around here to pad our bottom line, there are other places clients could go.”

Still, according to recruiters, Jones Day has been unusually successful in institutionalizing clients. “When we get partners from Jones Day that want to talk to us, they have a hard time pulling out business because their clients are so institutionalized,” said one East Coast recruiter.

Another recruiter echoes the sentiment, saying the stickiness of the ﬁrm’s clients also makes it easier for Jones Day to pay its lawyers less. “The value of a partner is somewhat linked to what work that partner can take away. And if you can’t take away that much, they don’t necessarily have to pay you that much,” this recruiter said.

Jones Day’s client list includes almost half of the Fortune 500, including Abbott Laboratories, General Motors Co., The Goldman Sachs Group, IBM Corp., The Procter & Gamble Co., Starbucks and Wells Fargo & Co., among others. With more than 1,100 lawyers as of 2015, Jones Day’s litigation department brought in 48 percent of the firm’s revenue in 2014, according to data provided to ALM. Its M&A practice, meanwhile, annually tops the Bloomberg and Thomson Reuters league tables of law firm advisers ranked by number of deals law firms they work.

One of its longest-lasting relationships is with R.J. Reynolds Tobacco Co. Jones Day has represented the tobacco company in smoking and health lawsuits dating back to 1985, including hundreds of cases stemming from a 2006 Florida Supreme Court decision in Engle v. R.J. Reynolds Tobacco that allowed 700,000 members of a decertiﬁed

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class to sue tobacco companies independently. In 2015, Jones Day negotiated a $42.5 million deal to settle hundreds of those cases in federal court. The ﬁrm’s transactional attorneys have handled nearly $100 billion worth of transactions for the company since 2005.

The ﬁrm has one of the most active Supreme Court practices in the country, having made 19 Supreme Court oral arguments in the last six terms. That caseload, and a willingness to open its checkbook, has helped it lead the way in recruiting U.S. Supreme Court clerks in recent years—10 clerks in 2015 alone. The going bonus that year was $300,000, making the hires a $3 million investment.

Jones Day’s work for the Trump campaign came through a group of high-powered partners—McGahn, William McGinley and Ben Ginsburg. The trio joined the firm’s Washington office from Patton Boggs in 2014 in a hire that Jones Day said was intended to position it as a “go-to” firm for anti-regulation cases in election law.

McGahn became general counsel to the Trump campaign through another client of his, David Bossie, the chairman of Citizens United, a conservative nonproﬁt that advocates for limited government and is perhaps best known for the U.S. Supreme Court case Citizens United v. Federal Election Commission. The ruling in that case removed limits on political spending for corporations and labor unions. In an interview, Bossie said he suggested McGahn to Trump.

“He asked me who the best campaign lawyer was, and I said Don McGahn. They hit it oﬀ. And the rest is history,” Bossie said.

Not everyone at the ﬁrm was pleased. When news of the representation broke, legal blog Above the Law reported a series of emails from Jones Day lawyers expressing discontent with their ﬁrm’s new client—and with the fact that they had not been informed about the representation. “I am genuinely disturbed that Jones Day accepted Trump as a client, and I would expect and hope that many other JD clients (particularly pro bono clients) would be equally disturbed,” one Jones Day lawyer wrote, according to Above the Law.

Nager said the firm is not concerned with any potential fallout, reputational or internally, from the representation. “We’re proud to have represented the campaign, and I’m sure those who voted for him are happy from a political perspective. And those who voted another way aren’t from a political perspective. But that’s not the test of a law firm,” Nager said. “Once a client is a client of this firm, we stand with them. That’s what lawyers do. At least good lawyers.”

The Trump campaign was not a favorite among Jones Day lawyers, according to records of their political donations from the last campaign cycle. Jones Day lawyers donated $268,929 to Hillary Clinton, according to Open Secrets. They gave $7,182 to Trump.

Between Jones Day lawyers’ individual contributions and about $1.5 million the ﬁrm donated to the Cleveland 2016 Host Committee for the Republican National Convention, the ﬁrm was the most politically active among Big Law in the past election cycle. Those contributions totaled $2.6 million, according to Open Secrets.

Prior to the 2016 campaign, the firm was not viewed as overtly political. It does not have a lobbying practice, for instance. And while other global firms with Washington offices employ a list of former U.S. politicians, such as Dentons’ Newt Gingrich and Howard Dean, Jones Day does not. One former partner said that apolitical stance seemed to change with McGahn and company’s hiring. The trio had been involved in Republican politics for decades —led by Ginsburg, who served as campaign counsel to the previous four Republican presidential candidates and was a conservative commentator for MSNBC during the 2016 election.

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Now that Trump is president and a dozen former Jones Day lawyers are in the administration, the ﬁrm could be well- positioned to bend the ear of government. One leader of an Am Law 100 lobbying practice in Washington said the ﬁrm will be viewed positively by clients who are looking for an “access point” to the new government, especially because many of the administration’s political outsiders are so unknown to the Beltway regulars.

“I think that what makes Jones Day unique is the proximity of where their people are going in the administration,” the lobbying head said. “These are people who literally sit next door to the president. So that sort of makes them sui generis.”

The dozen Jones Day lawyers who joined the Trump administration will mostly be headed to two places: Five went into the White House and four into the Department of Justice.

Ultimately, the decision to bring on Trump as a client is just one of the many that the ﬁrm’s managing partner, Brogan, is judged on. His deputy said Brogan currently maintains the support of its entire partnership of more than 900 partners.

“He is the most fantastic, brilliant, eﬀective leader that this law ﬁrm could have,” Nager said, adding with a laugh, “Now quote that, please. In all seriousness, I meant what I just said.”

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