K&L GATES

READY FOR HIS CLOSE UP Outspoken, opinionated and often right, K&L Gates head Peter Kalis has made fi nancial transparency his latest mission. Legal Business talks to the Rhodes Scholar who runs a $1bn fi rm yet still can’t fi t into the US legal establishment DAVID STEVENSON

was embarrassed to be in the The accompanying results showed that same profession as Dewey & the fi rm generated 2012 revenues of $1.06bn, a LeBoeuf,’ states Peter Kalis, not marginal decline on 2011. The fi gures, which without a sense of the dramatic. will be externally audited, demonstrate that the The chairman and global managing fi rm has no debt and has cash and equivalents of partner‘I of K&L Gates is referring to the $220.7m. It also defi nes the ratio of the top paid circumstances in which the aforementioned partner as 7.9 times that of the average for fi rst- giant last year became the year equity partners – a wide spread for leading largest-ever legal collapse amid acrimony and Wall Street fi rms but well short of the aggressive controversies over fi nancial reporting. ‘barbell’ pay models seen at some top 100 players. But Kalis is voicing more than frustration The message was unambiguous: K&L is over the well-publicised governance failures that soundly and conservatively fi nanced. Readers led to Dewey’s demise – though he has certainly still struggling with subtext were aided by a been a regular critic of the excesses of Big Law quote from Kalis in the article: ‘In these times, US-style. More specifi cally, Kalis in February opacity is not our friend.’ sought to make a point about the wider lack Interviewed by Legal Business during the of transparency in the US legal profession by week of the fi nancial release, Kalis drums releasing fi nancial results for his fi rm in a form home the point, maintaining that the lack of that he argues would comply with standards fi nancial transparency in the US typifi ed by expected of public companies. Dewey was ‘mortifying’. The headline that greeted the move in The This is not the kind of rhetoric expected of Wall Street Journal, ‘Big Law Firm K&L Gates law fi rm leaders in the US. Despite being by far Lifts Veil on Financial Performance’, spelled the largest legal market in the world, the US out the critique of the state of disclosure in the remains an environment in which management US market. and sophisticated governance is still often u

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u derided at the expense of rainmaking WALL STREET, SCHMALL STREET skills and the ability to bill 3,000 hours a year. Kalis’s rise to professional prominence came It is for this reason that the reported quote of from relatively humble origins (though US former Dewey Ballantine head Morton Pierce lawyers practising in the late 1970s and early that ‘management is not my passion’ for some 1980s were still benefi ting from a period of sums up the problems at Dewey and wider relative social mobility). His family were Greek shortcomings in the US profession. immigrants who settled in Detroit. The Kalis Obviously, Kalis is at the opposite end of this family soon relocated and Kalis was raised in ideological spectrum, with management very Wheeling, West Virginia, where his parents ran much his focus. In pursuing that interest, Kalis the New Nixon Restaurant. has achieved – and often cultivated – a high He quickly displayed an aptitude for profi le and used his visibility to rail against what academia, graduating Phi Beta Kappa from West he sees as a profession obsessed with relative Virginia University in 1972, before going on to profi tability and a self-defeating transfer market gain a doctorate in philosophy in Oxford after for star partners. being accepted on a Rhodes Scholarship. Though Kalis – arguably the closest the US has come the law was not an obvious career path, his to producing a Nigel Knowles-style maverick uncle was a lawyer and judge, which Kalis says – has been similarly outspoken on many other ‘We’re in touch helped set him on his path. He studied law at issues, including the global credentials of the Yale, becoming editor-in-chief of its law journal. Magic Circle and the rash of multi-profi t centre three or four times He went on to clerk for the late Justice Skelly mergers as typifi ed by Norton Rose. Such a stance Wright, chief judge of the US Court of Appeals has grated with many rival managing partners a day. He wants to for the District of Columbia, and then for the and has seen Kalis become a regular feature on late associate Justice Byron White of the US US legal blogs. know what’s going Supreme Court – a prestigious start to his career In the fl esh, Kalis – like Knowles – is a by any yardstick. highly entertaining companion, at turns on, wants you If his earlier steps in law had the glamour of amusing, caustic, self-deprecating and a fast-track junior attorney, his career in private imaginative in discussing the legal industry. to articulate the practice was in the more down-to-earth setting of In High Timber, the restaurant in which this Pittsburgh-based Kirkpatrick & Lockhart, which interview was conducted, he is on fi rst name strategy for London.’ he joined as a litigator in 1980. terms with the serving staff, some of whom But while the emergence of a national US call him ‘Pete’. (Kalis spent a lot of time at the Tony Griffi ths, K&L Gates market was still a way off, Kirkpatrick had establishment after being stuck in London for a a reputation for producing ambitious young week in 2010 as the Icelandic volcanic eruption lawyers who weren’t excessively respectful of caused fl ight chaos in Europe.) more storied legal opponents. Recalling his early But if he cuts an unusual fi gure for the head years at the ‘fi fth-largest fi rm in Pittsburgh’, Kalis of a major law fi rm, he has presided over the says: ‘It was so much fun. I was litigating against unusual creation of a 2,000-lawyer practice. Simpson Thacher. My corporate friends were

K&L GATES: PUTTING IT ALL TOGETHER

Kirkpatrick Opens in Opens in Merges with & Lockhart 2005 2007 Berlin. 2009 Singapore 2012 Italian fi rm and Nicholson Graham & Jones and Dubai. Marini Salsi Picciau. merge to become Kirkpatrick & Merges with Lockhart Nicholson Graham. 2008 Hughes & Launches Opens in Seoul. Luce in Texas. 2010 offi ces in 2012 K&L Gates is Tokyo, Warsaw and Moscow. formed in a 2007 Opens in Merges with merger between Kirkpatrick Shanghai. Enters South Middletons in & Lockhart Nicholson Graham 2008 2013 2011 America with Australia. and Preston Gates & Ellis. Merges with São Paulo offi ce opening, and 2009 Bell, Boyd & opens in Doha. K&L Gates opens Lloyd in Chicago. 2013 in Houston.

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doing deals against Cravath. It was an amazing disquiet in K&L’s ranks over profi tability formative experience. We formed this mindset of than the fi rm acknowledges. QUOTABLE KALIS “Wall Street, Schmall Street – let’s take them on”.’ It is also the case that despite currently Despite fi nding success in a wide variety acting for an enviable roster of bluechip clients, ‘If you’re not playing of contentious matters, writing about the including Microsoft, Viacom, Xerox, Bank of meaningfully in the US, law – and unusually the business of law America Merrill Lynch and UBS, K&L has yet – was an early passion. His profi le lists more to build the kind of transactional muscle that you’re not global. You might than 50 articles he has written, including drives profi tability. be smart, but you’re not incongruously a 1977 piece for the British Journal However, one prominent observer of the of Industrial Relations, titled ‘The Effectiveness profession, William Henderson, professor at global. The Magic Circle only and Utility of the Disputes Committee of the Indiana University Maurer School of Law, backs ventured out of the Eastern Trades Union Congress’. Kalis’ focus on vision over short-term profi tability. Kalis, who made partner in 1985, was ‘Kalis said that profi ts in the early years Time Zone once. When authoring imaginative pieces on the economics weren’t going to be what you’d make at other Clifford Chance opened in of law by the mid-1990s, ahead of becoming fi rms but it’s worth waiting for,’ says Henderson. managing partner of Kirkpatrick in 1997. ‘He is confi dent and visionary and unafraid California, it eventually had Under Kalis’ leadership, a regional US practice to make diffi cult decisions such as creating a to shut down and shoot its would swiftly be refashioned as fi rst a national global law fi rm and keeping up with the way the player and then an emerging international force, world is going.’ way out of town.’ securing eight mergers under his watch. Two Kalis certainly resists criticism that the fi rm ● of the most signifi cant were Kirkpatrick’s 2005 hasn’t made enough progress in terms of quality takeover of mid-tier London practice Nicholson of work to match its huge increase in scale. ‘When people say that law Graham & Jones and the 2007 merger with ‘We mainly do large deals for middle-market fi rms don’t adapt to the prestigious Seattle outfi t Preston Gates & Ellis, companies and mid-market deals for global changing marketplace, I a top 100 US fi rm with a name partner famed as corporates. But we have our share of über-deals the father of Microsoft founder Bill Gates. too. We are, for example, one of American would respectfully respond Airlines’ advisers in its pending $11bn merger that the ones that didn’t NOT FITTING IN with US Airways,’ he says, while also admitting If K&L Gates’ rise has created a global law fi rm, that his fi rm’s deals more commonly tend to be in adapt are dead and the it is plain in discussion with Kalis that he sees the sub-$1bn bracket. ones that won’t now are the his fi rm as being as much of an outlier as himself In terms of who Kalis sees as his competitors, in terms of where it fi ts into the status-obsessed he says: ‘On any given day we’re competing walking dead.’ world of law. against Magic Circle fi rms, Wall Street fi rms, ● For one, Kalis is well used to sniping about Silver Circle fi rms, other international fi rms, the fi rm’s relative profi tability and claims national fi rms in countries around the world, ‘I was embarrassed to be from rivals that its rapid growth in income regional fi rms, boutiques in all of our markets in the same profession as has not seen the fi rm move up the food chain. – and that’s just the law fi rm competitors.’ The fi rm’s profi ts in fi nancial year 2006 were Dewey & LeBoeuf. I found $125.5m, this rose to $320.5m in 2012. The THE TEAM, NOT THE STAR it mortifying. People think fi rm’s profi ts per equity partner for 2012 were Part of Kalis’ irritation about some of the that could be widespread.’ $899,960 for full equity partners, one of the sniping his fi rm has faced is that he sees it lowest in the Global 100. coming from rivals that have at times failed to ● Kalis responds that these fi gures would live up to the sound judgement they are trying ‘I wonder what you tell be better if he had all his lawyers in pricier to sell to their clients. postcodes such as London and . Indeed, In this Kalis has emerged alongside author your current partners who one of his persistent criticisms of the profession and former Kirkland & Ellis veteran Steven are working very hard and – particularly in the US – is that too many Harper, who now writes The Belly of the Beast major fi rms focus on maintaining high profi ts blog, as one of the most trenchant critics of the guaranteed nothing.’ for a relatively small number of partners at the profession’s obsession with a star system in ● expense of long-term expansion that will more which fi rms pay ever-increasing sums to lure strategically position the business. partners laterally. ‘I always say that lawyers Still, one former partner contacted for Kalis is particularly scathing of the use should be in one of two this piece argues that the fi rm’s relatively of guaranteed pay deals for lateral recruits, low profi tability does limit its ability to a major feature of the collapse of Dewey and places, at the coalface or at bring in and retain quality partners. This a tactic that has spread in recent years. He the market place.’ partner – while being an admirer of Kalis’ concedes this means K&L will miss out on leadership – maintains that there is more some partners. u

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u ‘There is a consequence for not offering Gates and former managing partner of legacy guarantees. Certainly people won’t move without Nicholson Graham & Jones. it but I wonder whether culturally they’re worth ‘He’s the visionary but there are a large it – I’ve decided they’re not. When you bring in number of leaders on the management team. We somebody, plop them down and say “this guy is all agree as a management team and embrace his going to be making $3m a year come hell or high vision for the fi rm,’ says Budner. water”, what would the other partners think?’ One senior partner at the fi rm privately Kalis is as critical of rivals running up mentions turning down higher paying offers to sizeable debts rather than funding their activities join K&L, citing Kalis’ approach as a major draw. through partner capital, a practice that has By consensus, Kalis also inspires loyalty contributed to a string of major US fi rm collapses from his team by drawing on and sticking over the past 12 years, including , Heller with partners from the fi rms that K&L Gates Ehrman and, of course, Dewey. has merged with. Kalis comments: ‘I love There have been claims that K&L the people I work with. I’m blessed. It’s an Gates partners resent the higher capital extraordinary group of people and part of it is contributions this no-debt policy requires but due to our merger history.’ Craig Budner, administrative partner at K&L The willingness to pursue major deals and Gates in Dallas and part of legacy Texas fi rm ‘Kalis is the visionary not worry excessively about profi ts last year Hughes & Luce, says that he has never had a saw K&L agree one of its most ambitious deals partner leave because of this stance. but there are a large yet, securing a major launch in Australia with Kalis has been equally as strident on the the takeover of 300-lawyer practice Middletons, topic of multi-profi t centre mergers seen in number of leaders hugely increasing the fi rm’s resources in the recent years with the creation of Hogan Lovells Asia-Pacifi c region. and the expansion of the Norton Rose Group, on the management The fi rm has also recently moved into another whereby international unions have deployed much-touted market to launch in Houston with Swiss Verein umbrella structures to bind fi rms team. We all agree as the hire of Charles Strauss, Fulbright & Jaworski’s with multiple partnerships. securities head, adding its fourth branch in Texas. Several years ago Kalis was prominently a team and embrace ‘Before we opened there, Houston was the biggest quoted deriding such deals as ‘Noah’s Ark’ hole in our fi rm. We have a massive energy and mergers, where the animals go in two by two. his vision for the fi rm.’ resources practice and we really needed to get to Since then, there have been a further rash of Houston to fi ll it out,’ says Kalis. such combinations. He remains unimpressed: Craig Budner, K&L Gates With the fi rm recently expanding into so ‘Confi gure your law fi rm any way you want, many strategically important global markets, it’s your business, but don’t suggest that you’ve the question remains as to how long K&L Gates created one fi rm when you adopt the Verein say, unintentional. They have never stated and Kalis can style themselves as outsiders. Kalis structure. Sorry, but language means too much anything false about me or the fi rm – how was last year handed his fi fth consecutive term, to me. It’s simply not one fi rm!’ could they? They’re usually holding one of my meaning he is set to lead the fi rm until February internal e-mails. They simply have a different 2017, by which point he will have run it for 20 MR PROFILE take on things, for instance my stance on legal years. It is a long run even by US standards and Kalis’ unusual style has made him something process outsourcing.’ how it goes will be crucial to Kalis’ reputation in of a celebrity ‘CEO’, even if he attracts as Shooting from the hip can on occasion come the profession. much sniping as he does media attention across as affected. While making great play If K&L can continue its remarkable rise (befi tting this status Kalis also maintains a of K&L Gates’ recent disclosure document as and – for all the protests – demonstrate that it dizzying range of professional and charitable out-doing equivalent fi lings in the UK under can edge upmarket alongside achieving scale, commitments). limited liability partnerships (LLPs), Kalis Kalis’ reputation may be held up alongside As well as regular appearances in The Wall rather contradictorily says that he has not seen other leaders who have pushed their fi rms Street Journal and The American Lawyer, he has an LLP fi ling. through dramatic transformation, like Latham become a regular fi xture in Above the Law, the But interviewing current and former & Watkins’ Bob Dell. irreverent and popular US law blog, which often partners there is little sign that Kalis’ high But while he can’t quite bring himself to gets hold of Kalis’ memos. profi le and forthright style irritates his senior play the patrician leader such aspirations Still, Kalis remains characteristically team, though those who work with him usually bestow, it seems even Kalis concedes relaxed about being lampooned on the blog concede that despite the easy-going style Kalis K&L Gates is outliving the scrappy outsider tag. and even professes to admire the transparency is a very hands-on leader. ‘We were a merry band of warriors punching it has brought to the industry. ‘Over the years, ‘We’re in touch three or four times a day. He above their weight class,’ concludes Kalis. ‘And I’ve starred in Above the Law but, at least until wants to know what’s going on, wants you to now we’ve grown up.’ they recently asked me to appear in a new articulate the strategy for London,’ says Tony Well, maybe. LB feature, my starring roles have been, shall we Griffi ths, London administrative partner of K&L [email protected]

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