Lawyers and Clients (Wall Street Journal Article)

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Programs Fail to Send Majority of Work to Firms Owned by Minorities

Big companies, elite law firms and government agencies all announced programs in recent years to steer more work to minority law firms.  The result so far: some progress, but less than many people had hoped.

Robert Lowe is one lawyer who has come out ahead – but not before having to dispel some stereotypes.  Mr. Lowe, an Asian-American, remembers an interview he had with an employee of the Resolution Trust Corp. in 1990 about working on failed-thrift cases for the federal agency.  “You guys have secretaries and word processors, don’t you?” he recalls the agency representative asking.

As a graduate of the respected University of Texas law school who was already counseling the likes of Nordstrom Inc., and Porsche Cars North America Inc., Mr. Lowe, 43 years old, found the query a little amusing.  “People think you can hardly walk” if you are a minority-owned firm, he says.

The RTC soon learned that Lowe & Associates had both secretaries and computers, and the agency is now a satisfied customer.  Half of the annual income of the six-lawyer firm, based in Alexandria, VA, comes from a score of thrift cases it handles for the agency.  “I am glad I had the opportunity to put my foot in the door,” he says.

But while Lowe & Associates is a major beneficiary of the recent push to increase the profile of minority law firms, some other minority shops are facing a tough time.  One problem is that corporate legal departments and even the RTC, seeing to cut costs, have reduced their reliance on outside counsel.  In addition, not every group that says it wants to steer work to minority firms ends up doing so.

Where the initiatives have worked, they have served the clients’ needs while sparking the formation and growth of minority firms.  Though most minority-owned firms are still quite small, with about 40 lawyers at most, the elevated demand for their work has led to the creation of some significant strategic alliances with bigger, more established firms.

Last fall, for example,  Jones, Day Reavis & Pogue, one of the U.S.’s largest law firms, formed an alliance with six-lawyer White Hill Sims & Wiggins, a black-owned firm in Dallas.  Terms call for Jones Day to get a piece of the work that White Hill may pull in a s a result of government or corporate efforts to use minority law firms.  White Hill, in turn, gets access to Jones Day’s research and support facilities, and a fancy new address via a cut-rate lease on excess space Jones Day had in its office in downtown Dallas.

So far, everyone is optimistic about the arrangement, which Richard Kneipper, a partner with Jones Day in Dallas, views pragmatically.  “I am not interested in doing good, but rather making money for both firms, and if I can do some good in the process, that would be great,” he says.  “I hope they turn out to be just an awesomely successful firm.”

In some other instances, though, such partnerships have proven to be fraught with pitfalls.  Disputes can arise over apportioning billings between the firms and over who bears legal liability in case of alleged malpractice.  Minority firms, being smaller, can also be less stable than their partners.  Graham & James called off a major joint venture with a minority firm three years ago after Graham’s would-be partner ran into financial troubles.  And some people express concern that the arrangements sometimes turn into mechanisms for big firms to attract business targeted for minorities without giving a fair share of work to the minority joint venture partner.

The ventures that focus on getting work form the RTC seem to have been among the most lucrative so far.  Mr. Lowe’s success grew from a joint venture with Morrison & Hecker, of Kansas City, which found its big RTC practice threatened a few years ago when the agency decided to cut off firms unless they had ties to minorities.  Other big firms entering such alliances include the likes of Hughes, Hubbard & Reed, based in New York; Atlanta’s Powell, Goldstein, Frazer & Murphy and Brobeck Phleger & Harrson, San Francisco.

But even this sort of venture doesn’t always work.  Donald Hill, a partner in White Hill, is on his second joint venture with a big firm.  The first, a highly touted, two-year alliance with the Dallas office of Arter & Hadden, a big Cleveland-based firm, didn’t bring much new work his way, he says.  An Arter & Hadden partner, Forrest Smith, disputes the idea that the venture was a flop, and says the firm is still keen on the idea of joint ventures.  “If you want to crack the corporate community, the average minority law firm is not going to be able to get through that door.  That firm is going to need some way to get in there,” he says.

Corporations have been warming to minority firms, although the bottom line has been uneven.  Much of the corporate interest has been channeled through the ABA Minority Counsel Demonstration Program, which set out in 1988 to hook up minority lawyers with corporate legal lawyers from a list of minority lawyers that the ABA maintains, although lately the growth in signatories has slowed.  And fees generated by the program – on the order of $40 million to $50 million a year – have been about flat in the past two years.

Many firms say the program was invaluable in the beginning but question whether economics are prompting some companies to retreat.  Says Renaye Cuyler, of Gorayeb & Cuyler, a minority-owned New York firm and a participant in the ABA program: “The old-boy network is still alive and well.”