THE LAW ACCORDING TO JOSEPH FLOM
International Financial Law Review, February 1994
By Jean Fergus
Who or what was behind the emergence of Skadden Arps Slate Meagher & Flom as one of the most powerful law firms in the world? Jean H. M. Fergus reviews a new book.
Founded in 1948 by lawyers who had not made partner at other New York law firms, by 1992 Skadden Arps Slate Meagher & Flom topped the list of America's highest grossing law firms, headed the lists of Who Represents Corporate America, Who Represents Financial America, and was prominently noted on the list of the Top 15 Worldwide Legal Advisors.
Skadden: Power Money and the Rise of the Legal Empire by Lincoln Caplan (Farrar Straus Giroux/New York $25.00) is an impartial look at one of the most talked about and envied law firms in the United States. There is little disagreement that Skadden is the firm Joe Flom built. He was the firm's first associate and now is the sole surviving name partner. In an ironic twist the author, a graduate of Harvard College and Law School had himself received an offer to join Skadden in 1976, an offer he declined in order to pursue his writing career. When the author approached the firm in 1988 regarding this book the partners agreed to cooperate, confident that the book would reflect well on them and the firm. But Flom cautioned his partners: "I told the guys warts and all!"
Flom himself makes an unforgettable impression. I remember the first time I saw him in the early eighties. He was a speaker at a conference on law firm management. Seated on the dais, among others, were Sam Butler (managing partner of Cravath, Swaine & Moore), looking like an ambassador to the Court of St. James; Dick Pogue (managing partner of Jones Day Reavis & Pogue) straight out of central casting as a Jimmy Stewart look-a-like; and Ed Costikyan (on the management committee of Paul Weiss Rifkind Wharton & Garrison). who had the manner of a Spencer Tracy. A collective gasp arose from the audience as a man walked onto the stage and sat down in the chair behind the name card marked Joseph Flom. It was Joe Flom. He was late, was wearing tan pants, a brown plaid jacket and yellow tinted glasses. He looked like he had just come from the race track. And perhaps he had. Caplan writes that one of the first things Flom did when he started to make money was to buy a race horse. Caplan reports that Flom, within his own firm, is regarded by his partners with ambivalence, curiosity, fear and awe, and view that I, and the other members of the audience who were seeing him for the first time, shared.
As Caplan chronicles, Flom, from the outset saw himself as an outsider. Born the son of a Jewish immigrant on December 31, 1923, Joseph Harold Flom grew up poor in Brooklyn, New York. Flom recalls that his family barely survived the Great Depression and, at times, lived on borrowed money and government food relief. However, Flom's mother, as Flom puts it, was 'convinced that I was going to be the shining light. My sister was convinced that this reflected the chauvinism that was characteristic of Jewish families - the Prince.' Flom's metamorphosis from pauper to prince, or perhaps more correctly, emperor of one the largest law firms in the world makes for fascinating reading.
As Caplan explains, Flom's association with Marshall Skadden, John Slate and Leslie Arps was something of a fluke. Although Flom did well at Harvard Law School (he was accepted without a college degree), he did not receive an offer from his first choice firm, Paul Weiss Rifkind Wharton & Garrison. Flom did not feel comfortable with the other firms that invited him back for the second round of interviews. Flom recalls: 'I'll never get over the firm . . . that talked with me about its baseball teams - A teams, B teams. Baseball! What the hell did that have to do with me?'
Three months before graduation, Flom still had no offers. When notified by the Harvard placement office that a small start-up firm in New York was looking for top-notch men, Flom set up an interview. Over lunch at Delmonico's, Skadden. Arps and Slate discussed with him the high-risk nature of their four month-old venture. He signed on as their first associate at the going-rate salary of $3,600 a year.
Flom attributes his ultimate success and that of the firm to luck: 'Look, you can't ignore serendipity. I have a very strong feeling that, sure, you have to be able to take advantage of opportunities, but you have to be where the opportunities are and a lot of that is either luck or serendipity or whatever you want to call it.' Some may find this a little too coy. This is the flip side of the story of the self-made millionaire who, when it was suggested that his success came from luck (or being in the right place at the right time) responded: "Funny, the harder I worked the luckier I got." It is clear from Caplans account that Flom and his partners worked extremely hard in the early days, putting in long hours. Caplan quotes Floms fiancée (later his wife) asking him on one of their dates: Why do you work so endlessly, seamlessly? Youre always working. That Flom and his partners were merely luckier than others is debatable.
Flom reputation as a savvy street fighter was first established in the practice area eschewed by other Wall Street firms. Proxy fights were down and dirty and winners of the contest were determined in the counting room, more colloquially called the snake pit. Caplan writes: "The event was often informal, contentious, and unruly. Adversaries were sometimes in T-shirts, eating watermelon or sharing a bottle of scotch (sic). These fights for corporate control matched Floms personality and, according to Caplan, "There were lawyers who knew more about the rules of proxy contests, but no one was better in the fight than Joe Flom.
Caplan contends that Flom built Skadden Arps in his own image. Like Flom, he writes, the firm prided itself on its lack of pedigree: In addition to its cast-offs, the firm consisted of late bloomers and, if not misfits, then not quite smooth fits. Performance counted. Birthright was irrelevant. Skadden made a virtue of taking in lawyers who were less highly valued by other Wall Street firms. And the firm hired lawyers, who, like Flom, had a powerful incentive to prove their worth.' Caplan quotes a former associate: They all wanted to prove that they werent schlubs.
Skadden in the fifties and sixties hardly seemed destined to become a boardroom, much less a household, name. But the seed had been planted. The firm valued hard work. Associates gave the Beast of Burden (BOB) award each month to that associate who had suffered the most punishment. (The award was named after a partner who, some felt, had worked himself to an early death.) The firm also valued aggressiveness, especially in developing business. According to one partner, 'We were not reluctant to say, 'Hey, we'll go after that client'.' And, because Skadden Arps did not have the resources and client base of the more established firms, the partners became adept at exploiting their advantage in small niche areas. This happy exploitation became known as 'opportunism'.
Still, as one partner recalled, although Skadden Arps was viewed as 'a dinky little firm', Flom and his fellow partners were already eyeing the major firms -- 'The Biggies', they called them and were itching to take them on for the 'upper margin work'. Flom encapsulated their ethos: 'We've got to show the bastards that you don't have to be born into it.'
Time to move
Their chance came in the seventies and eighties with the explosion of corporate takeover work, little prized by other firms, but a natural extension of the rough and tumble world of proxy fights. Capitalizing on this strategic opportunity, Skadden Arps achieved a competitive advantage which the firm has held for two decades. Flom argues that there was no grand scheme: 'Did we sit down and plot our opportunity in mergers and acquisitions? No. We got in by accident and then took advantage of the opportunities presented.'
And take advantage they did. Once positioned as specialists in corporate takeovers, Flom aggressively marketed the firm's services to clients and to their lawyers. Flom estimated that in the early seventies half of Skadden's work was for other law firms. Caplan quotes Flom: 'These guys said. 'Someone's shooting at my client. What am I gonna do?'.'
One may ask how other firms missed this opportunity. For those law firms, reports Caplan: The concealment, the creeping up on somebody, the tactics. The whole concept of the takeover is very smelly.' According to another law firm partner, white shoe firms didnt go after the takeover work because they felt they were doing important corporate work already, they were busy and they didnt have excess resources. Others viewed takeovers as a fad, here today and gone tomorrow.
As Caplan correctly notes, Skadden Arps development of this transactional corporate practice, whether through a combination of serendipity, necessity or cold calculation, eroded the traditional relationships large corporations had with their outside counsel. The firm became known, initially, as specialists to the most senior management of blue chip corporations and major investment banks. Flom and partners turned these one-time relationships, secured by hefty retainers, into opportunities to cross-sell other firm services. From this base, the firm built a full service, multi-disciplined practice.
Caplan hints at how Flom and his partners used their reputation as renegades to develop business. One senior Wall Street lawyer told Caplan about a conversation he had with an investment banker: 'I remember getting a call from a crusty investment banker. They called up and said, 'Our client is going after someone else. We want you to represent us. We know you'd rather represent the company, but we're bringing Flom in for that. We feel we need a sewer rat - someone who will fight dirty and win at any cost ' . '
Flom understood how he could use his reputation. Caplan writes: 'A client in a tight spot might ask, 'What do I do now?' Flom would say, 'Tell 'em you've hired me'.'
Caplan's research on this book overlapped with the firm's economic bruising in 1990 and 1991. With the fall-off in takeover work and the collapse of its largest client Drexel Burnham, Skadden Arps cut costs, fired associates and put expansion on hold. The partners became introspective: some questioned the wisdom of the firm's growth, others wondered if the firm would survive after Flom. Caplan's chronicle of the power struggle within the firm for leadership is by far the most engrossing part of the book. Someone once said that adversity does not so much build character as reveal it and there are important lessons for any law firm partner to learn from the Skadden experience.
Caplan ends his book on an optimistic note. For him. the firm is humming along just fine. While pointing out that some older partners deride the younger generation: 'We have a bunch of kids who don't know how to go home at night by bus and have never ridden a subway since joining us. They only know the way to dial-a-car,' Caplan argues that Skadden is a different firm today, itself a respected member of the establishment. The dial-a-car generation which will take over in the not too distant future may be better suited to the demands of the firm's present clients than the street fighters of its past. It takes nothing away from the considerable accomplishments of Joe Flom and the firm's early partners to speculate whether Skadden Arps would hire them today.
Fergus Review | full list