Case Closed
Steven Bauer remembers the 1990s with relish. For an intellectual-property lawyer, there might not have been a better time to practice law or a better place to do it than Boston. Bauer headed the intellectual-property practice at Testa, Hurwitz & Thibeault, and his clients were the state of the art. “It was incredibly exciting,” he says. “During the Internet years, it was white hot. [The firm] was at the forefront of every significant legal issue. It was at the top of every chart. It was where everyone wanted to go.”
And no wonder. Testa was the preeminent provider of high- technology and venture-capital legal services in New England, and in 2000, the firm raised starting associate salaries from $100,000 to an unheard-of $140,000. Other, older Boston firms were forced to try to keep up. Lawyers who worked elsewhere viewed the place with a mixture of envy and anger. “Bunch of cowboys,” a top officer at an old-line Boston law firm says.
But the good times would end, and so would Testa, Hurwitz's predominance. Profits went off a cliff; partners fled en masse. Then, in January, the remaining partners voted to shut down what was left. When Testa closed its doors last month, it completed a collapse that was as spectacular as its rise.
Gaston & Snow, with nearly 300 lawyers once the city's fifth-largest firm, folded in 1991 after accumulating millions of dollars in debt. In 2002, the venerable, 130-lawyer Hill & Barlow called it quits after the exit of its extremely profitable real estate practice. But the Testa, Hurwitz dissolution was both more dramatic and more difficult to fathom. Its decline was breathtakingly fast: Just three years ago, Testa was the third-biggest law firm in Boston and one of the most profitable in the United States. It had more than 400 lawyers. By the time the partners voted for dissolution, the firm was down to 285. It had been hit hard by the downturn of the high-tech and venture-capital markets, yet was reportedly improving its profitability. And its reputation for topflight legal work remained unblemished.
How could such a firm fall so far and so fast? Did it focus on too narrow a segment of industry? Did it fall victim to the adroit but autocratic rule of its founding partner? It was most likely a combination of factors, for in Boston's fast-changing legal marketplace, it's not easy for even the most astute mind to always be on the case.
Some lawyers from other firms welcomed Testa's fall. “I told them not to be too gleeful,” the officer at the old-line rival recalls. “It could happen to any of us.”
After hiking starting associates' salaries, Testa, Hurwitz raked in record profits in 2000 — reportedly providing partners about $825,000 apiece in extra earnings — even though there were already signs of decline in high tech. The next year, profits fell, but only slightly. Then, in 2002, the firm's luck started to run out. The high-tech downturn had begun to hit hard.
As damaging as that was, an even more destabilizing event lay in store. On the night of December 2 that year, founding partner Dick Testa, who really built the place and ran it, died unexpectedly in his sleep at 63. It was a blow from which the firm would never recover.
“The man was a genius,” says Edwin Miller, a former Testa, Hurwitz partner now at Sullivan & Worcester. “He was a brilliant, brilliant lawyer. He was the dominant legal figure in the venture-capital industry. He had such a magical relationship with clients. I worked with him very closely for years, and it was hard to put your finger on it. He just had the ability to gain the confidence of clients and maintain that confidence.”
Miller learned a great deal about the practice of law from Testa, but there were things Testa knew that nobody could learn. “I'd be given a problem to work on, would do so for days, and would come up with a suggested solution,” Miller says. Then, he'd present the solution to Testa. “After listening to me, he would do the equivalent of turning the Rubik's Cube upside down and say, 'If you look at it from this angle, here is an easy way to solve the problem.' It may never have been done before, but it always worked.”
If Testa's extraordinary rainmaking skills were what built the firm, his unusual theories of management were what sustained it. Testa wanted the firm to serve more as an adjunct to its clients and less as a place that responded only when they called with legal questions. “Dick Testa's philosophy was, the way you grow is by doing a good job for your existing clients, and the rest will take care of itself,” Miller says.
In fact, Testa's reputation as a superb business generator stemmed from the early years, Miller says. By the 1990s, the firm no longer needed his rainmaking ability. Because it had a large roster of venture-capital clients, technology companies flocked to Testa, Hurwitz simply to make connections with them. Some of those companies became very successful as a result and decided to go public, using Testa, Hurwitz to handle their initial public offerings and securities work.
In most law firms, business generation is an important job of the partners. But at Testa, Hurwitz, which was turning away work in the 1990s, it was de-emphasized. Meanwhile, even though Dick Testa was taking a less active role, he remained a powerful figure within the firm. “Partnership meetings were run like the annual meeting of a corporation,” Miller says. “It wasn't a bunch of people sitting around a table having a nice chat. It was Dick Testa standing at a podium lecturing, giving a speech and a presentation.”
After Testa died, there was nobody to fill the void, even though he had stepped back from management in 2001, more than a year earlier. Miller likens the partners' subsequent effort to define the firm's future without Testa to “a banana republic becoming a democracy.” The problem was that the partners were trying to figure out how the firm ran, something they had trouble doing “because one man ran it and he never gave any reasons for what he did.”
“They didn't have the replacement leadership,” says Jeff Coburn, managing director of Coburn Consulting in Boston, which specializes in law-firm management. Testa “was such a force that even when he stepped back, he remained a powerful influence over the firm's affairs. So there wasn't the effort put into developing the leadership behind Dick Testa. And when he suddenly died, it was too much of a shock.”
The confluence of events — the economic downturn, Testa's death, the lack of a succession plan — proved to be too much. Not surprisingly, lawyers drawn to Testa, Hurwitz by its high salaries started jumping ship as their personal profits shrank. By 2003, the firm had fallen from 121st to 162nd in an American Lawyer review of revenues at the nation's 200 largest law firms. Testa, Hurwitz's 19.9 percent one-year plunge in revenue was the third steepest in the nation.
As the firm's fortunes were plummeting, the broader Boston legal market was changing — and continues to change — in a profound way. “Boston has always been a funny legal marketplace,” says David Wilkins, a Harvard Law School professor who directs the school's Center on Lawyers and the Professional Services Industry. “It's a relatively good-sized city with a good commercial base, but it's also close to New York City. So traditionally the Boston firms dealt with the regional interests of the New England clients, but oftentimes those clients would go to New York for the high-end work. Boston had kind of an insulated and protected legal marketplace.”
But clients — even those New England clients — now want law firms with national and international reach. So there's been a wave of mergers and acquisitions as law firms scramble to gain presence elsewhere. When Boston's Bingham Dana merged with San Francisco's McCutchen, Doyle, Brown & Enersen in 2002, for example, the move created a firm with more than 800 lawyers operating in 10 cities, including London and Tokyo. Firms in other cities are opening offices here. Still others are taking over existing firms, as Foley & Lardner, originally based in Milwaukee, did in February when it absorbed the 38-lawyer Boston office of New York-based Epstein Becker & Green. With nearly 900 lawyers, Foley & Lardner now operates in 20 cities.
Thomas F. Maffei, a partner in the seven-lawyer business-litigation boutique Griesinger, Tighe & Maffei, looks back to when he left the Boston firm of Choate, Hall & Stewart five years ago. At the time, Choate, Hall was considered a large firm, with 160 lawyers. Today, he says, a 160-lawyer firm is midsize in Boston.
Even Testa, Hurwitz finally sought a merger partner, but by then, Coburn says, “it was too little and too late. Half the partners were gone or had one foot out the door.”
Bauer, the firm's former intellectual-property chief, left early last year to head the new Boston office of Proskauer Rose, a 650-lawyer international firm operating in seven other cities. “We wanted offices all over the country,” he says. “Testa was a one-office law firm that, when we left, didn't seem to be ready to be expanding the practice elsewhere.” In fact, Testa, Hurwitz never seriously considered any kind of geographic expansion, both he and Miller say.
Of 22 lawyers in the intellectual-property practice at Proskauer Rose's Boston office, 20 previously worked at Testa, Hurwitz. More than three dozen clients came with them, Bauer says. The 650-lawyer Boston law firm of Goodwin Procter took in 25 partners and 50 associates from Testa. Ten partners left Testa in early December alone, bringing down what was by then a house of cards.
In those ex-partners, the legacy of Dick Testa lives on, at least to a degree. But would Testa, Hurwitz have remained intact if he had lived? “No one can really say,” says Miller. “But he was such a strong person, it wouldn't have surprised me if he'd have done something radical that would have made it work.”
Instead, the law firm of Testa, Hurwitz is now a part of history. And people in local legal circles are trying to draw conclusions from its demise.
“If there's a lesson, it's that if you rely too much on personal contacts among a small number of lawyers without a plan B, then you're vulnerable no matter how venerable the name of your firm is,” says David Yas, publisher and editor in chief of Massachusetts Lawyers Weekly.
Wilkins, of Harvard Law School, believes the story of Testa, Hurwitz serves as a reminder of just how fragile law firms — which depend on intangibles like trust and confidence as the glue holding the enterprise together — really are. “This is what makes law firms so fascinating to study and so scary to be in when there are times of instability,” he says. “They don't have assets other than their people. Their assets walk out the door every day, and the key is to make sure they come back in the morning.”