Riordan Distant as Firm Restructures

Staff Reporter

Richard Riordan's first love is feeling separation pains.

Since his return to private life, the 72-year-old former mayor and failed gubernatorial candidate has remained aloof from Riordan & McKinzie PLC, the law firm built largely on his business and political acumen.

His growing distance from the practice comes as profits per partner have dwindled and partners, citing a lack of direction at the firm, have started to defect.

"My first love in life is the practice of law. I practiced law until the day I became mayor," said Riordan, who is no longer a partner. "As projects come along in which the firm thinks I can be of a particular help, I'll get involved in them, but not a whole lot. Essentially, it depends on how well the firm is doing."

Lately, that hasn't been very well.

Profits per partner have fallen over the past few years, from $580,000 in 2000 to $525,000 for the year ended Jan. 31, and the firm is still reeling from a failed attempt in early 2001 to merge with Gray Cary Ware & Freidenrich LLP.

Richard Welch, the 63-attorney firm's chairman and managing partner, attributed the lower profits to general economic factors, and said he anticipates them to rebound to as high as $600,000 per partner for the year ending Jan. 31, 2003 as business picks up for several clients.

"Things go up and down," Riordan said. "Right now I can tell you the firm is healthy. People are busy, and the books show it."

Riordan chalked up the declines to a temporary shortfall in deal flow caused by the economy. "The effect has already been done, and the turnaround has come," he said.

But the failed merger with Gray Cary left some partners disenchanted. A dozen left Riordan & McKinzie 2001, and two have left this year. Six new partners have been named in 2002, bringing the firm's total to 30.

"We didn't perceive there to be any direction," said Bart Greenberg, a partner at Preston Gates & Ellis LLP who left Riordan & McKinzie as a partner last year. "The merger would've given it direction, but with its failure a number of us didn't have confidence that the firm was going in any direction."

Shift in leadership

The firm's administration has made moves to make the younger generation of partners feel more secure.

Welch said a new group of senior partners would be in place over the next five years to take the helm. And he created five additional administrative partner positions to take over managing partner duties and a chief operating officer's position last year to oversee day-to-day operations. Welch, who joined the firm in 1979, will retain the role of chairman, responsible for overall strategy. The firm has kept its executive committee in place, he said.

Welch, the seventh attorney to join the firm, became managing partner in 1991 and now sees his own future with the firm coming to an end.

The moves reflect the diminished responsibility the original senior partners have at Riordan & McKinzie. "It's a succession issue," he said. "Now, we involve junior partners in management, so over a period of time we've got a group of other leaders. In my case, I've been managing partner for 10 years. That's plenty long enough."

Riordan said that he, Welch and McKinzie have discussed the next generation of leadership at the firm. "This is a major issue," he said. "But you know that anything I connect myself with tends to do pretty well."

Entrepreneurial roots

In the midst of these changes, Riordan, who is now pursuing a new newspaper venture, said he has no plans to return to the firm full-time.

He and partners Tom Caps and Joe Carbone founded the firm in 1975 as a hybrid legal and financial consulting business. Partners were encouraged to personally invest in clients, many of which were technology startups a policy that helped make Riordan one of the richest people in the city.

Caps and Carbone retired in 1983, and the focus shifted to the law, Welch said. Carl McKinzie joined the firm in 1980.

During this time, Riordan's civic duties were mostly devoted to personal endeavors like children's charities and support for the Roman Catholic Archdiocese of Los Angeles. But in the late 1980s, Riordan got involved in local politics, drawing high profile legal work to Riordan & McKinzie.

He handled the resignation of former Police Chief Daryl Gates, negotiated to keep the Raiders professional football team in L.A., and structured a deal for a new landfill site at Elsmere Canyon in Santa Clarita.

"The fact that he was as visible a lawyer as a businessman was always of benefit to the firm," Welch said. "People respected and admired what he did. His activities always helped the firm with reputation, perception and business development."

When Riordan became mayor in 1993, he cut his financial ties, but the firm still benefited from his new position, accepting occasional referrals from the mayor and encouraging partners to become more politically involved in city organizations and civic duties, Welch said.

A firm scorned

Riordan & McKinzie always had a strong niche in technology. In the early 1980s, 90 percent of the clients were in the computer business. A decade later, when many of its clients had consolidated, the firm branched out to private equity and merchant banking firms, Welch said.

Clients include both Platinum Equity Holdings, run by Tom Gores, and Gores Technology Group, run by brother Alec. Other clients include Emergent Information Technologies Inc. and VC firm Redpoint Ventures.

Its political connections and base of technology clients made it a hot commodity when talks with Gray Cary commenced in 2000.

The Palo Alto-based firm sported a roster of startup technology clients, and with Riordan & McKinzie's profits up and the market for technology-driven deals booming, the opportunity seemed ideal.

But merger talks ended when the market soured.

"As 2000 continued, you could see how different the circumstances had become," Welch said. "We felt that staying independent and going our separate ways was right for both firms."

Ending merger talks didn't set well with several partners. Months after the merger fell through in early 2001, partners began to leave the firm.

Seven partners in the Costa Mesa office left, four heading to Preston Gates' L.A. office.

"There was always a perception that Orange County (Costa Mesa) worked harder than L.A.," Greenberg said. "We were not be compensated commensurate with revenues."

Most of the Costa Mesa partners were junior partners, whose compensation was less than the senior partners', Greenberg said.

But the bigger issue for many was Riordan & McKinzie's limited practice areas.

Elaine Levin, a former Riordan & McKinzie partner now at Preston Gates, said emerging growth and middle-market clients needed a larger intellectual property practice than the firm could offer. Riordan & McKinzie currently has five attorneys in intellectual property.

The firm has diversified its practice areas over the years, adding estate planning, health care, tax, litigation, labor and employment and real estate, particularly affordable housing. But its core practice, with 27 attorneys, is still corporate work.

"Anytime you go through the process of merging, there's uncertainty," Welch said. "People evaluate how it impacts them, and it led a number to think they might find something elsewhere they weren't finding with us."

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