Riding the Corporate-Takeover Tidal Wave

THE name of The American Lawyer is misleading. From its launch 15 years ago, the magazine has ignored the thousands of lawyers in small firms and solo practices across the United States. Instead, the monthly has focused on just 5 percent of the lawyers in the US - the giant law firms in the nation's financial centers, whose clients are corporate America.

It was fitting that the magazine's first issue featured a cover story about ``the top money maker in '78,'' the New York firm Skadden, Arps, Slate, Meagher & Flom. No other law firm in America so epitomized the legal world The American Lawyer undertook to scrutinize: Skadden lawyers were smart, aggressive, and tough, with sweat-shop work habits, an obsession with profits, and - some critics would say - close-to-the-line ethical practices.

Not only in its personality, but also in its specialty, corporate takeovers, Skadden was the ``It'' law firm of the 1970s and '80s. In a time when American business was convulsed by a surge of corporate Darwinism, the ``fittest'' tended to be companies that had the firm's hard-nosed and creative lawyers on their side.

In his well-paced and readable book, ``Skadden: Power, Money, and the Rise of a Legal Empire,'' Lincoln Caplan recounts the fascinating story of Skadden's meteoric rise to legal prominence and the painful downsizing and changes in culture it has undergone as the takeover era waned.

Compared with some of the great New York law firms with histories stretching back to the 19th century, Skadden is a relative upstart. The firm was founded in 1948 by three men who were castoffs from major firms. According to Caplan, the rejection each founder had experienced, and the sense of being outsiders that some early additions brought, became wellsprings of ambition for the new partnership.

From the beginning, Caplan writes, the ``composite'' Skadden attorney was ``a high-strung, gung-ho lawyer with a sizable chip on his shoulder.'' And: ``The intense style of the small firm led [a competitor] to compare it, not altogether approvingly, to the Israeli Army.'' Later, Skadden lawyers took to calling themselves ``Green Berets.''

Skadden's mantra was ``opportunism'' - not in the usual sense of expediency, but rather used to mean ``aggressiveness exercised to capitalize on opportunity.''

Skadden's greatest opportunist was Joe Flom, one of the legends of Wall Street and American law. Flom became an expert in the bare-knuckle art of seizing control of corporations through the ``hostile tender offer,'' or unwelcomed corporate buyout.

In the early 1970s, Flom and Skadden caught a tidal wave that gave them a wild and enormously profitable ride for about 15 years. Other firms were slow to catch on, in part because of the belief among many blue-blood lawyers that ``gentlemen didn't do takeovers.'' By the time other firms jettisoned their scruples, Skadden was far ahead in both reputation and expertise.

In 1978, Caplan reports, ``Flom took part in twenty-one of the twenty-two major hostile takeover contests in the United States that year.'' The firm was raking in millions. Because of its expertise, it charged takeover clients large premiums over its usual fees.

Skadden even got paid for not working: Many companies, fearing a possible takeover bid and wanting to deny Flom's services to the raider, paid Skadden hefty ``retainers'' just to ``sterilize Joe.'' By 1990, Skadden had about 1,000 lawyers and revenue of $500 million (although both numbers probably dropped during the recession).

Amid his detailed but never tedious descriptions of such things as how Skadden divvies up profits and the politics of making partner, Caplan delves into larger themes such as changes in America's legal landscape, evolving (he says declining) standards of legal ethics, and the economic consequences of the nation's takeover and junk-bond blowout (they were largely disastrous, he concludes).

This engaging book will grip anyone interested in law or in the history of postwar American finance.

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