Editor: Please describe your practice area as well as your mandate to expand Jones Day's California practice.
Sims: My practice is the full range of antitrust matters. I have a heavy focus on shepherding transactions through the antitrust process in Washington, and also have a regular amount of antitrust litigation and some criminal defense work. All of this is generally focused in Washington, where I still spend most of my client-focused time. My California responsibilities are one of my Jones Day "night jobs." My assignment basically is to help coordinate and to grow our presence here. We have five offices in California, but three of them are relatively new, so we do not yet have the presence in California that the size and significance of the market indicates. Over the last 15-20 years, the firm spent much of the finite amount of time available for law firm management to establish our global presence in Europe and Asia. With that well underway, we have now been able to refocus on some of our domestic locations where we thought we could be stronger. California was the first on the list, given the size of the market.
Editor: I understand that Jones Day has increased its lawyers in California to approximately 320, having added 57 new partners in California over the past 21 months. In a time when other firms are retrenching, what factors prompted Jones Day to expand to this extent, especially in a market that's been hard hit?
Sims: We don't think much about the short-term; we are a long-term institution. Our strategic efforts are aimed at making the firm stronger in the long run even if that requires investment in the short run. This is the approach we took in growing our global presence, and California has been no different. When we decided to expand our presence in California we took a look at both the market and our footprint. We thought we were in the right locations; we had five offices and did not need more. By contrast, we did not have the optimal mix of practice skills. We were very strong in litigation and intellectual property; we were less strong in almost all of the corporate practices - M & A, capital markets, private equity and real estate. We had a good corporate practice presence in Silicon Valley, where that has been the principal focus of that office since it opened in 2000, but relatively little strength in the other offices. So our basic strategic objective in California has been to strengthen and deepen our business practices. We have focused on that as priorities one, two and three. In addition, of course, we are always opportunistic when we have a chance to bring in strong lawyers, whatever their practice. Ours is a talent business, and you cannot have too many smart lawyers. We have seen the most opportunities in the labor practice where we have added a number of very talented labor and employment lawyers from a variety of other firms in California, some of which have apparently decided to place less emphasis on their labor practices. Labor is a strong practice for us, with almost 200 lawyers around the world, so we were happy to become stronger in California, one of the world's most active labor litigation markets. We've also added IP and litigation lawyers to what were already strong practices in California.
On the business side, obviously some of these practices are not highly active today, but that's not a very significant factor in our decisionmaking. We want to add talent when we have the opportunity; the addition of a large number of partners recently from Heller is a good example of that. They were mainly business lawyers - real estate, tax, M & A, private equity, capital markets; in fact some of them were lawyers we had tried to recruit earlier, but they had said they were Heller lifers. I suspect they would still be at Heller today if the firm were still active, but when they had to make a decision to move, we certainly wanted to take advantage of the unusual opportunity to add some very talented senior and experienced lawyers who would not otherwise have been available. The fact that some of their practices are relatively slow today was really not relevant; they will not be slow forever.
Editor: While the current California market is depressed not only because of the distressed mortgage situation but also because the state government is financially stressed, what bright ray of hope do you see in the California market generally? What are the advantages of California as a business location?
Sims: California is a large and important market; if it was a country, it would be one of the ten largest economies in the world. The technology focus in Silicon Valley is well known but there is also a strong technology presence in Southern California, especially in Orange County and San Diego County. California companies are obviously at the leading edge of technological developments in the United States. In addition, and in part because of all this technological ferment, California is and will remain an important source and an important user of capital, so for all of the business practices that revolve around obtaining capital, California is always going to be a place with a lot of legal demand. Finally, because of its regulatory structure and approach, California is one of the most litigious states in the union, not only in antitrust and product liability and intellectural property, but also in the labor area. A large percentage of labor class actions are brought in California. For all these reasons, California generates strong demand for high-quality legal services.
Editor: What assets underlie California's economy, which may help it come out of the economic decline with renewed vigor?
Sims: In addition to all the things I have mentioned, California continues to be a very attractive place for people to live. So, in addition to producing many highly motivated and highly educated workers from a very strong higher education system, it also is attracting from elsewhere in this country and around the world a steady stream of talent. The combination of a desirable location and a talented work force produces many social and economic demands, two big components of which are the acquisition and production of capital and the whole range of litigation generated by the high level of business activity and the disputes that naturally arise.
Editor: Would you describe California as a business-friendly state? Why are the costs of doing business in the state so much higher than in other parts of the country?
Sims: California has been very focused on protecting against both environmental and consumer effects resulting from various business activities. In its efforts to protect against what some consider the deleterious effects of those activities, it has clearly increased the regulatory burden on business. On the other hand, as we have discussed, California has a lot of advantages for business - a strong workforce, technological innovation, etc. Obviously, just looking at the results, the net impact of all this must be positive, since the California economy continues to expand.
Editor: As an antitrust lawyer, how do you see your expertise being called upon generally in a time of economic downturn? Do you expect the Obama administration to continue the relaxation of enforcement we have experienced in the Bush years?
Sims: The question assumes a premise that I think is incorrect. I know there has been a lot of assertion that antitrust enforcement has been less aggressive in the Bush administration, but I do not believe there has been a dramatic change from the past. The normal metric put forward is the number of merger challenges by the two federal enforcement agencies, the FTC and especially the Department of Justice, but the percentage of merger challenges is well within the range of variation we've seen over the past three decades. While there is some difference on the margins, the big difference is in the rhetoric and the criteria applied, not really in the aggressiveness of the enforcement effort. I can assure you, being involved as we speak in a DOJ challenge to a proposed merger and seeing another transaction take over a year to pass muster by the DOJ, they seem pretty aggressive to me. And as far as the current economic difficulties are concerned, so far they have had little impact on my work. Volitional and financial transactions are down, but strategic transactions are not down nearly as much. If we look ahead to next year, I can foresee defensive mergers and transactions to hive off pieces of business that are not performing well, as well as restructurings of various kinds that will still require antitrust review. Tough economic times may even mean more incentive to attempt mergers that would have strongly positive strategic value, which frequently is accompanied by close antitrust scrutiny. So I am not anticipating much of an impact for antitrust practices like those of Jones Day; indeed, it would not shock me if we were even more busy next year than we were this year.
With respect to the new administration, we don't yet know who President-elect Obama is going to appoint to run the two antitrust agencies. The people he appoints will make a big difference, not only in what they actually do but how they talk in public.The demand for antitrust lawyers is heavily influenced by the rhetoric of the people leading the agencies, in addition to their actual actions. As I mentioned, that has been the biggest difference I have seen between the Clinton and Bush administrations (along with a small number of merger decisions at the margins). So until we see who will be running the FTC and DOJ Antitrust Division, it's hard to predict what impact they will have. The appointments announced so far are almost uniformly high quality people, whatever you think of their policy approaches. If that standard holds for the antitrust appointments by the new administration, I would expect that we will continue what has been a pretty steady and consistent approach over the last 30 years, with only fairly small marginal differences. But that and $2 will buy you a latte, to update the old saying.
Editor: Do you expect that some of the measures fostered by California and other states to bring about a green economy with emphasis on clean air and conservation will bring us to greater efficiency in productivity and even prime the economy into returning to a healthier status?
Sims: We are going to see an enormous increase in activity in this area. One of the things that is already visible in California is an increasing amount of capital being directed at various kinds of green projects involving almost all forms of energy. If you look at venture capital in and around Silicon Valley and other parts of California, you will see that a growing proportion is being invested in environmentally friendly projects. If the Obama administration makes as big a commitment to green initiatives as was promised during the campaign, that's going to spark even more investment. I suspect that is going to be a significant part of the economic activity that pulls us out of the crisis we're in. The fact that he put Carol Browner in the White House and Steven Chu in as Energy Secretary indicates that DOE may well focus on the scientific side, while the White House focuses on the policy side. This might well lead to an overall higher level of emphasis in this area than we've seen in the past, and that will have economic significance.
Editor: How do you account for the large measure of success the firm has achieved in all the areas in which it has chosen to operate?
Sims: I think one of the most important reasons we've been so successful in attracting talent in California is not only the fact that we've been aggressively seeking it but also that we've been able to communicate a different approach to large firm law practice than most other firms can offer. The combination of that different approach and the obvious strength and stability of a legal institution like Jones Day has made us a particularly attractive landing spot for people ready (or forced) to make a move in uncertain times.
Jones Day is different; we really are One Firm Worldwide, not just a bunch of individuals sharing expenses. We think of ourselves as part of an institution that is built for the long-term, and where all decisions, including compensation, new partners, and client conflict issues, are made with based on what is in the long-term best interests of the firm. To make this possible, we have a fairly unique governance system. Our managing partner selects his or her successor, so we don't have elections or the voting blocks that get created in other firms. We don't keep track of origination credits or service credits and use those as determinants of compensation; our compensation (for partners and associates) is completely subjective and based on the relative contribution of each lawyer to the overall success of the firm. And as importantly, compensation is entirely confidential, so there is none of the comparisons or jealousies that inevitably accompany a more transparent system. In the end, the firm management approach is to get out of the way and let the lawyers do the right thing. If you do that, and don't create any counter-incentives, most lawyers will provide the kind of service that clients want, and that is by far the most effective marketing program a law firm can have.