Originally appeared in the ABA's Law Practice Magazine's November/December 2015 issue.
—by Rod Dolan (COO) and Jeff Hunter (Retired COO)
Recognizing in 2010 that Kaye Scholer’s New York office lease would terminate in April 2015 after more than 50 years in the same building, firm members began studying whether and how to move certain firm-wide functions from its Manhattan office to an external operations center. Establishing such a center would result in a hybrid approach to support service deliver); with certain support functions continuing to reside in the practice offices based on the lawyers’ legitimate need for physical proximity to that assistance (e.g., secretarial services and duplicating) while other services would be provided from a center in a lower-cost locale. In addition to reducing operating expenses, this presented an opportunity to take a fresh look at how services would be rendered. Everyone at the firm would have to learn how to work differently, using the latest technology to replace physical presence.
It would be a different model than what firm members were accustomed to but not one without precedent. For example, Orrick, Herrington & Sutcliffe had established its global operations center in Wheeling, West Virginia, about 10 years earlier. More recently, WilmerHale had established one in Dayton, Ohio, and Pillsbury in Nashville, Tennessee. Firms like Squire Patton Boggs, Nixon Peabody and Proskauer Rose had established nearby off-site administrative centers over the years. In addition many large firms have out sourced support and commoditized legal functions such as duplicating, mail, records, reception, catering/conferencing, staff attorneys, litigation support and so on.
The Firm's Reasoning
Many people who have heard about Kaye Scholer’s project assumed it was a real estate play; we expected to need about 25,000 square feet of space and expected to pay about $15 per square foot. Certainly the firm expected to save a significant amount of money in rent, but the concept was really about redesigning firm-wide functions and reducing compensation costs. Most of our affected personnel were based in the New York office, but the firm also had affected personnel in the Washington, D.C., and Los Angeles offices. We also had a decentralized help desk function with those personnel working remotely from their homes. At best, coordinating among the geographic teams was strained, In addition, many of the staff had been with the firm for decades, and this provided an opportunity to redesign and update our procedures. Nearly all of the positions in the accounting, technology, library and document processing functions would be relocated, with select positions in the docketing, human resources and marketing functions also affected. We expected to save about 25 to 30 percent on compensation costs for these positions, which far outweighed any rent savings. We expected to move 100 of the support positions to the center, perhaps with additional positions moving later if the concept proved itself. The financial numbers were compelling despite the generous severance and retention expenses provided by the partnership for these long-time employees, as well as search and other transition costs that would be incurred during the implementation years.
The project had several significant phases. The first phase was (1) to fully explore potential location options that would satisfy our financial objectives and (2) to do the necessary internal work to further assess and refine which functions should be relocated and how our many processes could be modified and improved upon to benefit from this new service model The second phase would involve negotiating the lease and related governmental or tax incentives. Finally, the third phase would involve preparing the space, dealing with the transition of personnel and formally establishing the center.
Key Decision Points
We used the following evaluation criteria to guide our location assessment and selection:
- Availability of skilled personnel. We needed a steady pool of talent with knowledge and experience in the areas of finance and technology (the functions with the largest contingents of personnel), preferably with backgrounds in a law firm or other professional services setting. Since the center would likely function on a 24/7 basis to support the firm’s operations, prospective employees (as well as the physical office environment) needed to accommodate night and weekend service requirements. To ensure the continual replenishment of talent in the years ahead, we explored partnering with local colleges and universities that offered areas of study consistent with our anticipated workforce needs. It would be advantageous to be among the “elite” local employers, capable of attracting and retaining the best talent in the area.
- Operating expense savings. We wanted considerable ape rating expense reductions in comparison to the firm’s existing costs, principally involving staff compensation arid occupancy expenses.
- Economic incentives. We sought sufficient economic incentives from state and/or local governments and the landlord. We expected many of the cities had been hard hit during the recession, with law portions of their office space remaining vacant. Given that the project involved 100 well-paying jobs we were confident the climate was ripe for us to strike a favorable deal.
- Relocation of existing staff. The city had to have the quality of life necessary to entice legacy employees to relocate permanently. Personnel transfers would help transplant the firm’s culture to the new remote operation. Because the relocated positions would command lower salaries than those in New York, it was important for relocated incumbents to maintain a comparable standard of living. For example, the new city needed areas with lower housing costs, quality public education, local culture, lower taxes, improved commutes, etc.
- Other factors. The center needed to be within reasonable distance of a major airport (preferably in an area not prone to natural disasters) and well served by major telecommunications providers, Lastly, adequate time between the implementation of this project and the New York office move was essential as both projects required significant amounts of time arid effort, frequently involving the same administration teams.
The firm performed extensive market analysis, with the assistance of a real estate consultant. Thousands of potential markets were narrowed down to 25 cities, then to 10, and then to four cities that we visited and whose representatives we interviewed on a highly confidential basis. Eventually we narrowed it to two cities that would each clearly meet our needs, at which point we began negotiating governmental incentives/concessions to determine the new home for our operations center. Tallahassee, Florida, was the winner.
That decision kicked off the search for actual office space and the build-out of that space, all of which was accomplished uneventfully, thanks to a great team. We then made our internal and external announcements.
Concurrent with the office space search, we finalized the specific positions we planned to move to the center and developed the personnel transition plan, which Included severance pay, retention bonuses In certain cases, temporary staff, recruiting services for hiring new personnel, tours of Tallahassee, relocation packages for any personnel willing to move, cross-training of new staff by existing staff and more. We were pleased that 14 people agreed to relocate to Tallahassee—a percentage similar to that experienced by other firms that have opened operations centers—and they have provided an invaluable continuity of the firm’s culture in our new environment.
The center opened in June 2013, and it has not been without its challenges. Morale was understandably low in the affected legacy offices and departments. Many of the affected personnel found new positions faster than we expected, which made maintaining service levels more difficult due to shorter cross-training periods and an increased use of temporary employees. We had more difficulty than anticipated hiring certain talent in, and moving new hires to, Tallahassee, especially with technology positions, which lengthened the transition period. In the first few months, turnover was higher than normal when people did not meet our expectations and that created a new set of morale challenges. But service levels had to meet our standards, and that has required extensive training and orientation, team-building exercises and related activities.
Who Are We Now
Two years later we have over 100 high-performing professional staff in a beautiful and efficient space working as a cohesive team. We use videophones and videoconferencing to help bridge the distance between offices. We are working with local schools to develop Intern programs to create a pipeline for future employee candidates. We have excellent relationships with the Tallahassee Chamber of Commerce and other local organizations and are, we believe, valued members of the community. Financial performance has met expectations. Kaye Scholer’s Tallahassee operations center celebrated its second successful year in June, and we are looking forward to a continued rewarding relationship. So the lesson learned may be that, sometimes, reconfiguring your firm is the answer.