Pardon Our Dust
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By Suzanne Northington
McGuireWoods Consulting typically represents clients dealing with the state and federal government in places like Richmond, Raleigh and Washington. But in March 2007, the subsidiary of the Richmond-based law firm McGuireWoods LLP opened shop in an entirely different locale, Bucharest, Romania.
The Romanian office was the result of a deal in which McGuireWoods Consulting would serve as chief liaison between the Romanian government and Smithfield Foods Inc., a longtime client that has been expanding in Romania.
The consulting firm, which had represented Smithfield in Washington, also had experience in Bucharest. It had built on ties established by Mark Brzezinski, the Washington-based head of McGuireWoods international practice who was director of Southeast European Affairs at the National Security Council in the Clinton Administration. McGuireWoods consulting and Brzezinski represented Romania in its successful bid to join the NATO defense alliance in 2004.
The overseas presence of McGuireWoods Consulting is one example of how subsidiaries of Virginia law firms have evolved in the past 10 years in providing additional services to legal clients. The majority of subsidiaries — such as Williams Mullen Strategies, Spotts Fain Consulting, Kaufman & Canoles Consulting, Troutman Sanders Strategies, McGuireWoods Consulting — operate in the government affairs or “B2G” space. But many other things can be offered under the umbrella of consulting services, including public relations, private investigations, business relocations, public-private partnerships and economic development.
All of these subsidiaries have been formed since 1998, primarily propelled by a series of political developments, such as a 50/50 party split in the General Assembly at that time, the resultant growth of lobbying activity in Richmond, the rising influence of state legislatures and the devolution of authority from the federal government to the states.
“There was a growing perception that more lobbyists were needed, because the government can affect your business more today than it ever could,” says Jerry Kilgore, a former Virginia attorney general and Republican candidate for governor. He now is chairman of the Governmental Affairs Group at the Richmond law firm Williams Mullen, whose subsidiary, Williams Mullen Strategies, is based in Washington, D.C.
While most consulting subsidiaries in Virginia were formed in the past 10 years, the grandfather of law firm consultancies was formed more than decade before. Washington, D.C.-based Arnold & Porter LLP formed APCO, a public relations subsidiary, in 1984. Some Virginia law firms followed suit, forming their own subsidiaries. But the trend didn’t last. Most of the subsidiaries folded or were absorbed by their parent firm. APCO, for its part, was spun off in 1991, becoming an independently owned public relations firm.
Insurance costs were a big factor in the decline of this first wave of subsidiaries, says Frank Atkinson, chairman of McGuireWoods Consulting. That’s because insurance companies were charging subsidiaries the same rates they charged law firms, he says. The insurance burden apparently made the subsidiaries uncompetitive. Eventually, the insurance industry recognized that law firms and consultancies had different risk profiles. Insurance costs went down, setting the stage for the second wave of law firm subsidiaries in the late 1990s.
Changing political winds at that time meant that law firms needed more staff to deal with the sheer growth in bills being filed in both houses of the General Assembly, as well as with the even mix of Democrats and Republicans vying for control in a power-sharing legislature. “When you no longer have one-party rule, you have to be equipped to work both sides and that means putting more boots on the ground” says Kilgore. “And it also means filing legislation in both houses so you’ll have two avenues to get your bill passed.”
Atkinson concurs. “If you want to impact legislation positively, you need to have bipartisan capability.” While he is a Republican, the firm’s president, L.F. Payne, is a Democrat. Yet the expanded need for lobbyists was not limited to the legislature; it affected other jurisdictions, too. Subsidiaries like Kaufman & Canoles Consulting — which focuses on economic development issues in municipalities and state agencies — also were affected by the rising regulatory activity.
But the growing importance of government activity at law firms created potential conflicts with the firms’ existing clients. Resolving that problem was one of the reasons some firms created consulting subsidiaries. “Subsidiaries were formed so you didn’t have to run the traditional conflicts check you had to run in a law firm,” explains Kilgore. “For example, in a law firm, you can’t represent a client with interests adverse to an existing client. People thought that forming subsidiaries would solve that problem.”
In theory, this arrangement might allow a consulting firm to represent, say, McDonald’s, while their parent firm represents Burger King. Yet in practice Kilgore doesn’t think the theory works well. “Once you’re in the newspapers, it’s hard for the public to separate out the Williams Mullen law firm from Williams Mullen Strategies. To the public, it’s the same brand.” (A number of consulting subsidiaries, including Williams Mullen Strategies, avoid taking on clients that may have potential conflicts with existing law firm clients.)
Another impetus for forming subsidiaries was the need to recruit non-lawyers, especially politicians, whose connections can be priceless. Virginia Rules of Professional Conduct prohibit law firms from sharing fees with non-lawyer employees. This restriction can be an impediment in hiring top-notch lobbyists, developers, public affairs managers and former public officials. “More often than not, the best talent is not a lawyer,” says Pete Robinson, the Atlanta-based chairman of Troutman Sanders Strategies. Consulting firms say they pay a salary, plus performance bonus, but specifics about compensation methods are kept close to the vest. Still, pay has been good enough for McGuireWoods Consulting to attract the likes of Payne, a former U.S. congressman, and former North Carolina Gov. Jim Martin, who works in the firm’s Charlotte, N.C., office.
The international outreach of consulting firms seems to be in the early stages, but there’s no denying the global ambitions of this industry. For example, Mark Robertson, president of Williams Mullen Strategies, does work for the Romanian government, an offshoot of his law firm experience as strategic counsel to various Latin American presidents.
For its part, McGuireWoods Consulting has continued to be active in Bucharest. It was involved in negotiations that led in March to Ford of Europe becoming the majority owner of the Craiova vehicle manufacturing plant in southwest Romania. The consulting subsidiary has no plans to open any additional international offices for the time being. Nonetheless, its parent firm has ties with another foreign government — McGuireWoods represented the government of Kazakhstan as it moved toward privatization — hinting at a larger role for the consulting firm in the future.
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