Business slump, other woes hurt politically connected firm
By Ameet Sachdev
Tribune staff reporter
June 28, 2003
In a stunning collapse of one of Chicago's oldest and most politically connected law firms, Altheimer & Gray is shutting down.
The partnership will vote on dissolution Monday, but closure is considered a foregone conclusion after the firm's executive committee, which manages day-to-day operations, recommended Friday the winding down of the 88-year-old firm.
The move to liquidate comes after a severe business slowdown put the firm in a cash crunch last year. Partner compensation was reduced this year, causing several high-ranking attorneys to leave.
Altheimer tried to salvage the business by finding a merger partner, but no savior materialized, according to people familiar with the firm.
"For some period of time, we have explored every option for the firm's future," Jeffrey Smith, Altheimer's managing partner, said in a statement Friday. "This is a sad day, and a hard decision, but we are confident that this is the best way to position our staff to explore new opportunities."
The dissolution could become a political thorn for Altheimer Chairman Gery Chico, the former chief of staff to Mayor Richard M. Daley, who is campaigning for the 2004 Democratic nomination to the U.S. Senate.
Chico did not return a phone call seeking comment.
Altheimer will become the second Chicago firm to close its doors this year, following Peterson & Ross, a 50-lawyer firm, in February. But other than that, the two firms have little in common. Altheimer had more than 300 lawyers in 11 cities worldwide, including 132 in Chicago.
The breakup of the firm also will put 700 administrative staff members out of work.
Employees were told that they would receive their last paychecks on Monday. Retired partners were also notified their benefits were being stopped immediately.
Several Chicago firms are lining up to hire Altheimer attorneys.
"It's very unfortunate," said Andrew Laidlaw, chairman of Seyfarth Shaw. "But it's a firm that's been heavily transactional in the work it does and that type of work has been in a considerable slump for the last couple of years."
The lingering economic slump has drastically reduced the number of corporate mergers and acquisitions, hurting the revenues of many law firms. Altheimer's transactional business, including private equity, made up more than 75 percent of its practice, the firm said.
But Altheimer had a number of other problems, say former partners and others familiar with the firm.
The firm had opened a number of international offices in recent years, primarily in central Europe, and some of them had yet to turn a profit, said a former partner, speaking on the condition that he not be identified. Louis Goldman, head of Altheimer's international practice and a member of the executive committee, resigned recently.
Altheimer's government work has also been eroding. Chico started the firm's government practice in 1996. It handled matters including environmental and zoning issues and governmental lobbying and municipal bond work.
The practice flourished under Chico. Lobbying clientele grew from 18 to nearly 200. The firm also had a strong link to former Gov. George Ryan through attorney Jeremy Margolis.
But Chico's relationship with Daley became strained after he stepped down as president of the Chicago Board of Education in 2001, sources said. Also, his attention was diverted by his Senate campaign. As work dried up, some key partners in the government group left last fall.
More partners followed them out the door. Altheimer has lost more than 30 lawyers in Chicago since the beginning of the year.
As news of Altheimer's troubles spread, the firm slashed jobs, including those of incoming summer associates and first-year lawyers. In a further sign of cash flow problems, most partners had to wait until May to receive all of their promised 2002 year-end bonuses.
The firm has sought merger partners for a few years, and the search intensified in recent months as the financial situation worsened. But firms were scared away by Altheimer's hefty debt that piled up from the European expansion and the opening of a San Francisco office last year, sources said.
"What you have here is a firm that overreached," said Joel Henning, senior vice president of legal consulting firm Hildebrandt International Inc., which has worked with Altheimer in the past. "They started to build a San Francisco office at a time when they couldn't afford it."
In the firm's offices Friday, lawyers were shocked and bitter. Myron Lieberman, a former co-chairman, sent out a firmwide e-mail expressing his sadness at the demise of the firm.
His missive also included a barb at the firm's executive committee: "Hopefully, I will find some way to replace all or part of my retirement benefit. . . . I am glad that [founders] Alan Altheimer and Milton Gray are not here to suffer through the sad event."
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