Company History:
Baker & McKenzie
Founded: 1949
NAIC:54111 Offices of Lawyers
SIC: 8111 Legal Services
Baker & McKenzie with over 3,000 lawyers ranks as the world's second largest law firm, behind London's Clifford Chance. Its rapid growth from a small partnership started in 1949 is quite remarkable. Baker & McKenzie's practice covers every major field of domestic and international law. Like most large law firms, it plays a major role in globalization, privatization, and other world economic trends. However, Baker & McKenzie is much different from the other so-called "megafirms." It has by far the largest number of offices: 61 in the United States, Canada, Mexico, Central and South America, Europe, Asia, Australia, and the Middle East, and also the largest percentage of lawyers based overseas. The firm stresses the importance of understanding the culture and customs of the areas in which it operates as well the laws. Thus Baker & McKenzie tends to staff its overseas offices with local lawyers, rather than sending U.S. lawyers abroad. In addition, about 75 percent of the revenue generated by a foreign office remains in that country, a much higher share than most firms allow. Because of these practices, many competitors have criticized Baker & McKenzie as a kind of franchise operation akin to a fast-food chain. The firm's strategy has its pros and cons, but no one can argue with the record of success that it has yielded.
Although Baker & McKenzie was created in 1949, its roots can be traced to founder Russell Baker's initial law practice, established shortly after his 1925 graduation from the University of Chicago Law School. Baker, who had traveled to Chicago from his native New Mexico by hopping freight trains, began his legal career while still in law school. Working for the Chicago Motor Club, Baker was allowed to try minor traffic cases for Club members before a justice of the peace. After graduation, Baker set up a practice with Dana Simpson, a friend and University of Chicago classmate. The firm, Simpson & Baker, specialized in providing services for Chicago's growing Mexican-American community.
Baker's early experience working with Mexican lawyers sparked his interest in international law. Recognizing Chicago's important and expanding role in international trade, Baker conceived the idea of establishing a law firm that would be truly international in scope. After handling the worldwide legal matters for Abbott Laboratories in 1934, Baker built a reputation as an expert in international law. By that time, Simpson had left the practice, and Baker was a partner in Hubbard, Baker & Rice. He was still engaged by Abbott to handle contract negotiations, acquisitions, and patent and trademark litigation, and had the opportunity to travel throughout Latin America and Europe. His notion of creating an international law firm became progressively more concrete.
Since his current partners were not as interested in developing an international practice, Baker began to search for a new partnership. In 1949, he teamed up with John McKenzie, a trial lawyer he had met in a taxi a few years earlier, to form Baker & McKenzie. The firm also included Dwight Hightower and Andrew Brainerd. Since McKenzie had already established a reputation as a skilled litigator, Baker was free to travel in search of international contacts while McKenzie handled the firm's domestic matters.
Baker & McKenzie's list of clients grew impressively in the early 1950s. The list included such major companies as Eli Lilly, G.D. Searle, Wrigley, and Honeywell. As the firm's domestic client list grew so did its international list. In 1955, a Venezuelan lawyer contacted Baker to explore the possibility of setting up a joint venture to handle U.S. business interests in Caracas, prompting the establishment of Baker & McKenzie's first foreign office. By the end of the 1950s, the firm had established six other foreign offices, and its staff of lawyers had grown from four to 30. In 1957, offices were opened in Washington, Brussels, and Amsterdam. Zurich, New York, and Sao Paulo were added over the next two years. International expansion continued throughout the 1960s.
During this period of incredibly rapid international development, the firm hired lawyers trained locally to man the new offices. Once recruited, a lawyer usually spent time working out of the firm's home base in Chicago, learning the finer points of its operations, before being reassigned to the company office in his or her native country. Lawyers working out of these foreign offices were treated as equal partners in the firm, not as affiliates or minor leaguers. They had as much say in firm decisions as their U.S. counterparts, and as much opportunity to share in the firm's profits. Because the lawyers were trained where they worked, the foreign offices were capable of taking on work from local clients as well as from international concerns.
Baker & McKenzie tried to make timely moves into areas where the flow of new business activity was about to create a greater need for available legal services. Thus much of Baker & McKenzie's expansion during the 1970s focused on the Far East. A Hong Kong office was established in 1974, and among others, offices were opened in Bangkok and Taipei three years later. By 1978 Baker & McKenzie had 26 offices in 20 countries.
In nearly every case, Baker & McKenzie would launch its foreign offices from scratch, sending attorneys abroad to open an outpost, or recruiting local lawyers and bringing them to Chicago for a few years of orientation before returning them home to set up shop. The office that opened in 1979 in Bogota, Colombia, was a rare exception, since it was created through a merger with an 11-lawyer Bogota firm already in existence.
Founder Russell Baker died on the last day of the firm's annual partnership meeting in 1979. Under Chairman Wulf Doser, from the company's Frankfurt office, Baker & McKenzie entered a consolidation phase. During this period, in which the Tokyo office was reorganized and the young Minneapolis office was closed, the firm's approach became more businesslike, something of a contrast from Baker's "lawyer's manage thyselves" philosophy.
Doser was succeeded as chairman in 1981 by Thomas Bridgman, a litigator from the firm's Chicago home base. When Bridgman's three-year term expired in 1983, Robert Cox was elected to a five-year term as chairman, and the role of that position in the firm was expanded. Unlike his immediate predecessors, Cox gave up his regular law practice to concentrate on managing the firm full time. By 1985, Baker & McKenzie's lawyer count was at 752 and growing. The firm was operating 30 offices in 22 countries. Its annual revenue was in excess of $125 million, second highest among law firms to Skadden, Arps.
The second half of the 1980s was an extremely prolific period in Baker & McKenzie's spread across the globe. Not only did it open offices along the U.S.-Mexican border in 1986 to take advantage of the industrial boom there, it also was one of the first U.S. law firms to anticipate the opening of Eastern European markets, establishing offices in Budapest (1987), Moscow (1989), and Berlin (1990). Like many other law firms, Baker & McKenzie also launched a full-scale assault on California during the late 1980s, expecting a huge rush of investment there by companies from Japan and elsewhere in Asia. The firm opened offices in Palo Alto, Los Angeles, and San Diego. This California expansion included the assimilation of MacDonald, Halsted, and Laybourne, a 68-partner firm with offices in Los Angeles and San Diego. Western Europe was not ignored either, and an office was established in Barcelona in 1988. In 1989 Baker & McKenzie entered into associations with law firms in Seoul, Korea, and Jakarta, Indonesia.
The firm's revenue and lawyer rolls were growing as quickly as its geographical range. Between 1987 and 1990, annual revenue more than doubled, from $196 million to $404 million. Baker & McKenzie cracked the 1,000-lawyer mark in 1988 (1,179), and it took only two more years to pass 1,500. By 1990, the company was operating a total of 49 offices on six continents. In addition to the company growth, prestige came to the Baker & McKenzie name as well, when David Ruder, the recently retired chairman of the Securities and Exchange Commission, joined the firm's domestic corporate and securities practice.
Three major controversies, however, brought unwanted publicity to Baker & McKenzie. In 1991, Ingrid Beall, who had become the firm's first woman partner in 1961, filed a discrimination suit against the firm. The suit revolved around Ms. Beall's claim that she was systematically deprived of the opportunity to advance within the firm on the basis of her age and gender. In a second well-publicized episode, the firm dropped the Church of Scientology as a client, turning its back on $2 million of revenue in the process. Some observers hinted that the move may have resulted from pressure applied to the firm by Eli Lilly, one of its oldest and best customers. The Church of Scientology had been a vocal critic of the antidepressant drug Prozac, which was manufactured by Lilly. Finally, at the end of 1993, Baker & McKenzie was ordered by the New York State Division of Human Rights to pay $500,000 in compensatory damages and back wages to the estate of Geoffrey Bowers. In one of the earliest AIDS discrimination cases in the United States, Bowers had argued that his firing by the company in 1986 was due to his illness rather than his performance, as was claimed by the firm. The decision was contested by Baker & McKenzie.
Many of the firm's foreign offices were generating a substantial share of their own business by 1992. At the company's Latin American outposts, as much as 35 percent of the client base was not U.S.-based. The Paris office's clientele was 40 percent French, and a significant portion of the remainder was Japanese or German, as well as American. For 1992, Baker & McKenzie reported revenue of $503.5 million, moving the firm past Skadden, Arps into first place among law firms. The company's foreign offices accounted for 60 percent of that revenue, a figure far higher than that of most other top international firms.
As the 1990s continued, competition among international law firms intensified. Additional competition came from large accounting firms, such as Arthur Andersen, that diversified into legal services by forging alliances with established law firms in foreign countries. Baker & McKenzie prepared for the increased competition under the guidance of the chairman of the executive committee John McGuigan, an Australian, who joined Baker & McKenzie in 1973 and had served most recently as managing partner at the firm's Hong Kong office. In 1993, new offices were established in Prague and Beijing, reflecting the firm's ongoing emphasis on Asia and Eastern Europe.
For much of its history, Baker & McKenzie was derided by its competitors for its approach to global expansion. Critics argued that the firm was a loose alliance of local satellites rather than a unified international entity. By employing lawyers in their native regions, however, Baker & McKenzie succeeded in developing relationships with major companies in those areas more quickly than might otherwise have been possible. Moreover, many of the firm's critics reluctantly admitted that what they called "McLaw" had positioned itself remarkably well in the growing markets of Asia and Eastern Europe.
Baker & McKenzie continued to grow in the 1990s as the U.S. economy boomed, international trade increased from the North American Free Trade Agreement (NAFTA), and privatization of government entities occurred in many nations. The American Lawyer in July/August 1998 ranked Baker & McKenzie as the second largest U.S. law firm, based on its 1997 gross revenues of $696.5 million. It still had the most lawyers with 2,094, but Skadden, Arps with 1,074 lawyers had far more revenue ($826 million).
In November 1998 the American Lawyer in cooperation with London's Legal Times published its first survey of the world's largest law firms. Baker & McKenzie had the most lawyers (2,300), 80 percent being based outside the United States. Thirty of the top 50 firms had less than 10 percent of their lawyers outside their home country, which was good evidence of the unusual way that Baker & McKenzie was structured. Based on revenue, Baker & McKenzie was ranked second, again outpaced by Skadden, Arps.
Although Baker & McKenzie claimed to have balanced local autonomy of its many offices with the centralized authority of the Chicago headquarters, some outsiders were skeptical. Debora Spar in the spring 1997 California Management Review concluded that "the firm appears to suffer a serious lack of consistency, one that keeps Baker & McKenzie, despite its enviable global reach, from being considered among the top tier of international firms.
In the 1990s law firms grew via mergers and internal growth. This consolidation reflected the fact that many of their corporate clients were consolidating into even larger multinational firms. The growth of the megalaw firms was reflected in the intense competition for the top lawyers graduating from law school. Salaries for new associates who just graduated reached well over $150,000. These high salaries also resulted from the opportunities for lawyers to make huge incomes working for computer and Internet-based companies.
In 1999 Christine Lagarde became the first woman to lead Baker & McKenzie and one of the first women, for that matter, to lead any major U.S. law firm. The election of Chairman Lagarde, a resident of Paris, illustrated Baker & McKenzie's international orientation and its openness to diversity.
At the end of its fiscal year ending June 30, 2000, Baker & McKenzie reported global revenue of $940 million, a 15 percent increase over 1999. The firm's revenue came from the following areas: Europe and the Middle East (33 percent); Asia and Pacific (27 percent); and North America and Latin America (40 percent). That distribution illustrated the nature of the firm's international operation.
According to its web site, Baker & McKenzie represented major corporate clients and was involved in many aspects of the world's economy. For example, in 2000 it represented Alcoa Inc. in its acquisition of British Aluminum. On December 21, 2000, Privatisation International named the firm the Privatisation Legal Team of the Year. It served clients such as Allianz Capital Partners GmbH, Canada 3000 Inc., Spherion Corporation, and a subsidiary of Authentos GmbH in a variety of transactions. In March 2001 the firm announced it was to be the exclusive legal sponsor of MainEvent 2001, the world's largest global satellite telecast for businessmen and women.
In the new millennium Baker & McKenzie continued to grow. In early 2001 it acquired the Spanish law firm of Briones Alonso y Martin. Thus the firm's offices in Madrid and Barcelona went by the name Baker & McKenzie Briones Alonso y Martin. The Chicago firm favored the Briones firm's strong reputation in taxation, for 25 of the 40 lawyers joining Baker & McKenzie were tax lawyers. That was particularly important for the firm's work in Latin America, where Spain was one of the largest outside sources of foreign investment. Baker & McKenzie was Mexico's largest law firm, with 120 lawyers practicing in five offices in 2000.
At the start of the new millennium, Baker & McKenzie faced tough competition from other large law firms, such as London's Clifford Chance, which merged in 2000 with two other law firms to become the world's largest firm based on the number of its lawyers. Some large firms competed very effectively with far fewer lawyers or offices. With such rivals and the world's rapidly changing social and economic systems, Baker & McKenzie has plenty of challenges to deal with in the years ahead.
Principal Competitors
Clifford Chance LLP; Sidley Austin Brown & Wood; Jones, Day, Reavis & Pogue; Skadden, Arps, Slate, Meagher & Flom.
Further Reading
Abramowitz, Michael, "One Woman v. Her Law Firm," Washington Post, October 14, 1991, p. D1.
Baker & McKenzie, Chicago: Baker & McKenzie, 1988.
Baker, Russell, History of Baker & McKenzie, Chicago: Baker & McKenzie, 1978.
Baker, Wallace R., What Is Baker & McKenzie?, Chicago: Baker & McKenzie, 1991.
Bauman, Jon R., Pioneering a Global Vision: The Story of Baker & McKenzie, Chicago: Harcourt Brace Legal & Professional Publishers, 1999.
"Cover Profile: Baker & McKenzie's John McGuigan," Asia Today, February 1994, pp. 5-6.
Elstrom, Peter J.W., "Law Firm Gets a Plum As Ruder Joins Practice," Crain's Chicago Business, February 26, 1990, p. 47.
Feder, Barnaby J., "The Unorthodox Behemoth of Law Firms," New York Times, March 14, 1993, sec. 3, p. 1.
"Firm Drops L.A. Office," Wall Street Journal, October 18, 1993, p. B8.
Gill, Donna, "Baker's Unique Niche," Chicago Lawyer, January 1992, p. 1.
Goldberg, Stephanie, "Law Firm Blankets Globe," Crain's Chicago Business, October 26, 1992, p. 17.
"Lawyers Go Global: The Battle of the Atlantic," Economist, February 26, 2000, pp. 79-81.
Lyons, James, "Baker & McKenzie: The Belittled Giant," American Lawyer, October 1985, pp. 115-22.
"McLaw Acquitted," Economist, July 3, 1993, pp. 61-2.
Navarro, Mireya, "Vindicating a Lawyer with AIDS, Years Too Late," New York Times, January 21, 1994, p. B18.
"On the Way to Becoming the Dominant Provider of Legal Services," Frankfurter Allgemeine Zeitung, October 15, 1993.
Petersen, Melody, "Baker & McKenzie Takes a Small Step for a Law Firm, Giant Leap for Womankind," New York Times, October 9, 1999, p. 1.
Rice, Robert, "Going Global," Financial Times, May 18, 1993.
"Spanish Merger Packs Heavy Tax Clout," International Tax Review, February 2001, p. 10.
Spar, Debora L., "Lawyers Abroad: The Internationalization of Legal Practice," California Management Review, Spring 1997, pp. 8-28.
Stevens, Mark, Power of Attorney: The Rise of the Giant Law Firms, New York: McGraw-Hill, 1986.
White, Jeremy, and Jo Witt, "The World's Fastest Growers Revealed," International Tax Review, 2000, pp. 12-16.
— Robert R. Jacobson; Update: David M. Walden
