ABA Section of Business Law
July/August 2001 (Volume 10, Number 6)
Mr. M & A
A profile of Joseph Flom
By Garrett Ordower
Some people would argue that Joseph Flom was just in the right place at the right time. He does not deny this charge; in fact, he agrees that the merger and acquisition business emerged just as he was looking for legal work.
"I got involved [in M&A] because we were in a situation where that was the business that was available," Flom said in a telephone interview. "We didn't have a lot to do, and I got involved in it. I liked it and carried it on from there."
Though Flom's entrance into the mergers and acquisitions market may have been coincidental, his success was anything but.
Flom, 77, never received an undergraduate degree as his college career was cut short by his participation in World War II. He entered Harvard Law School after an invitation to apply was extended to those who had been unable to finish college because of the war. Yale and Columbia offered a similar program at the time, but Harvard was the only school that showed an interest in Flom and eventually accepted him.
In 1948, he graduated from Harvard Law School and went job hunting. He found what he was looking for at Skadden Arps & Slate, a firm that believed more in hiring based on merit than on old school ties. The three partners, who had started the firm just three months before Flom arrived on the scene, had left the Wall Street firm now known as Dewey, Ballantine, Bushby, Palmer & Wood. From the beginning, they had every intention of building Skadden into a large, full-service law firm.
Nevertheless, until Flom arrived, they were far from realizing that goal. In his first few years as an associate, he made more money than the firm's partners. That trend would continue with Flom perennially being known as the rainmaker of the firm as well as its M&A expert and hardest worker.
Flom first got involved in proxy fights when the field, although dating back to the late 19th century, was still largely undeveloped and few lawyers specialized in it.
"There was no conscious effort to get into it," Flom said. "We got into it by accident in the 50s and kept at it at a time when the field was pretty much a field to myself. We did a case, then we did another case and then we went from there."
Flom and the other members of his firm were largely concentrating on the "change of control" corporate transactions or proxy fights for their first 25 years. Then in 1974, something remarkable happened. International Nickel Corp. made a hostile tender offer with the help of Morgan Stanley to take over the Philadelphia battery maker, ESB Corp. Although the practice of hostile takeovers had been going on for some time, it was never done in legitimate business circles and certainly not by blue-chip companies.
After that first bid, the door swung open and M&A mania rocked blue-chip companies and financial institutions - as well as law firms - throughout the world. Flom certainly got a head start in the field, being one of only two lawyers specializing in M&A at the time, the other being Marty Lipton of Wachtell, Lipton, Rosen & Katz. From that point on, Lipton would seem to be the man always on the other side. Initially, Lipton was always on the defensive. He invented the poison pill, a legendary and widely used tool that helped companies ward off hostile takeover bids.
Flom took part in nearly every major takeover bid including 21 of 22 that took place in 1978. One of the more notable takeovers was the four-way bidding war that took place over Conoco Inc. Over the summer months of 1981 he defended Conoco against bids by Joseph E. Seagram & Sons Inc., E.I. Du Pont de Nemours and Co. (who eventually won the bid) and Cities Service, who was advised by Martin Lipton. Flom also took part, often opposite Lipton, in acquisitions involving TWA, Sandoz, RJR Nabisco and Revlon, among others.
Despite Skadden's success in the M&A field, the firm wanted to do more. It was not content having one area of specialization and decided instead to offer services in all areas. Lipton's firm took a different approach and remains a smaller M&A firm, albeit with far higher profits per partner.
"It was conscious planning; the first three or four years of the firm's existence, we didn't do very well," Flom said. "I was the only associate at a very small firm with few clients. After we started developing a specialty in this proxy corporate control area we had to decide to more or less stick with that, which was quite lucrative. We decided we wanted to be a full-service firm. And so we made the investment necessary to do that and have continued it ever since."
Flom and his partners certainly have built it into a very lucrative full-service firm. Skadden now boasts more than 1,200 lawyers and has revenues fast approaching $1 billion. It has offices in 27 different locations throughout the world. Skadden has never acquired large groups of lawyers either; the largest group it ever acquired was five lawyers in Chicago when it started its branch office there.
When looking to expand its services to areas besides M&A, Flom's ideas produced areas of specialty in which the firm could start "boutiques." The ideas were eventually hashed out and some of the ones that were adopted were: bankruptcy work on behalf of creditors, energy, traditional corporate finance work, real estate transaction, environmental regulation and litigation and products liability.
"Being large is not the test," Flom said. "Being able to provide the services your clients might need is. We wanted to be in a position to do that and became a large commercial firm, and after a while, it also had a geographic element to it."
One of the most famous stories about Flom is when he was first put on retainer. A client wanted to be sure that Flom could help him with his case. Flom responded by saying that if the man gave him $3,500 he could retain use of his services. Flom also told him that the retainer could be used toward that case but not any other services. The next day Flom realized he had made a mistake. He had asked for too little money and had not encouraged the client to make use of his firm's other services.
Throughout the 80s, stories circulated about Flom being put on retainer as a form of protection. The retainer or "protection money" would ensure that, while the company would not necessarily need to use Flom, he would also not be able to represent anyone in a takeover bid against them.
Flom denies that he was ever given "protection money."
"In order to control a number of people that were assaulting us, we wanted to be sure they were serious and we didn't want the retainer for doing nothing," Flom said. "We said to the client, 'we want to know you are going to use us to a certain extent, or it doesn't pay for us to get involved.'"
Flom would encourage companies to spend their unused retainer money on any and all of the firm's services.
He sees the charge of taking "protection money" as an assault against him because of his success. This shows how close the man still is to the person who chose to go to Skadden Arps because of its emphasis on a lawyer's merit instead of his connections. "If you're successful, people get jealous and they'll attribute anything to you," Flom said.
Flom was initially rejected from many of the top law firms in New York because he was Jewish. This has made him especially sensitive to the plight of minorities and the underprivileged. He has been active in fund raising for many political, religious and patriotic causes.
The Operation Welcome Home parade for veterans of the Gulf War might not have taken place had it not been for Flom, who was called by the mayor to help raise money for the cause. At the time the mayor asked, the cause was seriously lacking money.
More recently, he raised money for Bill Bradley. "I've known him for about 20 years," Flom said. "I've been involved in raising money for Democratic candidates as long as I can remember."
Flom also encouraged the Skadden fellowships program, which provides about 25 law school graduates with two-year fellowships to pursue public-interest projects. The program costs the firm about $2 million annually.
Perhaps the most interesting charity work that Flom has been involved in was his "adoption" of a class of about 80 Harlem schoolchildren. That involvement shows just how much of an impact he can have. He started seeing the children when they were in 6th grade and continued his affiliation through their high school graduations. Several of the students are now employed by Skadden Arps.
"Initially I think they were skeptical about being offered something for nothing," Flom said. "But when they realized I really didn't want anything from them other than themselves, they were OK. A lot of it is attributable to the fact that they had a great social worker working with them." Flom hired a social worker to help the kids with any sort of problem they might encounter.
The results of the adoption were startling. In the area where he adopted the students, the normal dropout rate was 60 percent. Flom sent that percentage of his children to college.
He is still active at Skadden. "I come in and try to do four days a week," Flom said. "But I am not very successful; I generally come in five. I'm here when people have policy issues and want some institutional memory, or just have some ideas they want to bounce off me. I've still got some clients, but I'm not doing the overnighters."
Flom has certainly done his share of those, logging between 3,500 and 4,000 hours the first few years of the proxy fights and takeover bids. He put in 52 hours in a three-day period a few years ago while working on the Compaq/DEC deal. He represented DEC.
For the most part, the torch has been passed. Flom has always been willing to share the spotlight, and it could not have been more apparent than with the RJR Nabisco deal in 1989. At that point the Nabisco deal was the largest M&A deal ever, and it was being handled by Skadden Arps. Flom did not actively participate in the deal, instead leaving it to four people that he trained.
Whether it is with the Harlem schoolchildren, his own lawyers or the hundreds of companies he has worked with over the years, Flom has certainly left his mark.
"This is the guy who is the father of mergers and acquisitions," said Barbara Mendel Mayden of Bass, Berry & Sims, P.L.C. in Nashville, Tenn. "He started Skadden Arps, which is probably the most powerful law firm in the world. He started all of these innovative procedures and practices. He has revolutionized the practice of mergers and acquisitions."
Flom may have been in the right place at the right time, but he was also the right man. A revolution like the one he caused in the M&A field does not happen by accident.
Ordower is a freelance writer in Evanston, Ill.
