View / Big Law faces its reckoning - Semafor
The swift unraveling of one of the world’s most prestigious law firms has rattled corporate law firms wondering if it could happen to them. Many of them should be scared.
Weil Gotshal, a restructuring guru that advised Lehman Brothers, General Motors, and other big companies on the edge of collapse, is now weighing its own liquidation, the Financial Times reported and Semafor can confirm. Its quick tumble from the white-shoe ranks to life support is a consequence of a dramatic shift in the business of Big Law over the past decade: the rise of the hired gun.
Law firms went from genial partnerships, where lawyers were paid based on time served rather than how much business they brought in, to eat-what-you-kill shops dangling eye-popping pay packages to poach rival talent. These contracts, typically guaranteed for two or three years, turned loyal firm stewards, waiting their turn for top dollar, into free agents ready to jump.
The departure of Weil’s M&A chief, Michael Aiello, along with a team of partners, to Cravath last month punched a hole in the firm’s billings and rattled those left behind. Six private-equity partners swiftly followed, to Simpson Thacher. Nearly two dozen partners have jumped ship since mid-September, and Weil’s would-be managing partner appears headed for the exit, too.
There’s no putting the genie back in the bottle. But law firms could change how and when they dole out top dollar to top partners. Deferred pay packages work in corporate settings because they incentivize executives to stick around to collect. Instead of three-year guarantees, make it five or ten, and the game of musical chairs would, if not stop, at least slow down enough to avoid talent runs that produce another Weil.
Law firms might look to their Wall Street cousins, investment banks, which were once partnerships but started corporatizing in the 1980s. Goldman Sachs and Morgan Stanley encountered their share of growing pains but are now behemoths that generally hold onto their top performers. (When stars leave, they do so for private equity, not a crosstown rival.) Their choices may be instructive.
