Recession Highs: How Some Firms Are Ahead in 2020

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The pandemic and current recession are further dividing the legal industry, as some large firms have struggled to meet their budget this year while others are doing better than last year.

The New York market, in particular, is a microcosm of the broader industry. While layoffs have been reported at some New York firms, other elite firms are even ahead of last year, including Milbank; Weil, Gotshal & Manges; and Paul, Weiss, Rifkind, Wharton & Garrison.

Weil Gotshal’s billable hours are ahead of budget, Paul Weiss’ metrics are up by double digits, while Milbank’s billable hours are ahead from where they were at this point last year, according to the firms’ leaders.

Their performances illuminate how a certain practice mix—in particular strong restructuring and finance groups—are fruitful in good times and bad, and underline the importance of shoring up countercyclical practices before a recession hits. The high performances in 2020 also highlight the recession’s uneven effects in the Am Law 200.

“Roughly a third of firms in the Am Law 200 are performing as they hoped they would,” meaning they are on budget or doing better, said law firm management consultant Kent Zimmermann, basing this estimate off of anecdotal discussions with firm leaders and some publicly available data. “That would lead most of the rest of the market starting to come to conclusion they’re going to have a disappointing year.”

Weil Gotshal, now counsel to a string of retailers and others in Chapter 11, was well known for its repeat business in bankruptcy court well before 2020. “Weil Gotshal created the bankruptcy practice,” said executive partner Barry Wolf in an interview, with Harvey Miller credited as bringing bankruptcy law to the large law firm environment as a major practice group.

Right now, Weil and Kirkland & Elllis dominate debtor-side representation matters, while other firms have key representations on creditor side matters, which often doesn’t throw off as much work to corporate and litigation departments.

While Weil’s restructuring group is well known, its corporate department is the largest, based on head count, followed by litigation and then restructuring. In the United States, the firm has about 90 restructuring lawyers—less than 10% of the firm’s 1,100-lawyer head count—but still far larger than other firms’ restructuring practices.

Wolf said all three departments—corporate, litigation and restructuring—have been doing well this year. “We’re probably steadier in our results than some of our peers that might be weighted to a particular economy,” he said.

Having a strong geographic balance is also important, Wolf said, noting the firm’s Germany and Paris offices are fully open with lawyers in the office.

“We don’t plan for pandemic, but we do plan for recession, and we make sure we are well suited when a recession happens to make sure our results will continue to be strong, and knock on wood, that’s exactly what’s happening this year,” Wolf said.

In particular, before 2020, the firm put in place the next generation of practice leaders, when they were in their early 40s, Wolf said. Currently, the firm’s department heads in litigation, restructuring and M&A are in their 40s and 50s.

Pre-Recession Hiring

At Paul Weiss, the firm in 2017 added Kirkland partner Paul Basta as co-chairman of its bankruptcy and corporate reorganization department. The firm continued to recruit top talent, most recently hiring star litigators from Boies Schiller Flexner this year.

Chairman Brad Karp said the firm’s goal since 2008, when the financial crisis began, has been to ensure that the firm would be positioned to thrive during both robust and challenging market times.

“That meant investing heavily in countercyclical practice areas, like restructuring and financing, strategically diversifying our practice offerings, our client mix, and our partnership, building out ESG [environmental, social and governance] capabilities and expertise, and strengthening our firm culture and values,” Karp said in a statement, to build a firm meeting client and community needs.

“We added star power, redoubled our commitment to diversity and inclusion, instilled a firmwide devotion to client service, and reinforced and deepened our historical legacy of community engagement and fighting for social justice,” he added.

Karp said the firm’s strategy has been put to the test in 2020, just as it was during the financial crisis. “We are fortunate that all of our practice areas are operating right now at record levels and our firm is poised to have its strongest year in history,” he said.

“While all of our metrics are up double digits,” Karp said, “what I’m most proud of is the fact that our pro bono hours are up nearly 100% over last year’s record level. We’re performing like gangbusters commercially at the same time that we’re fighting every day for social and racial justice.”

At Milbank, the firm’s restructuring practice in debtor and creditor engagements as well as its finance and capital markets practices are staying busy, chairman Scott Edelman said in an interview. “So far, business is good.”

The firm is busier than it was last year, with the number of billable hours in 2020 higher than this point last year. Its fee collections are up over last year.  

Edelman credited the flexibility of the firm’s lawyers who can work on a number of matters. “When the world changed and new deals turned into restructuring and rescue financings and emergency capital markets offerings, our lawyers were able to just pivot,” Edelman said. “We’re not a firm where people can only do a certain type of deal.”

“Everybody is doing better than they expected,” he said, adding that was one reason the firm decided to go forward with October start dates for first-year associates. “I’m optimistic about the remainder of the year.”

Two years ago, when the economy was thriving, Milbank hired a four-partner restructuring team in London from Cadwalader, Wickersham & Taft, led by star Yushan Ng. The move was an investment in good times, Edelman said, serving as a hedge when the market gets more difficult. Generally, the firm is stronger today than it was in the last financial crisis, Edelman said.

‘More Resilience’

Many firms hired restructuring partners before the recession, leading to sizeable restructuring departments. But whether a firm is making budget this year is likely a combination of multiple factors, such as its prominence in countercyclical areas and sectors in high demand, such as life sciences and health care; the ability to draw in clients for sophisticated work that is less rate-sensitive; and whether a firm already had a high profitably before the recession.

The widening performance gap in Big Law over the years is well known, but the recession has accelerated that occurrence, confirmed Zimmermann, a consultant at Zeughauser Group. As a result, competition for top laterals is becoming more fierce, and underperforming firms are paying top dollar to try to retain their talent.

“A number of recent departures of groups of lawyers from firms—including a series of moves just announced over the past few weeks—evidences an environment where many undersize firms, relative to their competitors for their talent, are losing teams and people in leadership positions,” he said, adding those teams are often going to larger, high-performing firms that are perceived as having “more resilience” in the current economy.

While the legal industry as a whole saw strong demand revenue growth in the first quarter, that quickly changed, noted Gretta Rusanow, head of advisory services within Citi Private Bank’s Law Firm Group.

When Citi last asked its sample of large law firms for their second-quarter projections, more than 80% expected a drop in demand compared with the second quarter in 2019. Meanwhile, more than half the firms expected to see a drop in second-quarter revenue, Rusanow said, noting more second-quarter data will come later this month.

Bankruptcy and financial restructuring practices are staying busy, she said, as well as finance and capital markets practices. “On the other hand, M&A and real estate have seen weaker performance. We’ve heard mixed views in litigation, although we’re starting to hear more positive news,” especially in products liability and mass tort, securities and white-collar, and IP litigation, Rusanow added.

Janelle B. Smith

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