Weil Gotshal: A ‘Lehman moment’ for Big Law?

The swift downfall of “one of Wall Street’s most vaunted law firms” last week has put the legal industry on edge, said Erin Mulvaney and Andrew Scurria in The Wall Street Journal. Weil, Gotshal & Manges—a fixture among corporate dealmakers for nearly a century—was “one of the 20 most profitable in the business,” raking in $2.1 billion in revenue last year with “relatively few liabilities,” apart from a lease on a roughly 380,000-square-foot office on Fifth Avenue in New York City. What it didn’t have was loyalty. The firm has “hemorrhaged top lawyers” in recent months after rivals poached top partners, including private-equity attorney Ramona Nee, who was chosen to lead the firm in 2027. In September, Weil’s “top dealmaker,” Michael Aiello, left too, and “confidence in Weil’s future cratered” in a matter of weeks. “A law firm’s most valuable asset is its people,” said bankruptcy attorney Albert Togut. “If they go home one night and don’t come back the next day, it’s over.”

This is the “logical consequence of an industry engaging in a Darwinian war for talent,” said Chris Bryant in Bloomberg. Some legal superstars today are making up to $40 million a year, an impossible figure for most small or even midsize firms to match. “Big Law has moved away from paying counsel according to seniority”—which incentivized allegiance—“and has oriented more toward an individual’s results.” It’s created an “eat-what-you-kill” attitude that has made the entire legal industry unstable. Rivals “shouldn’t kid themselves” if they think “the same couldn’t happen to them.”

It also didn’t help that Weil “botched” its succession plan, said Diane Brady in Fortune. The choice of Nee was made unconventionally, without much partner input, and “there was no plan B” when she announced in September that she “no longer planned to take the role.” That’s one of the “lessons” that other CEOs should heed from this “sad narrative.”

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The legal industry looks strong today on the surface, said Sara Randazzo in Reuters, but it is “astonishingly fragile.” Unlike corporate executives, partners aren’t “sitting on stock options that give them a powerful financial incentive to stay.” Even a slight “loss of confidence in a firm’s direction can be enough to set off a rush for the exits.”

The partnership structure, “once an instrument of stability, is now a liability” when your talent prefers to think of themselves as “the world’s best-paid gig workers,” said The Economist. How can order be restored? Noncompete agreements have “never been used by law firms” in the U.S., but they are customary in the U.K. and on Wall Street. “The legal industry’s Lehman moment” might require a drastic change to how law firms do business.