And just like that, an institution that existed at the apex of corporate America for nearly a century is more or less finished. Weil, Gotshal & Manges, a firm of lawyers, has suffered what can only be described as a run on the bank.
The partner due to take the top job decided she wouldn’t bother. Because its firms never needed to raise capital, the legal professions’ collectivist impulses lasted far longer,. Because it is hard to say what Weil might have done differently, and what exactly marked it out for ruin, that is.
In 1999 Goldman Sachs, the archetypal Wall Street partnership, followed its rivals and went public.
In recent years the “lock step” compensation model, where individuals are paid on the basis of tenure rather than performance, has given way to one where the top lawyers can name their price, and come and go far more easily. It started last month when a top mergers lawyer left for Cravath, Swaine & Moore. Other competitors began lining up outside the General Motors Building in Manhattan, where Weil is based, trying to hire its lawyers. The committee of partners responsible for saving Weil, no doubt handicapped by efforts to save themselves, failed to stop the exodus. Merger talks collapsed. Weil, which is best known for advising on the bankruptcies of Enron and Lehman Brothers, has now hired bankruptcy lawyers itself and is preparing to wind down. The balance-sheet of a law firm is a simple combination of office chairs and brains. When the brains start to leave, the end cannot be far away. Bankers abandoned it first. Its bosses are still called partners, but are nothing of the sort. Smaller merger-advisory houses, which sought to recreate the old partnerships, have mostly listed their shares so their founders can cash out. Yet the market came for them eventually, too. A governance model resembling a stuffy but staid co-operative has been replaced with one of the businesslike but impersonal condominium. Weil is the first great law firm to suffer the death of elite collectivism. It is unlikely to be the last. The result is disorienting: an industry of hundred-year-old stalwarts, any one of which could at any time suffer a debilitating run if the wrong lawyer defects. The partnership structure, once an instrument of stability, is now a liability. Paying an individual anything other than the fees he commands from clients is not an incentive to collegiality, but an invitation to leave. The names on the door are not an indication of shared values, but the dignified parts of an increasingly efficient corporate constitution. Loyalty counts for little; history, nothing at all. Any firm that derives most of its value from superstar human capital should respond to Weil’s demise with superstar anxiety. How might order be reimposed? There are legal mechanisms. Finance imposes non-compete agreements, sometimes stretching out years, to make it harder for its staff to leave (these have never been used by law firms). There are illegal mechanisms, too. Leave the mafia and it might relieve you of your fingers. But the most durable ties are cultural. On Wall Street that might once have been supplied by the division between Jewish and Protestant firms.
Such elite collectivism barely exists today. What would similar connections look like today?
Weil is, by any measure, an extremely successful business: its partners earn, on average, almost $6m a year. Law firms have collapsed before. Fear of being the last partner in a broke partnership means weak ones can disintegrate suddenly, as John Morley of Yale has written. Yet never has a name as famous fallen on such hard times so quickly. The ability of its lawyers to extract enormous fees from their clients is not the problem. Rather, it is the newfound ability of superstar lawyers to extract enormous pay from their own firms, and the damage they do to them when they up and leave. Such professional fleet-footedness was unthinkable a decade ago—and marks the passing of something far more important than any law firm. In the 20th century mass layoffs severed the bonds of goodwill between ordinary workers and corporations. Yet the reward for winning the contest that is Western capitalism was still a career in an institution that resembled a medieval guild. Partnership at an investment bank, consultancy or a law firm was the best-paid option. Success in the marketplace liberated the individual from market forces, providing a secure perch in his professional life, and also in his social life, with admission to clubs, boards and perhaps an apartment in a co-operative building near Central Park.
