Here’s an interesting irony: some of the Biglaw firms that spend the least amount of time thinking about money are the ones that enjoy the most of it. A number of super-elite New York law firms have lockstep compensation systems, in which partners are paid purely based on seniority, and these firms are among the most profitable in the country. These firms focus on doing great work for their clients, not on divvying up the spoils from such work — and, in the end, there’s more than enough filthy lucre to keep everyone smelling like money.
On an individual level, some of the wealthiest lawyers in Biglaw — the ones who make partner, and remain partner, for years and years — don’t fixate much on money either. They focus instead on their work, which they seem to just love (often more than any hobbies, and sometimes more than their families). As for the money, well, it just comes — in copious quantities.
Let’s take a closer look at these phenomena….
They’re the focus of two excellent New York Times articles that recently appeared in a special legally themed section in DealBook (which we’ve mentioned before). The first piece, by Peter Lattman, begins by discussing the elaborate process by which Cravath vets the (very rare) lateral partner. Before the firm hired Christine Varney, a leading litigatrix and former assistant attorney general for antitrust, the entire partnership interviewed her, over the course of two days.
Most firms would have snapped up such a queen of antitrust without a second thought; for Cravath, though, it was important that she be a good fit with the firm. As Evan Chesler, the outgoing presiding partner, told the Times, “The big question was not whether she was a good lawyer, but whether she was a Cravath partner.”
In the end, she made the cut:
A few weeks later, the Cravath lawyers assembled and unanimously voted her into the partnership. She received no signing bonus, no guarantee, no special deal. Instead, Cravath is paying her according to the firm’s seniority-based, lock-step system, which sets the spread between the highest- and lowest-paid partners firmly at 3 to 1.
“We’re not going to buy a lawyer with a big guarantee,” Mr. Chesler said. “That’s not how we do things. That’s not the Cravath way.”
Yes, you can hear the disdain in Chesler’s statement. But given the success of the Cravath model — and the challenges faced by models that involve buying talent through big guarantees (cough cough, Dewey) — can you blame him?
Cravath, along with Debevoise & Plimpton and Cleary Gottlieb Steen & Hamilton, are three remaining law firms that adhere to a strict lock-step compensation system, paying their partners in a narrow range according to seniority.
There are no stars or empire builders at these firms. No one gets paid extra for bringing in clients, so there aren’t disputes over who gets credit for new business. There is complete transparency: All the partners know, to the penny, what every other partner makes. (A few other prestigious firms, including Davis Polk & Wardwell and Wachtell Lipton Rosen & Katz, pay partners in a tight band and maintain similar cultures.)
(Wachtell, by the way, is pretty much lockstep as well. There are a handful of partners who are not on the lockstep — e.g., Herb Wachtell, Marty Lipton, Ed Herlihy — but the vast majority of partners are paid strictly based on seniority.)
What are the advantages of the lockstep system? The Times explains:
A shared sense of purpose is something you hear repeatedly when discussing the cultures of Cravath, Cleary and Debevoise. Listen to Michael W. Blair, the presiding partner at Debevoise, and one could think he presides over a utopian socialist community. He throws around phrases like “one for all and all for one” and “we’re the one-firm firm.” He highlights Debevoise’s genteel culture — its teamwork, camaraderie and decency.
The lock-step system, he said, reinforces that culture. The idea is to attract and motivate partners with a shared set of values who want to dedicate their life to the firm, and not just look for the next big thing themselves.
“The only way a partner does better is if the firm does better,” Mr. Blair said. “Individual success doesn’t mean very much here; we’re all incented for collective success.”
So far the incentives seem to be working. The proof of the pudding is in the eating:
[Cravath] ranks as the fifth most profitable in the country, according to The American Lawyer magazine, with profits per partner of $3.1 million. Cleary’s profits per partner are $2.7 million and Debevoise’s are $2.1 million, the magazine says.
The firms’ strong performances and blue-chip clients are, of course, a major reason they can maintain the lock-step system.
Therein lies the rub. When your profits per partner are that high, it’s much easier to be lockstep; there’s more than enough money to go around.
There are other ingredients for a successful lockstep system. It helps to have very high hiring standards, so you can rely largely on “homegrown” talent, without having to bring in many laterals. It helps to have lots of longstanding institutional clients, so you don’t have to worry as much about business generation. It helps to have all or most of your lawyers in one or a few locations, so you have a cohesive firm culture and partners who all know one another.
Here’s the interesting counterpoint to all of this, also in the Times article:
[I]t is rare for partners at Cravath, Debevoise or Cleary to leave for competitors. But in 2005, Ralph C. Ferrara of Debevoise turned heads by moving to another firm. Mr. Ferrara, a securities litigator who brought in big, lucrative cases, frequently complained about the lock-step system. He bristled that some partners earned as much as he did yet had no clients of their own. He also was frustrated that he couldn’t expand his business by hiring partners from other firms.
Realizing he would not change the ways of such a hidebound institution, Mr. Ferrara left Debevoise after 23 years to join LeBoeuf Lamb. After Dewey and LeBoeuf merged, he became one of Dewey’s highest-paid partners, earning about $6 million annually. Mr. Ferrara recently agreed to return about $3.4 million of his compensation to help pay Dewey’s creditors.
“As things have turned out, leaving Debevoise ended up being an imprudent decision,” said Mr. Ferrara, who now works at Proskauer Rose. “In my heart, I never left Debevoise; it is a place that I still love to this day.”
It’s a bit surprising to see Ferrara express regret over leaving Debevoise all those years ago. Is he still experiencing PTSD from the Dewey debacle? Or regret that he’ll be tainted with Dewey dirt, as opposed to Debevoise’s glittering prestige, for the rest of his career?
From a purely monetary perspective, leaving Debevoise was probably a shrewd move. As noted by Steven Harper, “given the amounts [Ferrara] reportedly made at Dewey, his move in 2005 was probably advantageous financially.” (As you can see from our handy-dandy Dewey partner comp spreadsheet, Ferrara made more than $12 million in his last two years at Dewey.)
The Times article — which you can and should read in full — paints a shiny happy picture of life at Cravath. Here is how the piece ends:
“When you take individual financial incentives off the table and focus on clients and collaborate,” Ms. Varney said, “the practice of law can be a rewarding profession first and a successful business second.”
I have no doubt that Cravath is one of the best firms at which to be a partner. But what about life for associates? Former Kirkland partner Steven Harper points out this interesting caveat, in his post entitled Happiness Is… Cravath?:
Before getting too misty-eyed over life at Cravath, it’s worth pausing on one more data point. In the most recent Am Law Survey of Midlevel Associate Satisfaction, Cravath placed 119 out of 129 firms — down from 111 in 2011. The firm has been dropping steadily on that list since 2010, when it placed 84th out of 137. (Both Cleary Gottlieb and Debevoise did much better.)
Interestingly enough, the ATL Career Center profiles for these firms paint a somewhat brighter picture. Cravath earns a perfectly respectable grade of B, as does Cleary; Debevoise scores a B+. (You can see all the firms and their grades here.)
Now that we’ve surveyed the landscape from a firm perspective, let’s drill down a bit and learn about the lawyers. Specifically, which types of people make partner at a place like Cravath?