A Peek Inside Paul, Weiss: 10 Secrets To Biglaw Success

Last week, I took a break from chronicling Biglaw pay raises to attend the second annual Big Law Business Summit. Like last year’s conference, the 2016 Summit was an excellent event, in terms of both the content of sessions and the networking.

A highlight: hearing from Brad Karp, who has served since 2008 as chair of Paul, Weiss. He delivered a keynote address and then sat for an interview with Matthew Winkler, editor-in-chief emeritus of Bloomberg News.

Karp opened with a few fast facts about the firm:

• It has an all-equity, single-tier partnership (one of just 18 firms in the Am Law 100 with this structure).
• More than 85 percent of the firm’s partners are homegrown (including Karp himself, who started his PW career as a summer associate).
• It has approximately 140 partners and 800 other lawyers (counsel, associates, and staff attorneys).
• It is headquartered in New York, with other offices in Beijing, Hong Kong, London, Tokyo, Toronto, Washington, and Wilmington.
• In 2015, the firm had total revenue of $1.1 billion, operating income of $533 million, and profits per partner a shade over $4 million.
• The firm’s partner compensation model is modified lockstep, with more than 90 percent of the partners on the lockstep, and a 4:1 ratio between the highest- and lowest-paid partners (aka the partner pay spread).
• A bonus pool amounting to approximately two percent of total firm revenue is used to compensate top performers.
• A ten-partner management committee runs the firm; a six-partner compensation committee sets partner pay.
• The committee members, including the firm chair, are elected by secret ballot.
• Brad Karp continues to practice while running the firm as chair (the “player-coach” model seen at several other elite New York firms, like Cravath and Wachtell).

“We are operating in a period of unprecedented turbulence and instability,” Karp noted. In an effort to resist disruptive forces, some firms are sacrificing culture and values in favor of the bottom line. That’s not the approach followed by Paul, Weiss — and so far, it has worked out well for the firm. PW has enjoyed a twenty-year stretch of growing revenue, profit, and pro bono hours.

Can Paul, Weiss maintain such success? Karp described himself as “cautiously optimistic,” as long as it stays true to its own values. He laid out the following keys to the firm’s success (a list of 13 that I distilled it down to ten, eliminating some overlap between factors):

1. A careful curation of clients and matters. PW has upgraded its matter intake process so that it’s more selective about what engagements it accepts. Today, 80 percent of its clients and matters are strategic in nature. Ten years ago, the figure was around 50 percent. Twenty years ago, strategy wasn’t really on the firm’s radar screen; it didn’t turn down work back then, focusing on doing high-quality work for any client that happened to retain it. But what worked two decades ago doesn’t really work today, at least for a firm of PW’s caliber.

2. Solid diversification of clients. The firm’s top 25 clients are responsible for about 50 percent of revenue. That’s more diversification than many other firms, but PW continues to diversify further, adding what Karp described as “superstar laterals” who have relationships with “marquee clients.” (Examples include Scott Barshay and David Bernick — but note that the firm might take a bit of a breather from lateral hiring, with Karp describing himself as “a little fatigued” on that front.)

3. An investment in top practice areas. “We understand who we are and are not,” Karp said, which means not trying to be “all things to all clients in all jurisdictions.” PW focuses on a handful of key practices — public M&A, private equity, bet-the-company litigation, critical regulatory and white-collar defense work, restructuring — and consciously steers clear of non-core practices and jurisdictions.

4. A cultivation of client relationships. PW seeks to broaden and strengthen its client relationships. “There’s nothing strategic about one-off clients,” Karp said. (The counterexample that popped into my head: my former firm, Wachtell Lipton, which does a fair amount of one-off work representing targets in M&A. But that’s not a model most firms can follow.)

5. A continual focus on talent. As clients engage in a “flight to quality” and hire star lawyers rather than law firms, hiring the most talented individual lawyers is “an indispensable ingredient” for PW’s success. It’s no surprise that the firm pays top dollar to lateral partners, associates, and even summer associates.

(Funny aside: Karp’s daughter is an associate at Simpson Thacher. When Paul, Weiss matched Cravath, he shot her a note: “you’re welcome.”)

6. A recognition that we are in a service, results, and value business. It’s not just about the talent, but about what that talent can do for clients, and at what price. In a bygone era, clients focused on service and results, with value in distant third place; that’s no longer the case, according to Karp.

7. A focus on culture, values, and partnership. Culture and values attract promising law students, enable PW to retain star associates and partners, and help the firm attract great laterals.

“Money is no substitute for enjoying the work you do, surrounded by great colleagues, in a culture that prizes teamwork,” Karp said. He didn’t name names, but he pointedly noted that if you look at recent law firm collapses, you’ll see a lack of cohesion, unchecked greed, and sharp elbows between partners.

Every firm boasts about its values. What does that mean in a concrete sense, Winkler asked Karp during Q&A?

“If you see a partner acting badly, treating a colleague inappropriately, you have to take immediate action,” Karp said. What might such action include? “I chair the compensation committee,” he said with a smile.

(Some say that Scott Barshay, recently lured to Paul, Weiss from Cravath, can be a bit of a taskmaster. But we suspect that his PW payday, said to be close to $10 million (see the various updates to this post), will keep him in line.)

8. A compensation system that incentivizes the right behaviors. PW’s “modified lockstep” system has remained largely unchanged since the 1950s. The lockstep aspect encourages teamwork and collaboration, instead of partners vying with each other for credit, while the modifications and bonus pool allow for recognition of extraordinary contributions in a given year.

Maintaining a lockstep system isn’t easy, Karp said. When Winkler asked him in the Q&A if lockstep was dying, Karp said, “It has been — each and every year for 30 years.” He cited the rise of the Am Law 100 and their profit-per-partner rankings as a major factor: “if the compensation of the person across the table from you is triple yours, but you think you’re triple them in talent,” it’s only a matter of time before you start seeking greener pastures.

9. A focus on high-quality work and risk management. The legal world is, per Karp, increasingly punitive and unforgiving. Clients will replace law firms based on a single misstep, and law firm partnerships are fragile in an age of increased lateral movement. Ensuring top-notch work product and minimizing dangers to the firm are key considerations.

10. An emphasis on pro bono and community engagement. Paul, Weiss has a rich pro bono tradition, ranging from working with Thurgood Marshall in desegregating schools to advancing LGBT equality by winning the Windsor case in the Supreme Court (for which partner Robbie Kaplan won ATL’s 2013 Lawyer of the Year honors). In the wake of the Orlando shooting, the firm is considering litigation to promote gun control. Paul Weiss partners serve on many boards for charitable, educational, and cultural organizations.

These efforts are good for the community and the legal profession, and they’re also good for the firm. PW’s robust pro bono work helps it attract great lawyers (such as Jeh Johnson, whom I previously profiled). Partners serving on boards get to spend quality time with wealthy individuals and corporate leaders who then end up retaining Paul, Weiss.

So this is what has worked over the years for PW. But it won’t work for every firm; instead, Karp counseled, your own firm’s strategic vision must reflect its particular culture and strengths. And then you then you have to execute on that vision. As a client told Karp recently, “Strategy without execution is a daydream; execution without strategy is a nightmare.”

During the interview with Matt Winkler, Karp noted that law firm life has changed significantly since he started at the firm back in the 1980s. The main difference: lawyers are on call 24/7, thanks in large part to technology. But the work at Paul Weiss remains fascinating and the firm traditions remain the same, for which he’s grateful.

What would he have done differently coming up the ranks? “I would have smelled the roses more,” he told Winkler. “I was a machine when I was an associate — but you don’t have to be a machine to succeed.”

And what advice would Brad Karp give to young lawyers like his daughter?

“Work hard, but not too hard. Make sure you feel passion for what you’re doing. And remember it’s never too late to change.”

Paul Weiss Chair Warns About Challenges for Legal Profession [Big Law Business]
Paul Weiss Chair on Trump: “I’m Not a Big Fan” [Big Law Business]

Earlier: The Tragedy In Orlando: The Legal Community Responds

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David Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at [email protected].