Paul Weiss issued a press release on December 7, 2018 announcing the promotion of a dozen associates to partnership, effective January 1, 2019. Such announcements rarely receive attention beyond the new partners and their family, friends, and professional colleagues. This was different. When Paul Weiss posted a photo on LinkedIn of its all-white crop of newly-minted partners– 11 men and one woman– it created a firestorm.
The New York Times published a front-page article “Elite Law Firm’s All-White Class Stirs Debate on Diversity,” chronicling the ensuing outcry. It reviewed big law’s history of racial and gender diversity, suggesting there are a legion of systemic reasons accounting for it. Above the Law, a widely-read industry publication, offered a scathing rebuke of Paul Weiss, asserting its 2018 partner class underscored the legal industry’s “rampant” diversity woes. It also excoriated the firm’s tone-deafness, arguing its press release demonstrated a “naked lack of awareness….a complete failure to recognize what’s happening.” The Paul Weiss 2018 partnership class’ composition also drew a strident, collective response from the corporate world. Approximately 170 officials at companies like Booz Allen, Lyft, and Heineken USA published an open letter calling on large firms like Paul Weiss to step up diversity efforts or run the risk of losing their business.
Brad Karp, the Paul Weiss chairman, issued a tepid apologia, pledging “We certainly can–and will do better.” He also implicitly defended the 2018 partner class by noting that it was 25% diverse– one woman, one Latino, and one LGBTQ partner. He went on to say that the firm had a history of putting diversity first and defended its record relative to other firms. The damage was done–the firm’s 2018 partner-elect class photo became the meme for big law’s struggles with diversity.
Diversity Is Not A Big Law Priority– Profit-Per-Partner Is
Law’s diversity problem is nothing new. Nor is it limited to race, gender, advancement, gender pay gap or other byproducts of a guild culture. That culture is rarely exposed in the blatant way the Paul Weiss photo captured, but it exists–especially to those that work at large firms as well as many who sought to. Technology, new models–even client demands–have failed to produce meaningful changes in that culture. Why?
There are several reasons why big law culture remains largely intact, notwithstanding cosmetic efforts that suggest change. The explanations include: (1) firms have long operated as restricted clubs with self-selecting membership and partnership criteria; (2) self-regulation and protectionist rules designed to prevent competition from “non-lawyers have perpetuated an insular, homogeneous culture; (3) a closed market where, until recently, firms had a virtual monopoly of legal talent–the only expertise firms traditionally sold– and could dictate terms of engagement to clients; (4) decentralized management structures that fostered autonomous partner fiefdoms; (5) profit-per-partner (PPP) is the law firm Holy Grail, and all other firm initiatives–including cultural reforms–take a back seat; (6) partners have had little impetus to alter things– law remains “berry, berry good” to them; (7) clients have yet to “punish” firms for their culture; they rationalize sticking with them for risk mitigation, relationship, cost of moving,and other reasons; and (8) innovation of any type is stultified by the traditional partnership model that offers no financial incentive for greying partners–usually the firm’s key stakeholders–to “leave money on the table,” reinvest, and take a long-term view. Law firm culture will not fundamentally change so long as PPP is robust and legal buyers continue to engage firms whose cultures are inimical to their own.
The Lateral Sweepstakes Says It All
The market frenzy for big-book laterals exposes the core of law firm culture: money. This is not to suggest that all big law lawyers “do it solely for the money,” but it’s hard to imagine, based upon personal experience, anecdotal evidence, and data that most remain at their firms “for the love of the game.” Big law is a culture that places PPP over all else– client satisfaction, a long-term view, re-investment in tools and resources–machine and human–required to remain competitive, diversity, collaborating with other providers (absent client mandates to do so), internal talent building, etc. Firms’ relentless pursuit of laterals and the erosion of firm loyalty and stability that it has created, provide the clearest image of today’s large firms. True “partnership” is largely a myth–so too with esprit de corps, institutional loyalty, and succession planning. It’s a “take lots more money and run” approach to practice.
The data makes clear that PPP is the currency firms use to attract laterals, retain their own stars, and burnish their brands. In a Darwinian marketplace where partners bolt to new firms about as often as baseball players swap uniforms, a handful of elite, super-rich firms have lured marquis partners from rivals by offering astronomical compensation packages that have topped $10M per year. This practice was highlighted in a recent New York Times article focused on the troika of high-profile defections from Cravath, a firm renowned for partner loyalty and immunity from poaching. Cravath has long been law’s answer to the New York Yankees (apologies to Red Sox fans), relying on its prestige, brand strength, and rich compensation to keep its partners from straying. The series of high-level Cravath defections caused a HUGE stir in big law and beyond–no firm was safe from big-dollar raids by other firms.
Paul Weiss snagged one of Cravath’s star partners, Scott Barshay, and reportedly pays him a cool $10M per year–far more than he earned at Cravath. Asked to opine about the proliferation of laterals in big law, Paul Weiss chairman Brad Karp (he of the apologia cited above) commented that “the nature of big law” had changed. Mr. Karp was referring not only to the peripatetic, free-agents that today’s big law partners have become, but also to what he describes as “a gradual but steady erosion of both client and partner loyalty.” It’s curious that he does not connect the two. Why should clients–among other reasons–maintain loyalty to a firm when you can’t tell its partners without a scorecard? It’s revealing–if not ironic–that Mr. Karp sees big law change when it involves rainmakers and big dollars but it does not extend to rectifying diversity, gender pay gap, and other elements of firm culture.
Firms are focused on laterals for short-term financial and brand reasons. While that’s certainly understandable, it helps explain why diversity, the gender pay gap, and meaningful, client-centric “innovation” are given more lip service than commitment. The partnership model is about partners. There are reasons why “partner de-equitization” is now common, more new partners are laterals than internal-promotes, and, notwithstanding the risk involved with bringing on laterals (half don’t stay for five years and many don’t live up to financial expectations) law firm focus is on the “big fish” talent like Scott Barshay. Rich, elite firms–Kirkland Ellis is a prime example–are melding Darwin with big-money free agency, making ongoing runs at elite partners from other firms. This is big law’s focus and the centerpiece of its culture. Certainly, there are firms striving to be more client-centric, innovative, and collaborative, but PPP is the zip code where big law lives. That is why law firm culture–at least among traditional partnership firms–is not changing materially or quickly.
Rewards are powerful drivers of human behavior and reflect an organization’s cultural priorities. The growing divergence between in-house teams and law firms is an example. Corporate legal departments have generally achieved greater diversity than law firms. That’s because they operate in a corporate environment where diversity is a cultural commitment deemed intrinsically and extrinsically valuable. In-house counsel are evaluated by and rewarded for efficiency, client-centricity, advancing enterprise objectives, and other result-driven metrics.
Law firms lag in diversity in part because their focus is elsewhere. Firm lawyers are rewarded for hours, origination, and profitability–all internal metrics that advance PPP but are often misaligned with client objectives. Firms tend to lack a unified culture because of their decentralized management, partner fiefdoms, turnover–that sometimes includes key partners–focus on laterals over home-grown talent, and economic model. Lack of diversity is one element of the culture that young partners buy into. They will soon learn–if they don’t already know–that generating profitable business is the thread that binds and sometimes unravels the myth of law firm “partnership.” If you live by PPP, you will likely die by it, too.
Originally published in Forbes.