Cleary Gottlieb’s leader wants the law firm to significantly boost its revenue without drastically growing its headcount or tinkering with its single-tier partner pay system.
Michael Gerstenzang’s ambitious goal is to land Cleary among the Top 20 firms by gross revenue, a feat that would require a leap of roughly $500 million from last year. That would mean a 36% gain from last year, when Cleary ranked No. 30 among US firms in gross revenue.
His push for revenue growth comes at a time when some firms are taking drastic steps to hire top talent, leading to a lateral partner market Gerstenzang described as experiencing “incredible frothiness.”
“Within the last year you’ve had some eye-popping numbers,” Gerstenzang said in an interview, referring to compensation packages for partners jumping firms. “It’s a small subset of the firms involved and the individual partners involved where they are moving for truly staggering amounts of money.”
The lateral market is “in the storyline of everyone’s head,” said Gerstenzang. “Comparison is the thief of joy.”
Gerstenzang did not mention specific hires, but a trio of Kirkland & Ellis partners that joined Paul Weiss this summer reportedly could each earn upward of $20 million annually. The Wall Street firm is said to be considering creating a nonequity partner tier that would free up more cash, following similar moves by top firms such as Cravath, Swaine & Moore in recent years.
Culture Not ‘Ruthless”
Best known for its M&A work and high-end global antitrust practice, Cleary Gottlieb is among the country’s most profitable firms. Its partners earned $4.3 million on average in 2022, according to Am Law data.
Gerstenzang, a private investment funds lawyer, has been Cleary’s managing partner since 2017.
The firm has 196 partners, all of whom share in its profits. The partner count is nearly double that of some exclusive firms, like Wachtell Lipton Rosen & Katz or Cravath, Swaine & Moore. They tally is similar to Manhattan’s Sullivan & Cromwell, Debevoise & Plimpton, and Milbank LLP.
Many of its massive competitors operate under a different model, leveraging large ranks of nonequity partners.
The equity partner rolls at Kirkland & Ellis and Latham & Watkins, two of the world’s largest firms, are more than twice that of Cleary. Kirkland and Latham also employ hundreds of nonequity partners.
Those firms report higher profits per equity partner than Cleary, but they lag behind when it comes to all-partner compensation. The metric provides an average of what all lawyers with a partner title earn, providing a comparison across firms that have nonequity partners and those with equity-only tiers.
Cleary ranks No. 9 in average compensation for all partners and No. 15 when ranked by profits per equity partner.
The firm in 2020 opted against adopting a nonequity tier, Gerstenzang said. It’s a model adopted by some competitors in an attempt to better compensate their highest earners.
Cleary decided its “culture” wasn’t prepared to be as “disciplined or ruthless” to manage out non-performing income partners, he said. It also had concerns a large non-equity tier could deteriorate its reputation for consistent, high quality work across its practices.
Still, he said the financial data show “how successful managing a big pool of nonequity partners can be.”
”I want us to be higher in everything, but we also have to recognize there are different models,” he said. “I’m not that worried about the competition for talent given where we are today. We need to do better, we can do better.”
Leveraging AI
Gerstenzang is confident that AI will help him leverage a smaller pool of lawyers to compete with bigger firms.
He’s been closely watching the advances of generative AI in law firms, he said, and Cleary is testing training models on the firm’s datasets. It launched a subsidiary technology and project development incubator, ClearyX, in 2020.
“I was super worried that if you have $6 billion in revenue you have a lot of money to invest in technology,” he said. “Generative AI has made me worry about that much less. Because generative AI is—relatively speaking—inexpensive, and I don’t need to develop it myself.”
Over time, generative AI will reduce the benefit of huge numbers of lawyers using “brute force” on projects, Gerstenzang said. He’s “hopeful” it also will help law firms move away from the billable hour, which he said often undervalues lawyers’ work for clients.
“It will be beneficial for clients and law firms to shift toward value-based billing,” he said. “Generative AI is going to be helpful to move us toward that model.”
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