Paul, Weiss, Rifkind, Wharton & Garrison is on track to grow its revenue by more than $250 million in 2021 and expects profits per partner to exceed $6 million, chairman Brad Karp told Bloomberg Law.
The law firm has seen demand grow by close to 20% this year, Karp said, forcing it to turn back work from some clients. The amount of transactional work for top law firms has been “overwhelming,” he said, and there’s no obvious end in sight.
“All the indications are pointing quite strongly in the direction of continued robust activity [in 2022], especially for the elite law firms in the country,” Karp said. “I can’t see anything that is looming that would change the trajectory that most big law firms are on right now.”
In a wide-ranging interview with Bloomberg Law, Karp said the wealthiest Big Law firms will continue to pull ahead of the rest as recent surges in profitability make it easier for them to pluck rivals’ stars.
Karp also said law firms, Paul Weiss included, have more work to do to address lawyer burnout and become diverse and inclusive workplaces. The Big Law chief who has been vocal about issues such as gun control, voting rights, and restrictions on abortion said he and other law firm leaders will continue to stay engaged in public debates.
Like many major law firms, Paul Weiss had a banner 2020. The firm saw revenue rise more than 11% to $1.5 billion and average partner profits grow 14% to nearly $5.4 million, according to AmLaw data. That landed Paul Weiss among the 20 largest firms in the country by gross revenue.
Karp’s projections would put the firm’s revenue increase in 2021 near 19%. Its partner profit gains would at least match last year’s 14% growth. Only three firms—Wachtell, Lipton, Rosen & Katz; Davis Polk & Wardwell; and Kirkland & Ellis—last year had profits per partner higher than $6 million.
Law firm revenue and profits have soared during the pandemic. Demand for lawyers has coursed through virtual hallways, first with bankruptcy practices roaring as lockdowns inhibited business. Financing practices worked around the clock with low interest rates stimulating lending. And highly lucrative transactional practices have set records all year.
“There is so much liquidity right now in our economy,” Karp said.
Big Law Booming
The growth in billable hours has prompted a recruiting war and led law firms to shower junior lawyers in bonuses and salary increases. But it has also raised questions about the workloads associates should bear, and a potential burnout crisis in the profession.
Paul Weiss has turned away work from clients, forced lawyers and staff to take vacations, and pushed back on other client demands as the firm tries to maintain its lawyers’ health, Karp said.
“We have to push the brakes in today’s world to deal with the mental health and emotional stability of our community,” he said. “It is probably the most important single issue I’ve grappled with during the pandemic.”
Partners at the elite Wall Street firms Paul Weiss competes with have never made more money. The market for hiring partners has become even more competitive. That’s led some firms, such as Davis Polk, to modify their seniority-based “lockstep” compensation systems to pay their most important partners market rates.
Freshfields Bruckhaus & Deringer, which modified its lockstep model, last month hired top dealmaker Damien Zoubek from Cravath, Swaine & Moore, one of the last lockstep holdouts.
Paul Weiss earlier modified its lockstep system, and Karp said 85% to 90% of its partners remain within the traditional pay structure. He said it is in Paul Weiss’ best interest to pay its top partners market rates so the firm doesn’t lose them in an environment where partners move between firms more than ever.
“The lockstep model is going to be under attack for the foreseeable future,” Karp said. “The top tier players are making so much money and there is so much mobility among law firm partners that it is very easy to pick off stars.”
‘Progress’ on Diversity
Paul Weiss came under fire in 2018 for promoting an all-White class of partners. Law firms have long had poor track records when it comes to diversity and inclusion, but the topic has received renewed attention since the murder of George Floyd while in police custody. Karp called the May 2020 killing “the culmination of systemic racism in our country.”
Following Floyd’s death, Karp held a firmwide town hall attended by virtually all of the firm’s 2,000 combined lawyers and staff, where he interviewed prominent Black Paul Weiss partners including former U.S. Attorney General Loretta Lynch, former Homeland Security Secretary Jeh Johnson and prominent litigator Ted Wells.
One way the firm has worked to recruit, mentor and promote more diverse lawyers is to ask all partners to write the specific actions they took during the year toward those goals on their year-end compensation report. Those reports are made available to all of the firm’s partners.
“When they think about their job, diversity is top of mind,” Karp said of his partners. “It’s an area we have to continue to improve on. The first step of making progress is making it an innate part of what you think about and do every single day.”
A Voice on Issues
Karp has emerged in recent years as a leading voice among the private bar on social issues.
In 2018, he co-authored New York Times op-eds arguing to remove liability protections for gunmakers and announcing a coalition of major law firms who would work to reunite immigrant children separated from their families at the U.S.-Mexico border. He’s spoken out about racial injustice and LGBTQ rights.
Last month, in a memo to his firm, Karp reportedly called the recently passed Texas abortion law “cruel and unconstitutional” while vowing to find ways to help its victims.
“Law firm leaders and firms are much more willing to speak out on issues of social justice and racial justice,” he said. “It’s gratifying to see. Our voices matter.”
Those social debates are increasingly important to the practice and business of law, Karp said, with the rising importance of environmental, social and corporate governance (or ESG) considerations among American corporations.
Paul Weiss itself has seen the fallout from activists who pressured the firm to drop ExxonMobil. The firm represented the oil giant and beat back a New York State claim that the company misled investors about the risks of climate change.
Karp said there are certain types of matters and clients the firm wouldn’t represent, but he defended its work on behalf of its long-term client, Exxon. He said the firm’s victory at trial showed the case “was, and without any basis.”
“We won the case so emphatically that the attorney general’s office chose not to appeal,” he said.
The growing ESG area will propose a challenge to law firms going forward, Karp said.
“ESG is going to affect every aspect of the law firm world, law firm operations, and the interaction with their clients going forward,” Karp said. “The law firm community hasn’t picked up on how profound that will be.”