The spectacular unraveling of Weil Gotshal, a storied $2 billion law firm, had plenty of drama: personality conflicts, a botched succession plan and, ultimately, a rush for the exits.
But the roots of the collapse date back several years, when Weil declined to join a profitability arms race that saw the country’s top law firms capture more and more of the industry’s wealth.
In effect, Big Law has become a winners-take-most competition. The richest firms get richer by aggressively poaching partners from rivals, amassing the most lucrative clients, raising prices and investing in data and technology while other firms are left vulnerable.
Weil, thanks partly to a leading partner’s uneasiness with this competition, was increasingly falling outside the winner’s circle. Last year, the most profitable firms in the country saw their bottom lines rise by nearly 20 percent on average, up from less than 5 percent a decade earlier, according to Law.com. Though Weil was still an elite firm by most measures, its profits increased by a mere 8 percent — a respectable figure circa 2015, but middling by current standards.
The winners-take-most pattern mirrors a broader development in the economy, in which the largest, most profitable firms appear to be pulling away from the pack across a variety of industries. The top 20 companies in the S&P 500 now account for about half of the index’s market value, up from about one-third a decade ago.
But the shift may be uniquely important in the legal profession. In earlier generations, it was common for partners to spend much of their careers at a single firm. Fast-rising profits were a nice perk — who doesn’t want to see their pay rise by tens or hundreds of thousands of dollars each year? — but a firm’s fate didn’t hinge on them.
Today, with lawyers jumping from firm to firm in search of higher pay, rising profits have become the glue that holds a firm together, replacing the bonds of partnership.Profits, and profit makers, increasingly determine strategy at firms, which often lack the formalized governance of traditional companies.
Firms with rapidly growing profits can lavish money on those who are tempted to leave, or use it to resolve bitter internal feuds. If some partners defect to a rival, the impact on a highly profitable firm is relatively small, and it has the funds to replace them easily. It can offer potential recruits not just bountiful pay, but a team of high-grossing colleagues who can amplify their business.
When profit growth is more modest, however, there is less margin for error. That’s especially the case when the profits are concentrated in a few partners or practices, as they were at Weil. An otherwise sound firm can go from solid to reeling in the face of a handful of setbacks.
“If you have a few key departures and you’ve been growing and adding equity partners, you’re not as worried,” said Evan Parker, a law firm consultant. “But if you’ve just been stable, you can go from stable to declining significantly and quickly.”
The collapse of Weil demonstrates that it can happen even more quickly than most lawyers realized.
A Fateful Downsizing
A 95-year-old firm that pioneered the bankruptcy practice within big law, Weil was far better positioned than most elite firms to thrive during the 2008 financial crisis. It did a brisk business helping to unwind or restructure the likes of Lehman Brothers, Washington Mutual and General Motors.
But once the geyser of fees from that work dried up, the firm made a fateful decision: It downsized. In 2013, the firm laid off some 60 junior lawyers and cut salaries for about 10 percent of its partners.
In explaining the decision, Barry Wolf, the firm’s leader, told The New York Times that highly profitable practices like mergers and acquisitions were unlikely to rebound any time soon.
Mr. Wolf wasn’t entirely wrong. The market for some types of legal work did stay soft for Weil and its peers. But he failed to see what was coming: a boom in advising certain kinds of deep-pocketed clients, like large private equity firms.
Private equity clients turn out to be especially valuable for lawyers. Whereas a large public company may only do one major merger or acquisition every few years, large private equity firms often do multiple deals every few months, along with refinancings and other work that generate billable hours.
In the 2010s, law firms like Kirkland & Ellis and Latham & Watkins were aggressively building up this business, hiring private equity lawyers from other firms and sometimes dangling raises worth millions of dollars.
As they built up their rosters of partners and cash-cow clients, the leading firms often reinforced their advantages. They raised their fees and invested money in professionalizing their operations. They hired data scientists, pricing analysts and business development experts to advise them on how to lower costs, generate even more business or squeeze more out of their existing clients.
Sheer volume gave them another leg up. For example, a firm that has helped negotiate lots of private credit agreements — borrowing arrangements involving lenders other than banks — can use insights gleaned from those transactions to write even better terms for clients. “The market leader will have more data to put through the A.I. to win pitches and results for clients,” said Kent Zimmermann, a strategic adviser to law firms with the Zeughauser Group.
The result of these moves was to concentrate profits at the top of the legal industry. In 2015, the 10 richest law firms in the country captured just over one quarter of all the profits generated by the 100 biggest firms, according to Law.com. Last year, the top 10 captured just over one-third of those profits.
Jumping Ship
Despite its more modest ambitions, Weil had a deep bench of partners who powered it for several years after the layoffs, even generating exceptional profits at times. But it fell back to the pack late in the 2010s, then found itself lagging as other firms seized on an upturn in merger activity during the pandemic.
With rivals racing ahead, the firm became bogged down in an internal debate. Some partners, especially those with private equity clients, argued that the firm needed to expand significantly and join the escalating fight for free-agent talent.
In the other camp was a partner named Michael Aiello, who was one of the firm’s biggest rainmakers and headed its corporate department, overseeing its work on business deals.
Mr. Aiello, a specialist in mergers and acquisitions for publicly traded companies, could be strong-willed and resistant to input. He was particularly close to Mr. Wolf, the firm leader. Many saw Mr. Aiello as the firm’s de facto power broker, and some thought Mr. Wolf was not forceful enough in setting forth his own vision for the firm.
Mr. Aiello’s view, according to two former Weil partners, was that Weil should not give priority to expansion or rush headlong into a series of bidding wars for lawyers at other firms. While he was not completely against bringing in partners from outside, he believed the firm should do so sparingly. Two people familiar with the situation said that Mr. Aiello failed to meet with certain lawyers that Weil was courting, effectively derailing the hiring process. A spokesman for Mr. Aiello said Mr. Aiello frequently interviewed partner candidates. The spokesman noted that Weil’s private equity group had grown substantially in the last few years.
Amid the stalemate, prominent partners left and took clients with them. Weil had repeatedly ranked in the top 10 of all law firms globally doing private equity-backed mergers and acquisitions during the 2010s, according to the London Stock Exchange Group. By 2024, it had fallen to 53rd place.
Weil was attractive terrain for poaching. As an elite firm, it had partners with books of business that any competitor would covet. But with middling profit growth, the firm had a harder time countering outside offers.
Mr. Zimmermann, the law firm adviser, compared Weil’s dilemma to that of a small-market sports franchise losing star players to rivals unencumbered by spending limits. He said that partners who leave for other firms tend to be attracted both by bigger paychecks and the prospect of, in effect, playing for the winning team.
This year, Weil finally appeared to be making progress. Revenue from private equity transactions was up sharply and the firm had recently hired a number of people focused on technology and innovation.
But as Mr. Wolf prepared for retirement and the firm planned for its future, its deeper dysfunction became hard to ignore. Ramona Nee, who led Weil’s private equity group and appeared well positioned to expand the group’s footprint, was in line to run the firm. But some partners were concerned that any future leader would lack Mr. Wolf’s close relationship with Mr. Aiello, according to two people familiar with the situation, which could have made the firm unmanageable or led to Mr. Aiello’s departure. The spokesman for Mr. Aiello said that he was on a committee that selected Ms. Nee and that he was supportive of her.
In late August, news broke that Chris Machera, a co-head of Weil’s private equity practice, would be leaving, further rattling the firm. Three weeks later, came a devastating blow: Mr. Aiello said he and the lawyers on his team, which had brought in roughly $150 million the previous year, would be decamping to Cravath, Swaine & Moore.
In October, after attempts at a merger with another firm failed, Weil’s leaders huddled in its offices on the 25th floor of the General Motors Building in Midtown Manhattan and concluded that they could not survive. Even as they worked tirelessly through possible solutions, word of more potential departures spread, and revenue forecasts for 2027 fell sharply. The firm will present partners with a plan to dissolve this week.
In the end, it’s perhaps telling that Mr. Aiello left Weil for Cravath, one of only three other top 25 firms to see its profits per partner grow by mere single digits last year. In an apparent attempt to boost its own profit growth, Cravath may have helped bury a competitor. There is only so much room at the top.
Georgia Gee contributed research.
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