High-rise buildings in Wall Streetfinancial district. Photo by Shutterstock.

Even before the coronavirus pandemic unleashed marketturmoil, many of New York's elite law firms werestruggling to match their performance from the prior two years. Andtheir rate of growth in many ways fell below industry averages lastyear.

Cross-border M&A volume declined in the first half of 2019while premium fees on M&A work slowed down for some.Realization on fees for New York firms declined more than theindustry average. For some Wall Street firms, it wassimply hard to match the success of 2018, whichwas a banner year for much of the industry.

Of 19 elite firms homegrown to New York, five saw declines inrevenue: Cleary Gottlieb Steen & Hamilton; Cravath, Swaine& Moore; Kramer Levin Naftalis & Frankel; Paul, Weiss,Rifkind, Wharton & Garrison; and Skadden, Arps, Slate, Meagher& Flom, according to Am Law 100 figures released in lateApril. That's in contrast with just one firm in a parallel study lastyear that experienced a revenue decline. Only seven ofthe firms in the group saw revenue rise at or above 5% in2019, compared with 12 firms the prior year.

Large profit gains for the New York elite were similarly harderto come by in 2019. Only eight firms had profits per equity partnergrowth at or above 5%, compared with 15 firms in 2018.

Lockstep Pressures

Meanwhile, some New York firms in 2019 also took a hard look attheir compensation models, amid market pressures to retain andattract star talent. Cleary, where partners reviewed their lockstep structure in2019, has taken steps to modify its compensation system toreward more productive partners, according to three sourcesfamiliar with the events.

The shift at Cleary comes as a groupof mostly corporate lawyers, led by M&A dealmaker EthanKlingsberg, joined Freshfields Bruckhaus Deringer last fall.

John Coffee, director of the Center on Corporate Governance atColumbia Law School who follows legal industry trends, pointed tothe continuing pressure on several lockstep firms from competitorssuch as Kirkland & Ellis and others who have methods to rewardtop fee earners.

"It is my understanding that a number of firms, includingCleary, have reexamined their compensation system and have loosenedtheir lockstep in order to be able to pay special compensation" topartners generating a disproportionate amount of income, Coffeesaid.

A Cleary representative declined to comment about any changes tothe firm's compensation system.

But one lockstep firm has said it is making no changes.Debevoise & Plimpton's presiding partner Michael Blair said inDecember that the firm's partners decided to keep its compensationsystem, after an in-depth review of the model.

Debevoise is the only New York firm in this analysis thatmaintained double-digit percent growth in revenue and profit inboth 2018 and 2019. Last year, the firm saw 12.9% revenue growth,rising about $1 billion for the first time, and 13.4% growth inprofits per equity to $3.7 million.

Highs and Lows

Another top performer in 2019 was Fried, Frank, Harris, Shriver& Jacobson, which saw the highest percentage revenue growthamong the firms under review. The firm boostedrevenue 13.3% to $776 million, while also enjoying themost rapid rate of profits per equity growth in thegroup, with PEP up 16% to $3.79 million, as thefirm's equity tier ranks remained flat.

But Debevoise and Fried Frank were the exceptions in seeingrevenue growth above 10%, based on ALM's reporting. And overall,New York firms' performance in several metrics were lower than theindustry averages, according to figures from Citi PrivateBank Law Firm Group.

For instance, average demand in Citi's sample of 35 NewYork-headquartered firms declined 1.2% in 2019, in contrast withthe industry growing 1.1%, said Gretta Rusanow, head of advisoryservices at Citi.

Revenue growth in this sample was a modest 2.7%, compared with5.3% for the industry, said Rusanow, adding, "That was one of thelowest revenue growths that we saw in the 11 regions westudied."

Average realization for Citi's New York sample declined by 0.9%,while the industry saw only a 0.5% drop.

But Rusanow also pointed to afew positive factors in the New York market for2019, including an improving demand market as the year progressed.New York firms' fourth quarter through early March 2020 saw highlevels of activity, she noted.

That and the lengthening collection cycle for New York firms ledto 8.2% growth in year-end inventory—their accounts receivable andtheir unbilled time—compared with 7.1% for the industry.

And even though realization declined, New York firmsaggressively marked up billing rates, averaging 5.2% for Citi'ssample of New York firms, compared with 4.5% in the industry.Ultimately, these New York firms could bringin more money than the firms with modest rateincreases.

"The firms that follow the strategy of putting through higherrate increases with a willingness to take a deeper discount havefor the past several years realized a wider rate advantage,"Rusanow said.

As for 2020, she said firms across the country were projectingroughly a 15% drop in demand and revenue in the second quarter,leading firms in nearly every region to take expense-cuttingmeasures. But one advantage for New York firms is their relativelyhigher profit margin. Most firms in this analysis of the New Yorkelite maintain profit margins of 40% or higher, according to ALMdata, with Cadwalader, Wickersham & Taft; Shearman &Sterling; and Kramer Levin as the exceptions.

Higher-margin firms "are in different positions in terms of theexpense decisions they have to make and the timing of those expensedecisions," Rusanow said.

Below is a rundown of the financial performance for each of the19 firms tracked for this report. Financial reports for these firmsand the rest of the Am Law 100 are in the May issue of TheAmerican Lawyer and online.

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Cadwalader, Wickersham &Taft: Cadwalader's profits shot up 11% last year,hitting $3 million in average profits per equity partner. Thefirm's gross revenue grew 9.1%, hitting $459 million, pushing thefirm up three spots to No. 86 in the Am Law 100. With ahigher profit margin than 2018, net income grew much faster, rising18.7% to $138.4 million.  Even with a 2.4% increase inhead count, revenue per lawyer rose 6.6% to $1.2 million. (See our previous report.)

Cahill Gordon & Reindel: Boostedby strong performance in its leveraged finance and generalcorporate practices, Cahill's revenue and profits rebounded lastyear, recovering from the firm's 7% decline in 2018. Gross revenuein 2019 rose by 7.6% to $387.8 million, similar to 2017 levels,letting Cahill gain three spots in the Am Law 100 rankings to No.97. The firm pushed up its average profits per equity partner byalmost 12%, to nearly $3.84 million, surpassing 2017′s numbers.(See our previous report.)

Cleary Gottlieb Steen &Hamilton: Amid discussions about partnercompensation in 2019, gross revenue dropped 5% to $1.21 billion,and profits per equity partner dropped 3% to $3.07 million, evenwith a 2.6% decline in the number of equity partners. Revenue perlawyer dropped 3% to about $1 million. Cleary fell six spots in theAm Law 100 rankings to No. 27.

Meanwhile, the firm's M&A group saw a significant departure,with the exit of Klingsberg and a group of other partners andcounsel heading to Freshfields.

Close to half of the firm's lawyers are outside the U.S., makingthe firm more vulnerable to deal slowdowns internationally. Thishad an impact on the firm's bottom line in 2019. Deal activity fortargets in Europe, Africa and the Middle East decreased by 9.1% in2019, according to Bloomberg.

But demand in M&A grew stronger toward the end of the year.Cleary was ranked fifth in global announced deal volume, handling$430.54 billion worth of deals last year, according to leaguetables, and Cleary held the No. 1 spot for cross-border deals, itssweet spot.

Last year, the firm grabbed several notable deals, includingadvising Tech Data in the $6 billion acquisition by Apollo GlobalManagement and advising Chile's LATAM Airlines in its strategic$1.9 billion partnership with Delta Air Lines, announced inSeptember 2019. The firm's antitrust lawyers defended T-Mobile in amultistate lawsuit attempting to block its merger with Sprint, andthey acted as counsel to T-Mobile and Deutsche Telekom innegotiating a settlement with the Justice Department. The firm'slawyers also advised ESL Investments and Eddie Lampert in mattersrelated to the $5.2 billion acquisition of Sears Holdings.

Cravath, Swaine & Moore: Withrevenue declining 2% to $799.55 million, Cravath slipped two spotsin the Am Law 100 rankings to No. 53. Profits per partner droppedby 4.5% to $4.4 million. The firm saw a net gain of two equitypartners, rising to 85. With a slight increase in head count,rising to 526 lawyers, the firm's revenue per lawyer decreased 3.3%to $1.52 million.

The firm faced a tough act to follow after 2018, when Cravathsaw its best financial year ever, with double-digit percentincreases in revenue and profits per equity partner.

2019 was still busy in both deals and litigation. Cravath wasranked ninth on global announced deals, according to Bloomberg'sleague tables, advising on $322.46 billion worth of deals.

Cravath advised Disney in closing its $71.3 billion acquisitionof 21st Century Fox, a deal that was first announced in late 2017,and represented Occidental Petroleum Corp. in its $57 billionacquisition of Anadarko Petroleum Corp. It currently representsMylan in its pending combination with Upjohn, a division of Pfizer,a $50 billion deal that has been postponed until later this yeardue to the pandemic.

On the litigation side, Cravath represented Qualcomm in globaldisputes against Apple about Qualcomm's patent licensing and modemchipset businesses. While Qualcomm and Apple reached an agreementto dismiss all litigation between the companies worldwide, Cravathcontinues to represent Qualcomm in antitrust class actions andinvestigations, as well as an FTC action. Cravath also continuedits wide-ranging representation of PG&E, as lead trial counselin hundreds of lawsuits arising out of California wildfires and inPG&E's Chapter 11 reorganization.

While the firm has no California offices, Cravath has said ithas seen a steady increase in net fees billed from clients on theWest Coast, particularly in litigation.

Davis Polk & Wardwell: While notexperiencing the same double-digit percent growth from 2018, DavisPolk saw moderate gains in 2019 under new leader Neil Barr. Grossrevenue rose 4% to $1.44 billion, and the firm moved up one spot inthe Am Law 100 rankings to No. 19. With slightly fewer lawyers,revenue per lawyer rose 4.7% to $1.48 million. With 160 equitypartners, an increase of three from 2018, the firm's averageprofits per partner increased by 2.5% to about $4.5 million.

Davis Polk was ranked No. 4 in global announced deal volume lastyear, handling $450.97 billion worth of deals. The firm advised TheCharles Schwab Corp. on its $26 billion all-stock acquisition of TDAmeritrade Holding Corp. Meanwhile, the firm's capital markets teamadvised underwriters related to Uber's highly anticipated $8.1billion initial public offering.

OxyContin maker Purdue Pharma, faced with lawsuits seekinghundreds of billions of dollars, tapped Davis Polk for itsrestructuring, while the firm has been involved in a slew of energyrestructurings, including Blackhawk Mining, Cloud Peak Energy,EdgeMarc Energy, FirstEnergy, GenOn Energy and Murray Energy.

The firm saw a few high-profile additions, including GregAndres, who returned from special counsel Robert Mueller's officein June, and Robert Cohen, who was the SEC's first-ever chief ofthe enforcement division's cyber unit.

The firm also faced some negative press. A former corporateassociate's suit against the firm for racial discrimination andretaliation repeatedly made headlines. The firm has denied thetermination has anything to do with race.

Debevoise & Plimpton: The firm'srevenue rose nearly 13% last year to $1.05 billion, and the firmjumped six spots in the Am Law 100 rankings to No. 36. Its profitsper partner grew 13.4% to $3.7 million. Even as the firmboosted its head count 8.4% to 710 lawyers, revenue per lawyerincreased 4.2% to $1.48 million. (See our previous report.)

Fried, Frank, Harris, Shriver &Jacobson: The firm's revenue shot up13.3% to $776 million last year, allowing it to move up to No. 56in the Am Law 100 rankings. Profits per equitypartner rose 16% to reach $3.79 million acrossan equity tier whose size held steady at 104 partners. Thefirm's full-time equivalent head count rose 4.7% to 538 lawyers,and revenue per lawyer was up 8.2% to over $1.4 million. (See our previous report.)

Kramer Levin Naftalis &Frankel: Reversing some of its financial gains in2018, the firm's revenue dropped 5.9% to $398 million, and it fellseven spots in the Am Law 100 rankings to No. 95. With flat headcount, revenue per lawyer decreased 5% to $1.2 million. With twofewer equity partners, average profits per partner dropped 7.2% to$2.16 million. One of the firm's most prominent partners and theco-chairman of its litigation department, Barry Berke, was on leavefrom Kramer Levin much of the year when he advised House Democratson the impeachment of President Donald Trump.

Kramer Levin advised on a host ofnotable matters last year. The firm represented BlackRock in its$1.3 billion acquisition of eFront, an alternative investmentmanagement software and solutions provider, and advised theofficial committee of unsecured creditors in the Chapter 11bankruptcy of Toys R Us. The firm is defending Stephen Calk, PaulManafort's Chicago-based banker who was indicted by New Yorkfederal prosecutors for financial institution bribery. The trial isslated for 2020.

Milbank: Revenue growth slowed in2019, rising about 3.4% to $1.07 billion, with the firm holdingsteady at the No. 35 rank in the Am Law 100. Its revenue per lawyerfell slightly as its head count grew 5% to 765 lawyers, but thefirm managed to grow its profitability, eking out a 1.3% rise inprofits per equity partner to $3.87 million. (See our previous report.)

Paul, Weiss, Rifkind, Wharton &Garrison: Gross revenue fell 3.6% to $1.39billion last year, leading to a fall of three spots in the Am Law100 rankings to No. 20. With a flat head count around 1,020lawyers, revenue per lawyer fell at a similar rate to $1.36million. Average profits per partner fell 6.4% to nearly $4.7million, amid a 5.5% growth in the firm's equity-only partnershipranks. (See our previous report.)

Proskauer Rose: Gross revenue grew 2.8%,allowing Proskauer to cross the $1 billion mark for the first time.The firm, at No. 41 in the Am Law 100, slipped two spots in therankings. With an increase in lawyer head count to 744 lawyers,revenue per lawyer stayed steady at $1.35 million. Average profitsper equity partner rose 3.4% to $2.75 million, as the firm had fourfewer equity partners. (See our previous report.)

Schulte Roth & Zabel: Unlikeseveral others, Schulte saw a higher rate of financial growth in2019 than 2018. Its revenue grew 5.7% to $465.2 million, but itstill fell back one spot in the Am Law 100 to No. 84. With a lowerhead count, its revenue per lawyer rose 8.2% to $1.34 million. Andwith three fewer equity partners, its average profits per equitypartner soared 10%, rising just above the $3 million mark.

It was an eventful 2019. Longtime partners David Efron and MarcElovitz were named in the fall as co-managing partners. Efron alsoserves as co-head of the investment management group, while Elovitzserves as chairman of the firm's investment management regulatoryand compliance group. Efron and Elovitz, both members of theexecutive committee, succeed Alan Waldenberg, who served aschairman of Schulte's executive committee for 10 years. Thetransition was complete on March 31 of this year when Waldenbergstepped down as chairman. Diversity and inclusion director RachelSimmonds-Watson joined the firm in October 2019, after serving asdiversity manager at Debevoise & Plimpton.

The law firm last year continued to handle a host of fundtransactions. The firm represented private equity firm VeritasCapital in acquiring the U.S. state and local health and humanservices business of DXC Technology in a $5 billion transaction. Italso advised Mack Real Estate Credit Strategies in RFR Holding'sacquisition of properties at 145 and 155 E. 42nd St., the iconicChrysler Building. Meanwhile, Schulte represented Jeffrey Smith andStarboard Value in a major securities litigation case related toAdvance Auto Parts.

Shearman & Sterling: With gross revenuegrowing barely over 1% to $968.16 million, the firm dropped onespot in the Am Law 100 rankings to No. 42. Average profits perequity partner rose 1.2% to $2.46 million. As total lawyer headcount declined by nearly 4%, a loss of about 33 lawyers, the firm'srevenue per lawyer grew 5.2% to $1.14 million. (See our previous report.)

Simpson Thacher & Bartlett: Thefirm's revenue and profit didn't grow at the same rapid rate as2018, but it was a strong financial year all around. Gross revenuerose 6.3% to $1.62 billion, with the firm holding steady at No. 15in the Am Law 100. With a 3.3% rise in head count to 996 lawyers,its revenue per lawyer inched up 2.8% to $1.63 million. And with191 equity partners, the firm's average profits per partner grew 8%to nearly $4.42 million. The firm last year had six nonequitypartners, a relatively new partnership tier at Simpson.

Simpson's private funds practice guided five of the top 10global private equity fundraisings in 2019, while its M&Alawyers advised First Data Corp. in its $22 billion merger withFiserv and advised on Refinitiv's $27 billion acquisition by theLondon Stock Exchange. The firm also advised Blackstone on its$18.7 billion acquisition of assets from three of GLP's US funds,one of the largest private real estate transactions. Meanwhile, thefirm's litigators advised Swedish telecom giant Ericsson inresolving Department of Justice and U.S. Securities and ExchangeCommission investigations regarding allegations of Foreign CorruptPractices Act violations in Asia, Africa and the Middle East.

Skadden, Arps, Slate, Meagher &Flom: The firm's revenue decreased by about 1.5%,dropping to $2.63 billion but retaining the No. 5 spot in the AmLaw 100 rankings. With a nearly 3% drop in head count, the firm'srevenue per lawyer rose 1.4% to $1.55 million. Meanwhile, Skaddenhad 15 fewer equity partners, helping its average profits perpartner rise 5.5% to nearly $3.92 million.

Skadden advised on a host of large litigation and M&Amatters last year. On the deals side, Skadden advised 21st CenturyFox in its acquisition by the Walt Disney Co. and the relatedpremerger spinoff of some news, sports and broadcast businesses.And the firm's lawyers represented DowDuPont in its separation intothree publicly traded companies. Meanwhile, its litigators secureda complete dismissal for BlackRock in one of the largest-evermutual fund cases, where plaintiffs were seeking $1.55 billion indamages. Skadden litigators also successfully defended Johnson& Johnson against $5 billion in damages in a suit brought by aMissouri resident over baby powder.

Skadden resolved a matter of its own last year, after gettingdragged into the Mueller investigation. The firm started off 2019with a $4.6 million settlement it struck with the Department ofJustice over the firm's past work for the Ukrainian government. Thesettlement resolved an inquiry into whether the firm violated theForeign Agents Registration Act for work it conducted for Ukrainebeginning in 2012. While former partner Gregory Crag wasindicted in April 2019, he was acquitted five months later of acharge that he lied to authorities about work he did for theUkrainian government.

Sullivan & Cromwell: Thefirm maintained steady growth in 2019, with a 2.2% rise ingross revenue to $1.47 billion, keeping the firm at No. 18 in theAm Law 100. With a 2% drop in head count to 809 lawyers, itsrevenue per lawyer rose 4.3% to $1.8 million. Meanwhile, its profitmargin continued to inch up, as the firm implemented a series ofoutsourcing measures. Average profits perpartner rose 3.2% to $4.65 million, as equity partner ranks stayedflat at 164.

Sullivan was ranked No. 2, just behind Wachtell, Lipton, Rosen& Katz, on global announced deal volume in 2019, advising onabout $516 billion worth of transactions, according to Bloomberg'sleague tables.

The firm attracted new clients on the corporate side, such asTiffany in its $16.2 billion pending acquisition by LVMH MoëtHennessy Louis Vuitton. Sullivan also advised SunTrust Banks in its$66 billion merger with BB&T Corp., the largest bank mergersince 2004, and Fiserv in its $22 billion acquisition of First DataCorp.

On the investigations side, Sullivan resolved matters for WellsFargo, Standard Chartered Bank and other financial institutions. Inlitigation, the firm has served as international coordinatingcounsel for Volkswagen and Fiat Chrysler Automobiles in globalproducts liability matters. Both are significant additions toSullivan's products liability practice, as these matters were noton its roster five years ago. And in March, the firm won a trialvictory for Volkswagen in diesel emissions cases.

Wachtell, Lipton, Rosen &Katz: With head count staying steady around 265lawyers, the firm's revenue continued to grow, soaring past $882million last year and holding Wachtell steady at No. 47 in the AmLaw 100. The firm saw a five-lawyer gain in its all equity tier,growing to 85 lawyers, and its average profits per equity partnerremained above $6.3 million, the highest in the Am Law 100.

Wachtell clinched the top spot in the Bloomberg league tablesfor 2019, including in both global announced deals by volume and ina ranking of firms that advised deal principals. Overall, the firmhandled $587 billion worth of deals, advising on some of thelargest M&A transactions last year. For instance, the firmrepresented United Technologies Corp. in its merger with RaytheonCo., a combined aerospace giant with sales of $74 billion.

The firm rarely sees lateral movement, but just last month thefirm added a prominent counsel, Leo Strine Jr., who retired aschief justice of the Delaware Supreme Court last July.

Weil, Gotshal & Manges: Fueled by bigbankruptcies and a slew of corporate and litigation work, Weil'srevenue rose 3.9% to nearly $1.52 billion and the firm remained atNo. 16 in the Am Law 100. Its average profits per equity partnergrew at an even faster clip, rising 5% to cross the $4 millionmark. Revenue per lawyer grew 3.1% to $1.35 million. (See our previous report.)

Willkie Farr & Gallagher: Gross revenuerose 6.2% last year to $868 million, and the firm climbedone spot in the Am Law 100 rankings to No. 49. Meanwhile, Willkiegrew its profits per equity partner by 2.6% to almost $3.17million. The firm's growth camedespite distracting headlines about a former Willkieco-chairman pleadingguilty last year in the college admissions scandal."We retained virtually all of Gordon [Caplan's] clients," saidSteven Gartner, Willkie chairman. Willkie last year continued toexpand its new nonequity tier, growing from 10 to 22 nonequitypartners. (See our previous report.)