The crisis at Weil, Gotshal & Manges has taken an extraordinary turn as The Wall Street firm famous for rescuing and restructuring distressed corporate giants has reportedly hired bankruptcy specialists to examine its own future.
According to the Financial Times, Weil is working with Brian Resnick, (above) one of Davis Polk’s top restructuring partners, on options that include a last-minute merger, a slimmed-down standalone firm or a possible wind-down.
Bloomberg Law reports that Davis Polk chair Neil Barr, who advised Weil on its failed merger talks, is also on the team. The Wall Street Journal described a management committee meeting through the weekend to stabilise the firm.
For a firm that handled the bankruptcies of Lehman Brothers, Enron and General Motors, the irony is considerable. This time, the restructuring expertise may be needed rather closer to home.
The latest developments are considerably more serious than another round of partner departures.
Weil’s merger discussions with Willkie Farr & Gallagher have collapsed. Ramona Nee, the Boston private equity partner who was due to succeed longtime leader Barry Wolf as executive partner in January, has told the firm she will not take the role.
Meanwhile, the departures continue.
On Tuesday, Weil’s global co-head of private equity, Doug Warner, was reported to be joining Paul Weiss. The same day, Skadden announced it had hired Weil partners Andrew Dean and Christopher Mulligan, both former Securities and Exchange Commission officials.
They follow corporate chair Michael Aiello and five M&A partners heading to Cravath. Management committee members Drew Tulumello and Caroline Zalka are expected to join Davis Polk and Paul Weiss respectively, and corporate co-managing partner Lyuba Goltser is expected to join Sidley Austin.
The financial implications are becoming harder to ignore.
Weil generated roughly $2.1 billion in revenue last year, with profits per equity partner of about $5.6 million, according to American Lawyer data. Yet the firm is reportedly examining significant liabilities, including pension obligations and its lease on some 380,000 square feet of the General Motors Building in Manhattan.
That building is named, as it happens, for one of its most famous bankruptcy clients.
The firm is also interviewing financial consultancies to go through its books.
A business generating billions in revenue and millions in partner profits is now confronting the possibility that its most valuable assets, its lawyers and their clients, could walk out faster than management can replace them.
The LawFuel Angle: BigLaw’s Most Dangerous Asset Is Its Own Partnership
Weil’s predicament exposes an uncomfortable truth about the modern law firm.
A major firm can have prestigious clients, extraordinary revenues, enviable offices and an illustrious history. None of those things guarantees its survival when its leading partners lose confidence.
Unlike most large corporations, a law firm’s principal assets can leave the building every evening and decide not to return.
University of San Diego law professor David McGowan, quoted by Bloomberg Law, described the danger as a potential run on the bank. Partners stop leaving for better pay and start leaving because they fear being the last ones standing.
That is the real threat facing Weil.
The question is no longer simply whether it can retain its remaining rainmakers. It is whether the firm can restore confidence before departures become self-perpetuating.
The lesson for Weil Gotshal is uncomfortable. A law firm’s balance sheet may look perfectly respectable right up to the moment its partnership decides otherwise.
And for Weil, the next restructuring mandate could be its most difficult yet.
