Thomas Reid, who is leaving Davis Polk & Wardwell for a GC role at Comcast.

Just days after Davis Polk & Wardwell managing partner Thomas Reid announced he was leaving the firm to serve as Comcast Corp.'s next general counsel, the firm revealed its 2018 financial results. The numbers glowed.

Gross revenue increased by 12 percent to a record-high near $1.4 billion and profits per equity partner climbed even more. Reid says he wouldn't have left the 170-year-old Wall Street firm if it wasn't in a position to thrive.

But if revenues at Davis Polk continue to grow in double figures over the next several years, the firm will have managed to break from a trend: All four Am Law 200 firms that have undergone a similar transition since 2012 saw top-line growth rates slow in the second and third years after the changeover. Three of those firms even saw their revenues decline by the third year.

Consultant Janet Stanton of Adam Smith Esq. suggests that these sudden departures can prove destabilizing to law firms, even if a leader is going directly to a client where there's an existing relationship.

“People get distracted, particularly if it's a sudden and unexpected jump,” she says.

Law firms, big and small, witness changes in ­leadership all the time. Most commonly, the partnership sees it coming, whether from the pending expiration of a fixed term or an announcement that the managing partner intends to step down months into the future.

The move in-house, which usually unfolds over a more compressed timeline, is less common. In 2018, the number of Am Law 100 firm leaders leaving their post to become general counsel matched the number of leaders stepping down because of scandal: one.

The legal world found out about Dane Butswinkas' planned move from the chairman's role at Williams & Connolly to become general counsel of Tesla Corp. in early December, and he started at the automaker at the beginning of January. (By the middle of February, Butswinkas was back at the D.C. firm full time, citing a “cultural” mismatch at Tesla.)

The firms that saw comparable moves between 2012 and 2017 were Shearman & Sterling, whose leader, Rohan Weerasinghe, joined CitiGroup; Dorsey & Whitney, whose leader, Marianne Short, joined UnitedHealth; Reed Smith, whose leader, Greg Jordan, joined PNC; and Jenner & Block, whose leader Susan Levy, joined Northern Trust. Representatives from each of the firms declined to talk about their preparedness for the transition. (News reports indicate that Jordan's 2013 exit was the most sudden of the four, as he started at longtime client PNC just 10 days after the news broke, a jarring end to 13 years at the helm of the firm.)

Without awareness of the internal dynamics at the firms and a detailed assessment of trends in their major markets and practices, it's ­impossible to draw a firm connection between the moves and the declining revenue growth. Still, the relationship is intriguing.

“Four firms is not necessarily a trend, but there's a great deal of consistency there,” says Bruce MacEwen, Stanton's colleague at Adam Smith, after reviewing the numbers.

The two agree that the disturbance of figuring out a new direction on the fly is a more-than-plausible explanation. Stanton recalls a point earlier in her career, when her employer's performance suffered amid a protracted merger.

“Management completely took its eye off the ball for two years, and of course we were distracted,” she says.

The solid revenue growth posted by all four firms in the year immediately following these transitions doesn't detract from this point, as those short-term gains are often baked in.

Alternatively, the arrow of causation could point in the opposite direction. Rather than prompting an abrupt transition whose distracting effects played out over multiple years, the leaders in question may have been privy to discouraging projections about their firms' futures. A landing spot at a top client would be a way to keep their reputations untarnished.

“Lawyers are driven by achievement and wired to avoid failure,” says Altman Weil principal Eric Seeger.

Stanton also acknowledges this prospect, noting that the frequently heard aphorism about never wasting a good crisis may motivate leaders in some industries, but not this one: “Lawyers are not inclined to think that way,” she says.

Some opportunities may indeed follow a leader's move to a top client, which could serve to lock in or even intensify a lucrative relationship.

“If it's a big client with millions in fees, that's arguably more important than the partner staying at the firm,” says Jeffrey Lowe, who leads Major, Lindsey & Africa's law firm practice group. “I think most people would look at it as a good thing.”

But for even the smallest firm of the four, Dorsey & Whitney, which brought in over $337 million in revenue in 2017, growth from a single client, even a multimillion-dollar one, may be overvalued.

“Even if you were to get more business from Comcast or PNC Bank, I don't think that can compensate for the lack of focus broadly across the firm,” Stanton says.

The numbers also suggest that leadership now matters more than ever.

“Before the meltdown, the mantra for managing partners was, 'First, do no wrong.' The rising tide would lift all boats,” MacEwen says.

A hypercompetitive environment swollen with new entrants, combined with greater discipline among clients, has created a new era.

Consequently, while placing future leaders in positions with a great deal of responsibility is always wise, that pipeline becomes especially ­critical in the event of a sudden transfer of power.

“My experience in law firms is that you never have as many leaders as you'd like,” Seeger says. “The best way to get more leaders is to deliberately and proactively develop that capacity.”

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