Even before the coronavirus pandemic unleashed market turmoil, many of New York's elite law firms were struggling to match their performance from the prior two years. And their rate of growth in many ways fell below industry averages last year.

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

Of 19 elite firms homegrown to New York, five saw declines in revenue: 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 late April. That's in contrast with just one firm in a parallel study last year that experienced a revenue decline. Only seven of the firms in the group saw revenue rise at or above 5% in 2019, compared with 12 firms the prior year.

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

Lockstep Pressures

Meanwhile, some New York firms in 2019 also took a hard look at their compensation models, amid market pressures to retain and attract star talent. Cleary, where partners reviewed their lockstep structure in 2019, has taken steps to modify its compensation system to reward more productive partners, according to three sources familiar with the events.

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

John Coffee, director of the Center on Corporate Governance at Columbia Law School who follows legal industry trends, pointed to the continuing pressure on several lockstep firms from competitors such as Kirkland & Ellis and others who have methods to reward top fee earners.

"It is my understanding that a number of firms, including Cleary, have reexamined their compensation system and have loosened their lockstep in order to be able to pay special compensation" to partners generating a disproportionate amount of income, Coffee said.

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

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

Debevoise is the only New York firm in this analysis that maintained double-digit percent growth in revenue and profit in both 2018 and 2019. Last year, the firm saw 12.9% revenue growth, rising about $1 billion for the first time, and 13.4% growth in profits 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 growth among the firms under review. The firm boosted revenue 13.3% to $776 million, while also enjoying the most rapid rate of profits per equity growth in the group, with PEP up 16% to $3.79 million, as the firm's equity tier ranks remained flat.

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

For instance, average demand in Citi's sample of 35 New York-headquartered firms declined 1.2% in 2019, in contrast with the industry growing 1.1%, said Gretta Rusanow, head of advisory services at Citi.

Revenue growth in this sample was a modest 2.7%, compared with 5.3% for the industry, said Rusanow, adding, "That was one of the lowest revenue growths that we saw in the 11 regions we studied."

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 a few positive factors in the New York market for 2019, including an improving demand market as the year progressed. New York firms' fourth quarter through early March 2020 saw high levels of activity, she noted.

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

And even though realization declined, New York firms aggressively marked up billing rates, averaging 5.2% for Citi's sample of New York firms, compared with 4.5% in the industry. Ultimately, these New York firms could bring in more money than the firms with modest rate increases.

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

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

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

Below is a rundown of the financial performance for each of the 19 firms tracked for this report. Financial reports for these firms and the rest of the Am Law 100 are in the May issue of The American Lawyer and online.

Cadwalader, Wickersham & Taft: Cadwalader's profits shot up 11% last year, hitting $3 million in average profits per equity partner. The firm's gross revenue grew 9.1%, hitting $459 million, pushing the firm up three spots to No. 86 in the Am Law 100. With a higher profit margin than 2018, net income grew much faster, rising 18.7% to $138.4 million.  Even with a 2.4% increase in head count, revenue per lawyer rose 6.6% to $1.2 million. (See our previous report.)

Cahill Gordon & Reindel: Boosted by strong performance in its leveraged finance and general corporate practices, Cahill's revenue and profits rebounded last year, recovering from the firm's 7% decline in 2018. Gross revenue in 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 by almost 12%, to nearly $3.84 million, surpassing 2017′s numbers. (See our previous report.)

Cleary Gottlieb Steen & Hamilton: Amid discussions about partner compensation in 2019, gross revenue dropped 5% to $1.21 billion, and profits per equity partner dropped 3% to $3.07 million, even with a 2.6% decline in the number of equity partners. Revenue per lawyer dropped 3% to about $1 million. Cleary fell six spots in the Am 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 and counsel heading to Freshfields.

Close to half of the firm's lawyers are outside the U.S., making the firm more vulnerable to deal slowdowns internationally. This had an impact on the firm's bottom line in 2019. Deal activity for targets in Europe, Africa and the Middle East decreased by 9.1% in 2019, 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 league tables, and Cleary held the No. 1 spot for cross-border deals, its sweet spot.

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

Cravath, Swaine & Moore: With revenue declining 2% to $799.55 million, Cravath slipped two spots in the Am Law 100 rankings to No. 53. Profits per partner dropped by 4.5% to $4.4 million. The firm saw a net gain of two equity partners, 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 Cravath saw its best financial year ever, with double-digit percent increases in revenue and profits per equity partner.

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

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

On the litigation side, Cravath represented Qualcomm in global disputes against Apple about Qualcomm's patent licensing and modem chipset businesses. While Qualcomm and Apple reached an agreement to dismiss all litigation between the companies worldwide, Cravath continues to represent Qualcomm in antitrust class actions and investigations, as well as an FTC action. Cravath also continued its wide-ranging representation of PG&E, as lead trial counsel in hundreds of lawsuits arising out of California wildfires and in PG&E's Chapter 11 reorganization.

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

Davis Polk & Wardwell: While not experiencing the same double-digit percent growth from 2018, Davis Polk saw moderate gains in 2019 under new leader Neil Barr. Gross revenue rose 4% to $1.44 billion, and the firm moved up one spot in the Am Law 100 rankings to No. 19. With slightly fewer lawyers, revenue per lawyer rose 4.7% to $1.48 million. With 160 equity partners, an increase of three from 2018, the firm's average profits per partner increased by 2.5% to about $4.5 million.

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

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

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

The firm also faced some negative press. A former corporate associate's suit against the firm for racial discrimination and retaliation repeatedly made headlines. The firm has denied the termination has anything to do with race.

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

Fried, Frank, Harris, Shriver & Jacobson: The firm's revenue shot up 13.3% to $776 million last year, allowing it to move up to No. 56 in the Am Law 100 rankings. Profits per equity partner rose 16% to reach $3.79 million across an equity tier whose size held steady at 104 partners. The firm'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 in 2018, the firm's revenue dropped 5.9% to $398 million, and it fell seven spots in the Am Law 100 rankings to No. 95. With flat head count, revenue per lawyer decreased 5% to $1.2 million. With two fewer equity partners, average profits per partner dropped 7.2% to $2.16 million. One of the firm's most prominent partners and the co-chairman of its litigation department, Barry Berke, was on leave from Kramer Levin much of the year when he advised House Democrats on the impeachment of President Donald Trump.

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

Milbank: Revenue growth slowed in 2019, rising about 3.4% to $1.07 billion, with the firm holding steady at the No. 35 rank in the Am Law 100. Its revenue per lawyer fell slightly as its head count grew 5% to 765 lawyers, but the firm managed to grow its profitability, eking out a 1.3% rise in profits per equity partner to $3.87 million. (See our previous report.)

Paul, Weiss, Rifkind, Wharton & Garrison: Gross revenue fell 3.6% to $1.39 billion last year, leading to a fall of three spots in the Am Law 100 rankings to No. 20. With a flat head count around 1,020 lawyers, revenue per lawyer fell at a similar rate to $1.36 million. Average profits per partner fell 6.4% to nearly $4.7 million, amid a 5.5% growth in the firm's equity-only partnership ranks. (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 the rankings. With an increase in lawyer head count to 744 lawyers, revenue per lawyer stayed steady at $1.35 million. Average profits per equity partner rose 3.4% to $2.75 million, as the firm had four fewer equity partners. (See our previous report.)

Schulte Roth & Zabel: Unlike several others, Schulte saw a higher rate of financial growth in 2019 than 2018. Its revenue grew 5.7% to $465.2 million, but it still fell back one spot in the Am Law 100 to No. 84. With a lower head count, its revenue per lawyer rose 8.2% to $1.34 million. And with three fewer equity partners, its average profits per equity partner soared 10%, rising just above the $3 million mark.

It was an eventful 2019. Longtime partners David Efron and Marc Elovitz were named in the fall as co-managing partners. Efron also serves as co-head of the investment management group, while Elovitz serves as chairman of the firm's investment management regulatory and compliance group. Efron and Elovitz, both members of the executive committee, succeed Alan Waldenberg, who served as chairman of Schulte's executive committee for 10 years. The transition was complete on March 31 of this year when Waldenberg stepped down as chairman. Diversity and inclusion director Rachel Simmonds-Watson joined the firm in October 2019, after serving as diversity manager at Debevoise & Plimpton.

The law firm last year continued to handle a host of fund transactions. The firm represented private equity firm Veritas Capital in acquiring the U.S. state and local health and human services business of DXC Technology in a $5 billion transaction. It also advised Mack Real Estate Credit Strategies in RFR Holding's acquisition of properties at 145 and 155 E. 42nd St., the iconic Chrysler Building. Meanwhile, Schulte represented Jeffrey Smith and Starboard Value in a major securities litigation case related to Advance Auto Parts.

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

Simpson Thacher & Bartlett: The firm's revenue and profit didn't grow at the same rapid rate as 2018, but it was a strong financial year all around. Gross revenue rose 6.3% to $1.62 billion, with the firm holding steady at No. 15 in 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 with 191 equity partners, the firm's average profits per partner grew 8% to nearly $4.42 million. The firm last year had six nonequity partners, a relatively new partnership tier at Simpson.

Simpson's private funds practice guided five of the top 10 global private equity fundraisings in 2019, while its M&A lawyers advised First Data Corp. in its $22 billion merger with Fiserv and advised on Refinitiv's $27 billion acquisition by the London 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, the firm's litigators advised Swedish telecom giant Ericsson in resolving Department of Justice and U.S. Securities and Exchange Commission investigations regarding allegations of Foreign Corrupt Practices 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 Am Law 100 rankings. With a nearly 3% drop in head count, the firm's revenue per lawyer rose 1.4% to $1.55 million. Meanwhile, Skadden had 15 fewer equity partners, helping its average profits per partner rise 5.5% to nearly $3.92 million.

Skadden advised on a host of large litigation and M&A matters last year. On the deals side, Skadden advised 21st Century Fox in its acquisition by the Walt Disney Co. and the related premerger spinoff of some news, sports and broadcast businesses. And the firm's lawyers represented DowDuPont in its separation into three publicly traded companies. Meanwhile, its litigators secured a complete dismissal for BlackRock in one of the largest-ever mutual fund cases, where plaintiffs were seeking $1.55 billion in damages. Skadden litigators also successfully defended Johnson & Johnson against $5 billion in damages in a suit brought by a Missouri resident over baby powder.

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

Sullivan & Cromwell: The firm maintained steady growth in 2019, with a 2.2% rise in gross revenue to $1.47 billion, keeping the firm at No. 18 in the Am Law 100. With a 2% drop in head count to 809 lawyers, its revenue per lawyer rose 4.3% to $1.8 million. Meanwhile, its profit margin continued to inch up, as the firm implemented a series of outsourcing measures. Average profits per partner rose 3.2% to $4.65 million, as equity partner ranks stayed flat at 164.

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

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

On the investigations side, Sullivan resolved matters for Wells Fargo, Standard Chartered Bank and other financial institutions. In litigation, the firm has served as international coordinating counsel for Volkswagen and Fiat Chrysler Automobiles in global products liability matters. Both are significant additions to Sullivan's products liability practice, as these matters were not on its roster five years ago. And in March, the firm won a trial victory for Volkswagen in diesel emissions cases.

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

Wachtell clinched the top spot in the Bloomberg league tables for 2019, including in both global announced deals by volume and in a ranking of firms that advised deal principals. Overall, the firm handled $587 billion worth of deals, advising on some of the largest M&A transactions last year. For instance, the firm represented United Technologies Corp. in its merger with Raytheon Co., a combined aerospace giant with sales of $74 billion.

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

Weil, Gotshal & Manges: Fueled by big bankruptcies and a slew of corporate and litigation work, Weil's revenue rose 3.9% to nearly $1.52 billion and the firm remained at No. 16 in the Am Law 100. Its average profits per equity partner grew at an even faster clip, rising 5% to cross the $4 million mark. Revenue per lawyer grew 3.1% to $1.35 million. (See our previous report.)

Willkie Farr & Gallagher: Gross revenue rose 6.2% last year to $868 million, and the firm climbed one spot in the Am Law 100 rankings to No. 49. Meanwhile, Willkie grew its profits per equity partner by 2.6% to almost $3.17 million. The firm's growth came despite distracting headlines about a former Willkie co-chairman pleading guilty last year in the college admissions scandal. "We retained virtually all of Gordon [Caplan's] clients," said Steven Gartner, Willkie chairman. Willkie last year continued to expand its new nonequity tier, growing from 10 to 22 nonequity partners. (See our previous report.)