It was a transformative 2017 for Stroock & Stroock & Lavan, a prominent New York firm that has faced sluggish revenue and profit growth since the financial crisis.

The firm de-equitized about 21 partners, creating a new multitiered partnership structure, and it spelled out its expectations for equity partners. It increased its leverage, tightened its focus on core practices and dove into pricing analytics, among other changes last year.

“We were a firm that hadn't really grown or innovated and wanted to be more energetic and on a higher performance track than we were,” said Jeffrey Keitelman, Stroock's co-managing partner. “We focused internally in 2017 to make this happen.”

Amid all the changes last year and about 20 partner departures, gross revenue dropped 7.3 percent to $251 million in 2017. But revenue per lawyer increased about 2 percent to $1 million, and profit per equity partner shot up 30.4 percent to $1.6 million—the best performance Stroock has achieved in these two metrics in the last decade.

Keitelman said the results show that Stroock, ranked No. 116 in last year's Am Law 200 list of the highest-grossing U.S. firms, “punched well above its weight in 2017,” with its revenue per lawyer and profits per partner figures on par with much larger firms.

“On per capita metrics, we perform like an Am Law 50 firm; we just operate on a smaller scale,” he said in an email.

The changes came after a deep strategic review, in which the firm hired two consultant agencies, Clarity Group and Blaqwell. Afterward, Stroock's leadership developed a three-year plan, dubbed Stroock 2020, that would position the firm for success, Keitelman said. “We realized the law business has changed tremendously over the last decade,” he said, but “we hadn't changed that much.”

Keitelman, who joined Stroock in 2015 from DLA Piper, became co-managing partner in 2016, sharing the title with New York-based Alan Klinger. It was their mandate, along with other firm leaders, to execute the plan. “We needed to have a more coherent growth strategy,” Klinger said.

The firm decided to institute a formal non-equity tier “to take into account different expectations for different partners at different times in their career,” Keitelman said.

By the end of the first quarter of 2017, Stroock moved 21 equity partners to the newly created non-equity tier rank. Now, associates and counsel are generally required to go through the non-equity program before passing on to equity partnership, he said.

The non-equity tier includes younger attorneys and others who are given business development training, coaching and resources to eventually become an equity partner, as well as “special function” lawyers who have a particular knowledge or expertise but are not key business generators, Keitelman said.

The non-equity tier is also a place for senior lawyers who are toward the end of their legal career. Of the 21 who converted to non-equity ranks, 13 are senior status, Keitelman said.

“Over the years, the way the firm developed, it was a loose configuration of solo practitioners,” Keitelman said. “That's not the way we wanted it anymore. We wanted to be more collaborative and energetic. The non-equity partner program was one piece of that.”

The goal of the creating the non-equity tier wasn't to cut compensation and reduce expenses, said Keitelman and Klinger, noting the pay of the affected lawyers generally remained the same. “We want to give people the training and the support to be able to grow into a true owner of the business,” Klinger said.

In some ways, Stroock is catching up with the approach of other firms. Shearman & Sterling in 2016 expanded its non-equity partner ranks. While several Wall Street firms still don't have non-equity partners, some of the highest profitable firms across the county do, including Latham & Watkins; Kirkland & Ellis; Gibson, Dunn & Crutcher; and Weil, Gotshal & Manges.

Other Changes

In the last year, Stroock also created its first internal guidelines covering expectations for equity partners, and it introduced a performance evaluation and feedback system for partners.

The firm is placing more resources in its core areas: real estate, financial restructuring, corporate transactions and complex commercial litigation. “Once we made the decision to focus on some areas in our firm that were much more what we were known for, and not being everything to everyone, we became a much more focused firm,” Keitelman said.

While the firm still needs other expertise, such as in regulatory, tax and environmental, “we didn't pretend that they were going to be the main drivers of the firm,” Keitelman said.

The changes didn't stop there. In 2017, Stroock reorganized practice groups to generally focus more on industries and sectors; it implemented new technology; it expanding training for business development for partners and leaders; and it began emphasizing more lateral partner hiring.

Last year, Stroock also hired a specialist for pricing analytics and decided to cut down on contingency fee IP litigation, Klinger said. Now, Stroock is interested in partnering with litigation funders and using various alternative fee arrangements, Keitelman said.

Stroock also improved its leverage. “The firm historically has been very low leverage and partners needed to do a lot of the work,” he said. In some cases that mattered and in other cases, it wasn't required, he said.

Partner Moves

The changes were for not for everyone.

Last year, about a dozen Stroock lawyers moved to Proskauer, including Stuart Coleman, former co-managing partner and chair of its investment management practice. The departures also included corporate partners, as well as two intellectual property partners who went to King & Spalding.

Among the departures, “I would say about 90 percent of those were planned or expected as part of this strategic plan,” Keitelman said.

Meanwhile, the firm has hired in its strategic areas, including financial restructuring.

Keitelman said the adjustments have already produced results. While the smaller pool of equity partners played a big part in increasing partner profits 30.4 percent, Keitelman also credits the increases in productivity and leverage.

Keitelman said the 7.3 percent revenue drop in 2017 was anticipated because the firm had fewer attorneys billing hours. Total attorney head count dropped 9 percent to 251 lawyers.

So far this year, January and February have been “two of the best single months in many years” in revenue and billable hours, Keitelman said.

Stroock is open to mergers and acquisitions with other firms but is not in talks right now, he said. “There is no current plan, but like many other firms in the highly competitive area we are in, we are open to opportunities,” he said. “We don't need a merger at all, but we're not averse to talking about it.”

In 2017, Stroock lawyers landed high profile matters in all four of its core areas. That's especially true for its restructuring practice, which took roles in the Avaya and Seadrill bankruptcies. In the latter, Stroock is lead counsel to an ad hoc group of holders of unsecured bonds issued by Seadrill Limited and North Atlantic Drilling Ltd.

The firm's real estate team advised New York developer TF Cornerstone in a successful bid to create a 1.5 million-square-foot mixed-use destination, and Stroock is advising Pfizer on the sale of its current facility in Midtown and the simultaneous relocation of its headquarters.

Its litigation team helped secure a landmark ruling on behalf of victims of Iran-sponsored terrorism in Manhattan federal court. The firm also won a unanimous three-judge panel ruling at the U.S. Court of Appeals for the Seventh Circuit on behalf of American Express, obtaining approval of a $6.7 million class action settlement.

Stroock's corporate group is lead insurance M&A counsel to Atlas Merchant Capital, co-lead investor, in the $2.05 billion acquisition of Talcott Resolution, the run-off life insurance and annuity division of The Hartford. The deal has been reported as one of the largest insurance industry transactions of its kind.