Unique Structure of Law Firms - Dealmakers with Trump Prevented "Run on Partnership," Therefore Headed Off Collapse of the Business

 The leaders of law firms, ranging from Paul Weiss to Kirkland & Ellis, had to belly up to being laser-focused businesspeople. That's when they were hit with an Executive Order or assumed they would be. The decision to cut a deal with the Trump administration had to be rapidly unbundled from the tradition of the firm, the court of public opinion or even what some demand to be expected ethics.

On a Bloomberg Law podcast Yale professor John Morley details the unique structure of the law firm which demanded that kind of response - fast. That structure is unlike any other business. That's because of these dynamics:

The EO prevents equity partners from conducting business. So, they shift to another law firm not threatened by an EO. Yet the law firm remains saddled with the cost, such as their corner office in a trophy building as well as the loss of revenue when they bring their book of business elsewhere. As a result, the Profit Per Equity Partner is lower. Soon enough, given this reduction, other equity partners leave. The phenomenon is called "Partner Run." The firm doesn't just encounter a simple loss of revenue. It collapses. It can't absorb the costs.

First mover on the dealmaking - Paul Weiss chair Brad Karp - wasn't being hyperbolic when he described the EO as an existential threat to the business of the firm. He was on the money. Law firms are fragile entities. Within a short time, had Karp not neutralized the threat though in-person negotiations, there could have been partner flight. And that would have been the end of a business that had been started in 1875.

The analogy used for this is a "run on a bank." 

Another force field law firms have to contend with in this new order of things is client determination to stay in the good graces of the administration. That could require continual accommodations by the law firms in everything from its ideology to its approach to pro-bono work. 

So, it should have been expected that Paul Weiss, whose signature had been progressive causes, should have done some comprehensive website scrubbing. That includes erasing the background of intense involvement in ESG (Environmental Social Governance) issues. 

At first I speculated that the motivation for the cleansing might have been for the leadership to seek a seat at the table with the current administration. However, the driver could have been to align with client intention for distance from this sort of thing. 

Not unthinkable: Those law leaders who negotiated their way out of EOs might be saluted as Outstanding Business People of 2025.

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