Cravath, Inc.: What If New York’s Law Firms Went Public?

Revenue for the next quarter is projected to be even lower. This is due to the departure of a key senior partner, Ray Rainmaker, who recently left the firm, along with three other partners, eight associates, a gaggle of administrative assistants and a book of business estimated in excess of $20 million.


Litigation. Net revenues in the Litigation Department were 9 percent lower than the first quarter of 2008. Continuing criminal indictments and convictions of top plaintiffs’ lawyers led to a sharp reduction in the number of class-action lawsuits filed, especially in the securities and products-liability areas. “While I’m happy to see those bastards get what they deserve, it has, unfortunately, reduced our revenue,” said Mr. Owens.

The firm’s Criminal Defense group agreed to represent a prominent politician from a very wealthy family in connection with a federal investigation. The firm expected this matter to go to trial, resulting in thousands of billable hours at nondiscounted rates. Unfortunately, the evidence against the firm’s client, including extensive wiretap evidence, turned out to be far stronger than originally anticipated. As a result, the firm counseled the client to enter a guilty plea, which he did.

“When we first took the case, we thought our client might have been innocent,” explained Mr. Owens. “It appears we were wrong.”

The firm cannot provide additional details about this representation due to client confidentiality rules.


Expenses. Operating expenses were 5 percent higher than the first quarter of 2008.

Partner compensation expenses remain high. “Project Deadweight,” the firm’s program to remove non-business-generating partners from the firm, has not yet reached maximum effectiveness. “Some partners are simply refusing to leave, saying that they won’t leave the premises except in an ambulance or a hearse,” said Mr. Owens. “Unfortunately, many of these partners are members of groups that may be protected by laws against racial, gender or age discrimination. With respect to these partners, the firm is evaluating all its options.”

Associate compensation expenses continue to climb. In the first quarter, the firm had to pay out year-end and “special” bonuses to its associates, to remain competitive with its peer firms. “The bonus payments hit our bottom line hard,” said Mr. Owens.

Recruiting expenses, including expenses related to the summer associate program, are projected to remain high throughout 2009. The firm has discontinued its practice of sending costly bonsai trees to prospective recruits, as well as gourmet cookies at exam time.

In another cost containment measure, the firm has capped the length of its summer associate program at 10 weeks. The firm concluded that paying summer associates over $3,000 a week to do nothing but surf the Web and take three-hour lunches was not a wise allocation of corporate resources.

“Although we owe duties to the courts, our clients and our colleagues, ultimately we report to our shareholders,” said Mr. Owens. “Big Law is a big business, and we intend to run it like one.”

Cravath, Inc.: What If New York’s Law Firms Went Public?