- In today’s CEO Daily: Things go south when you have a botched succession and no Plan B.
- The big leadership story: Alphabet’s $500 billion rout.
- The markets: U.S. futures sink as massive AI spending spooks investors.
- Plus: All the news and watercooler chat from Fortune.
Good morning. There are a lot of lessons coming out of Weil, Gotshal & Manges, the storied law firm that’s winding down after 95 years in business. How AI will disrupt law is not one of them. Nor is this a tale about crime, scandal, financial malfeasance, reckless accounting or any of the other perils that can fell a firm at this speed. Instead, this is a story about what happens when the departure of some key leaders sparks an outflow of talent that undermines the foundation of a business based on expertise, relationships, and trust. Some of the plot points that drove this sad narrative:
A botched succession. Law firms are partnerships, which means the partners typically vote on who will serve as executive partner and establish the firm’s new direction in the process. As one leader at a rival firm told me yesterday: “Anyone who has an ownership in the firm normally gets to vote on key management decisions.” That didn’t happen here. Barry Wolf, who’s led the firm for 16 years, instead appointed corporate practice chair Michael Aiello to lead a committee tasked with identifying a successor and managing the transition. They picked Ramona Nee in March. By September, she told partners that she no longer planned to take the role. It was kept largely quiet and there was no Plan B. Then Aiello announced he and a team were leaving for Cravath, Swaine & Moore. Nobody seemed invested in finding a new leader.
Employees are not family. Wolf prided himself on the loyalty of partners, saying he viewed the firm as family. I’ve heard other CEOs say that, too. But you don’t pay people to be in your family—unless it’s a highly dysfunctional one. These are jobs where individuals will stay as long as they see a stable, bright, and well-compensated future. If they’re loyal to anyone, it’s to the people they directly work with every day, which is why you often see entire teams relocate in sectors like banking and law. In a talent-driven business, talent is mobile and very willing to quit “the family” for a happier home life down the street.
Revenue growth matters as much as profits. Weil Gotshal was not losing money, but its growth looked anemic when compared to some rivals, with the firm’s revenues doubling to $2 billion over the past decade while rival Kirkland & Ellis generated a fivefold increase to $10 billion. Weil Gotshal’s revenue grew less than 3% last year while the 50 largest firms grew more than 13% on average, according to Wells Fargo. Growing companies tend to attract ambitious and high-earning people. Revenue is what drives compensation and profits in a fixed-cost business like law. Firms aren’t using that capital to build data centers or new cars. The only infrastructure that matters is talent, and when the core pillars of that talent crumble or disappear, the firm goes down, too.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
This story was originally featured on Fortune.com
