The Am Law 100: Profits Dip at Shearman & Sterling

After two strong years of catch-up, Shearman & Sterling's turnaround plan hit a speed bump in 2015. Gross revenues grew less than 2 percent, to about $860 million, while revenue per lawyer stayed level at $1.025 million, and profits per partner declined 3.7 percent, to $1.835 million.

"We had a disappointing year in profits per partner, no doubt about it," said senior partner Creighton Condon. "But we delivered on everything we expected to deliver on. If not for some delayed collections, year-end market turmoil and currency headwinds, we would have had a nicely up year."

Condon said the biggest factor in the profits dip was a delay in collected billings, which drove up year-end inventory by 17 percent. That problem has been smoothed out by a spike in collections early in 2016, he said. Productivity was tamped down by a mix of partner retirements and lateral absorption, he added.

Market turbulence in late 2015 hit the capital markets group especially hard, with four IPOs put on hold, and currency swings hurt all global firms. Absent all of these factors, Condon estimates that revenue would have risen 5 percent in 2015.

Asked who bore the brunt of the challenging year, Condon replied that Shearman aims "to share benefits and burdens" up and down the pay scale. The firm kept its ratio of lowest- to highest-paid partners constant at about 6-to-1, and Condon stated unequivocally that the firm has no plan to de-equitize partners.

Last year, the reported ranks of equity partners rose from 157 to 162, and the number of reported nonequity partners fell from 34 to 26. As for a law firm merger, Condon said flatly: "It doesn't appeal."

Last year saw the arrival of 10 lateral partners, Shearman reported, and the departure of five. The splashiest arrival was a three-partner IP litigation team from Kenyon & Kenyon, advancing the firm's long-term plan to get heavier in disputes.

In the Persian Gulf region, the firm opened in Dubai, while forming an association with the 16-lawyer Saudi corporate boutique Abdulaziz Alassaf & Partners. Both moves amount to a bet that the need to diversify from oil will drive regional demand for new financings and joint ventures.

A strong year for M&A—group revenue rose 20 percent despite market turmoil, Condon said—was headlined by new client Altice N.V.'s $18 billion bid for Cablevision Systems Corporation.

But Condon said the firm takes most pride in its work at law's frontiers. In 2015, Shearman devised Abu Dhabi's new securities framework, began to finance a copper and gold mine in the Gobi Desert that may account for 40 percent of Mongolia's GDP, and continued to dominate the Chinese management buyout market by taking private the social networking platform Momo Inc. for $3.6 billion.