Karp Diem: Paul Weiss Rifkind Wharton & Garrison
24 November 2008
Come ;1 ;January, Paul Weiss Rifkind Wharton & Garrison litigator Brad Karp will take on a major challenge. ;
As chairman-elect of the firm, Karp, who will succeed tax partner Alfred Youngwood, the chair since 1999, will inherit one of the most prestigious roles in the global legal market.
As such he will become the head of one of the largest and most profitable firms in the world, with 2007 revenue and average profit per equity partner of $651m (£433.22m) and $2.6m (£1.73m) respectively, as well as arguably the leading litigation practice in the US.
The challenge is one Karp is looking forward to. “We have an extraordinarily talented, motivated and collegial group of partners who all pull together for our clients and the firm,” he says. “What I’m most looking forward to is the privilege of working even more closely with my partners and our clients.”
In other words, Karp plans to keep on doing what he has been doing at Paul Weiss for the past 24 years. The problem is, in the eyes of the market at least, Paul Weiss needs to evolve if it is to retain its seat at the international top table in the long term.
The ascension of the 48-year-old Karp to the top job at Paul Weiss could not have happened at a more critical time for the blue-blood firm. The collapse of the credit markets and wholesale restructuring of the US financial system is already creating significant opportunities for the world’s leading litigation teams.
Paul Weiss’s biggest client, Citigroup, is alone keeping legions of the firm’s lawyers busy on auction rate securities scandals, subprime-related litigations and the Lehman Brothers bankruptcy.
The level of litigation stemming from the crisis is sure to increase
next year. Meanwhile, cross-border litigation and arbitration generally is booming across the globe, while in its home town of New York Paul Weiss is facing increasing competition from both its domestic rivals and aggressively expanding magic circle competitors. Karp, though, is accustomed to simultaneously keeping several balls in the air. But from next January, he may need to enhance his juggling skills.
“I think the market will look dramatically different a year from now,” Karp says, as he snatches a short break from advising clients to meet The Lawyer in his suitably lived-in Sixth Avenue corner office. “No one could have imagined six months ago that only two of the five bulge-bracket investment banks would remain, and that the structural status of the remaining two would have changed.
“No one could have imagined that Bear Stearns, Merrill Lynch and Lehman either would not exist or wouldn’t be independent. And no one could have imagined that AIG, Fannie [Mae], Freddie [Mac], WaMu [Washington Mutual] and Wachovia would have collapsed or no longer be independent. Given the frenetic pace of recent events, I fear even these market observations will appear woefully obsolete when they appear in print.”
Karp’s comments testify to the continuing level of astonishment among some of the most battle-hardened professionals at the unravelling of the global financial system. A few minutes earlier a welcoming Karp, beaming and in shirt sleeves, had collected me from his firm’s reception area where I had been boning up on the history of Paul Weiss, courtesy of a glass-topped cabinet strewn with cuttings on legendary former partner Arthur Liman (Liman served both as counsel for the New York state investigation into the 1971 Attica Prison uprising and as chief counsel for the Senate Iran-Contra affair).
Unencumbered by the shackles of any PR sidekick, Karp immediately admits to having slept no more than a couple of hours a night for the past three weeks. “I’ve never known anything like it – it’s been a busy and traumatic 2008 thus far,” he deadpans. “Busier than any prior year in the firm’s history, and certainly more anxiety-provoking.”
Revenue from disputes represents at least 55 per cent of Paul Weiss’s firmwide income. For Karp, this is both a huge bonus and a problem.
As one legal market commentator says: “Paul Weiss is a fabulous litigation firm – almost to the point where they’d want to emphasise their corporate practice a little bit more.”
Karp is familiar with the issue, but chooses to respond to the criticism of Paul Weiss’s low-visibility transactional group by emphasising its quality.
“We have a world-class corporate group and we’ve made significant commitments to our transactional practice and capitalised on significant opportunities over the past couple of years,” he claims.
Karp points to Citigroup’s $14.8bn (£9.85bn) acquisition of securities brokerage Nikko Cordial last year – the largest acquisition of a Japanese company by a non-Japanese one in history and one of a number of multibillion-dollar deals Paul Weiss has handled for Citi. The firm’s private equity group regularly advises clients such as Oak Hill Capital Partners, Oaktree Capital Management and General Atlantic.
Internal politics alone dictate that Karp will need to emphasise continually his firm’s transactional practice once he is chairman. The reality is that it will take significant investment over years if Paul Weiss’s corporate group is ever to rival the firm’s marquee disputes team.
“It’s just not seen as a player in the transactional market,” says one New York M&A partner at a rival firm.
The ;advent ;of ;the ;Obama presidency is sure to see the creation of an entirely new regulatory scheme for banking and financial services. It is likely to result in an avalanche of disputes and regulatory work for those law firms best placed to capitalise on the coming boom.
“I think we’re very well positioned,” asserts Karp. “We’re a safe bet for financial institutions and we look forward to helping our financial clients navigate this fast-changing landscape and deal with the enormous challenges that lie ahead.”
Another ;question mark dogging that positioning, however, is the firm’s presence overseas. “Ninety per cent of their lawyers are on Sixth Avenue,” remarks one legal market commentator.
Karp confirms that the increasing globalisation of the economy makes almost any significant dispute cross-border to some degree. The investigation into Parmalat, where Paul Weiss is representing Citigroup, is a good example. In addition, international investors are soon expected to be chasing after the US financial institutions that arranged or structured collateralised debt obligations (CDOs) for payback, while an increasing number of regulatory inquiries, such as Foreign Corrupt Practices Act (FCPA) investigations, have global dimensions.
Meanwhile, on the other side of the Atlantic, the UK’s Financial Services Authority has become much more aggressive in terms of its regulatory influence – something Paul Weiss usually finds itself involved in primarily via US-based clients that are under investigation.
Although Karp prefers not to say too much about the firm’s referral relationships, in the past Paul Weiss has worked with Freshfields Bruckhaus Deringer for litigation. It has also worked with Macfarlanes, Slaughter and May and SJ Berwin.
Earlier this year Paul Weiss London partner David Lakhdir was quoted as saying it would be “very sensible” for the firm to build “increasingly concrete operational platforms” with a number of firms. Lakhdir, however, ruled out any exclusive alliances.
When quizzed on this, Karp deflects, saying: “We’re always concentrating on shoring up those relationships to make sure we can provide seamless service to our key clients that have needs in all ports of call.”
Citigroup is one of Paul Weiss’s key clients, yet with Karp as the bank’s relationship partner, what happens when he becomes chairman?
“At this point Citi is a firmwide relationship,” says Karp. “One of the things I’m most proud of is how institutionalised this client has become over the past decade. Each time I’ve introduced another partner to this relationship, and for that matter to other client relationships I’m responsible for, that partner has received rave reviews. It’s one of the most rewarding aspects of running significant client relationships at this firm.”
There is no doubt, however, that the primary relationship is between the bank and Karp. So what happens to Karp and his practice when
he takes over running the firm? According to one litigation partner at a rival firm, “Karp’s real value is his willingness to roll up his sleeves and get stuck in for his client. How will he manage that when he’s chairman?”
“I’ll get less sleep or I’ll learn to think more quickly” he quips. “The expectation is that I’ll continue to practise nearly full-time and strategically spend the time necessary to run the firm. I do roll up my sleeves – I’m very involved with my clients and their challenges, and I do try to be very responsive to clients. One lesson I learnt from [former senior partner] Judge Simon Rifkind and Arthur Liman is that, at the end of the day, it’s all about providing high-quality client service, and I try to lead by example. I try to provide the highest-quality service to my clients and be as responsive as any lawyer in this town. I doubt my DNA will allow me to change. And I’m fortunate that there’s a terrific managerial apparatus in place at Paul Weiss.
All that being said, ask me again on 2 January.”
There is no doubt that Karp scores highly for responsiveness. Emails and phone calls to Karp are generally returned within a couple of hours. He may also have an advantage when he becomes chairman over more internationally diverse rivals – at least in terms of the logistics of keeping in touch with his partners.
Several partners at firms with broader international networks than Paul Weiss’s claim, not unreasonably, that Karp’s management role will be easier simply because his firm is present in fewer timezones. Karp agrees.
“The fact that the majority of our partners are based in New York and Washington [DC] certainly makes it easier,” he says. “We don’t have the Cleary [Gottlieb Steen & Hamilton] model, for example, where partners are dispersed throughout the world. I have close relationships with my partners in our foreign offices and pay careful attention to the work handled by our international offices. I’m constantly on the phone to London, Tokyo, Beijing and Hong Kong. We’re a 24-7 global operation. But the fact that most of my partners are located right here will make management much easier. Or so I’ve been told.”
As the world continues to shrink and the firm’s key clients continue to find themselves embroiled in litigation outside the US, there will be an increasing demand for them to be able to turn to their regular litigation counsel for advice and representation.
“Depending on the nature of the matter, we may need to partner with other firms,” admits Karp. “That’s worked quite well in the past, but rest assured that this is one of the strategic items on my to-do list.”
Chances are, it will be a long list.