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With its illustrious history and posh name, Shearman & Sterling strikes many as the epitome of the patrician, white-shoe New York law firm. It is a perception the 1,013-lawyer firm’s top partners have long cultivated, frequently reminding clients, law school recruits and just about anyone else that Shearman is a “peer firm” to the likes of Sullivan & Cromwell, Davis Polk & Wardwell and other elite firms. Meeting with a reporter in one of the cozier conference rooms at Shearman’s midtown Manhattan offices, senior partner Rohan Weerasinghe repeats the party line. “I believe we are a top-tier firm,” he said, “and I think we will remain a top-tier firm.” But that is exactly the question mark hanging over Shearman after a nightmarish past few years in which its cherished self-image was tarnished by associate layoffs, partner departures and signs of internal dissent, all capped by a growing profitability gap between Shearman and its erstwhile peers. The numbers tell a good part of the tale. In 2000, Shearman’s profits per partner of $1.35 million put it clearly among the front ranks of firms. But the following year the firm was hit hard by Wall Street’s slump, and its figure dropped by 30% to $980,000. In fall 2001, the firm announced it would lay off about 10% of its associates. Lagging behind There were, of course, firms that did worse, but Shearman does not compare itself to them. According to a survey in The American Lawyer, a sister publication of The National Law Journal, virtually all of the top New York firms had soared well past the $2 million mark in terms of profits per partner by 2004. Meanwhile, Shearman continued to lag at its own 2000 level. “We’re very conscious of that,” said Weerasinghe. “We’re cognizant of the fact that, for the past four years, we’ve done well but not as well as our peer firms.” Chief responsibility for reversing that trend fell to the Sri Lankan-born Weerasinghe, 55, last June when the capital markets lawyer was first selected by Shearman’s policy committee, then elected by partners to the firm’s top leadership position. The first nonwhite partner to lead a large New York law firm, he succeeded as senior partner David W. Heleniak, who led the firm from 2001 until last May, when he joined Morgan Stanley & Co. as vice chairman. The change has spurred talk of a fresh start for the 133-year-old firm. Indeed, if numbers memorialized Shearman’s decline, they may now be pointing to its revival. The firm said its profits per partner grew by 22% last year, finally pushing past its 2000 peak to reach $1.4 million. But Shearman still has far to go to catch up with its peers, not to mention the dozens of firms from Los Angeles, Boston and elsewhere whose profits per partner have soared past the $1 million mark in recent years. Other signs of trouble persist as well: The firm in recent weeks has seen a number of high-profile partner departures, including that of a five-partner investment management practice to another New York firm, Willkie Farr & Gallagher. Such departures point to the fact that, after four years of turmoil, disagreements about the firm’s future direction are close to the surface, for while partners broadly agree on what has ailed Shearman during that time, they have very different ideas about what to do. Indeed, they have very different ideas about what it means for Shearman to be a top-tier firm. Strategic thinker Bridging those differences will clearly be Weerasinghe’s greatest challenge. But if anyone can do it, it is Weerasinghe, said Rosemary Berkery, who started out with him as a Shearman associate and is now one of his most important clients as general counsel of Merrill Lynch & Co. She recalled that even as a young lawyer in the late 1970s, Weerasinghe impressed her with his ability to think strategically. “He was one of the few associates clients would look to as if he were a partner,” she said. Every bit the Shearman lifer, Weerasinghe joined the firm in 1977 after earning undergraduate, law and graduate business degrees at Harvard. He has spent virtually his entire professional life in the firm’s New York headquarters, working with blue-chip investment banks. He speaks with authority on the firm’s strengths, as well as its weaknesses. He is clearly happy to tick off the evidence of the firm’s strong presence on Wall Street and in public mergers and acquisitions. Among recent engagements, the firm advised Boston Scientific Corp. in its successful $27 billion bid for medical device maker Guidant Corp. But Weerasinghe is also forthright in identifying litigation and private equity as areas where the firm is weak compared to other leading New York firms. Given how some private equity transactions have come to dwarf public M&A deals, and how lucrative white-collar, securities, antitrust and patent litigation have all been in recent years, it is easy to see how Shearman has suffered. Hit hard when Wall Street sputtered in 2001, Shearman was then unable to ride two of the strongest currents of the recovery. Moreover, unlike most of the other leading New York firms, Shearman has pursued a strategy of international expansion, and it now has more than one- third of its lawyers in overseas offices.

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