Article published in: EL CONFIDENCIAL
Reputation is a firm’s true asset: it sustains fees, attracts top talent and secures client confidence. But reputation alone does not pay the payroll at the end of the month. In Latin America we are overlooking the dilemma that firms in Washington and New York have been facing for a couple of weeks now; a more reflective look at the complexity of this situation is needed. With this text I run the risk of simplifying something that is much more complex and full of nuances, but I think it is important to try to sort out some ideas in order to understand what is really at stake.
In large firms in these cities, the line between prestige and profitability runs – with surprising frequency – through federal contracts: litigation against the state, internal investigations for agencies, regulatory work requiring security clearances and, above all, ongoing advice to public agencies and defense contractors. In many firms, such assignments account for between 10% and 25% of annual billings; enough to fund six-figure salaries for associates, maintain offices in the capital, and sustain high profit distributions to partners.
Therein lies the strength – and the gravity – of the executive orders issued by the White House against several “nuisance” firms, as well as the parallel investigations initiated by the Department of Justice (DOJ) and the EEOC. These are two distinct fronts: the former suspend contracts and clearances; the latter require firms to turn over internal policies, payroll and Diversity, Equity and Inclusion (DEI) statistics. Suspending licenses, canceling contracts and vetoing access to government buildings is not a simple political gesture: it is a blockade that immediately strangles the main lines of entry for strategic practices.
A collateral fear -although for now remote- is that extensive audits on these policies may touch on sensitive information of the firm. There has been no question of handing over client files, nor has attorney-client privilege been directly challenged, but the mere possibility of an administrative investigation leading to more intrusive requirements raises concerns. From a reputational standpoint, the perception that confidentiality could be compromised would be almost as destructive as the loss of contracts.
Hence the deep division of strategies. Perkins Coie and WilmerHale chose to litigate: on April 23 they asked for the final annulment of the orders. The judges hearing the cases questioned the legal basis and political motivation. At the other extreme, firms such as Paul Weiss and Skadden Arps accepted pacts that ensure continuity of contracts in exchange for onerous compromises – imposed pro-bono work, elimination of DEI programs and, in some cases, critical statements against former partners. Each choice reflects a different reading of the risk-prestige balance: is the certainty of cash today worth more or the right of representation and professional independence tomorrow? -With this question, I run the risk of oversimplifying, but I would think that this is what the partners have in mind day and night.
Resolving this dilemma is not easy. Many firms operate under “cash in, cash out” financial models, where annual profits are split almost entirely among the partners. There are no robust reserves for contingencies or protracted legal battles. In this context, asking the managing partner to act with the firm’s long-term protection in mind – for example, by resisting an executive order – strains him against an incentive system that requires him to maximize immediate profit.
Moreover, the eat what you kill compensation model – where partners are remunerated on the basis of their individual production – exacerbates the problem: it incentivizes minimal risk and personal preservation decisions, not necessarily the best for the firm’s collective interest. Building a contingency fund to withstand political pressures is not simply an act of will: it requires changing structural rules on how past, present and future success is measured and distributed.
The dilemma is not unique to the United States. In Latin America, public procurement – in energy, infrastructure or defense – accounts for an even greater percentage of the revenues of many Tier 1 firms. And in parallel, the level of scrutiny and political intervention has grown in sectors previously considered far removed from government influence. In Mexico and Colombia, public statements by high-level officials against the judicial system and individual firms are increasingly frequent. The temptation to use public contracting as a political lever is no longer a hypothetical risk, but a latent reality.
An added reputational risk factor is the leakage of talent and internal emails: the departure of senior associates and the publication of private exchanges on social networks amplify the sense of crisis and erode the trust of clients and professionals.
The lessons seem clear, but their execution is complex. Statutorily shield professional autonomy: no agreement that alters DEI policy, pro-bono initiatives or client choice should be signed without a qualified majority of the partnership. Creating a contingency fund requires reforming the financial structure to systematically set aside a portion of the annual profit, sacrificing immediate distributions in favor of institutional resilience. Diversifying the portfolio of services to reduce exposure to a single ministry or agency is more important than ever. And, above all, communicate transparently: the lawyers who build the firm – and the clients who support it – deserve to know whether the firm is willing to defend their independence or willing to mortgage it in the short term.
What happened in Washington demonstrates that trust is built on reputation and financed by turnover, but it also reveals that reputational survival requires sound financial and governance structures. While the echo of the political earthquake is still reverberating, it is worth remembering that the independence of the legal profession is not a declaration of principles: it is a strategic decision.
Antonio Gómez Montoya
Black Swan Consultoría