Sullivan & Cromwell
Sullivan & Cromwell
Gross Billings: $395 million (1997 est.)
SICs: 8111 Legal Services
Sullivan & Cromwell is one of the nation’s elite law firms. For more than a century it has been closely involved in the affairs of some of the largest industrial and commercial enterprises in the United States. Sullivan & Cromwell also has been closely involved in the formulation and execution of U.S. foreign policy and the development and growth of global capital markets. It was tied, in terms of gross revenue, for fifth position among U.S. law firms in 1996.
Under Cromwell’s Guiding Hand: 1879-1920
Sullivan & Cromwell was founded in 1879 by Algernon Sydney Sullivan and William Nelson Cromwell. The middleaged Sullivan was senior partner; he had enabled the youthful Cromwell, formerly a bookkeeper, to attend law school. The firm established offices at the corner of Broad and Wall Streets, opposite the New York Stock Exchange. It earned about $22,500 in its first year. Law clerks were unpaid, and the payroll came to only $950.
Sullivan was a trial lawyer who thought corporations should be outlawed, but the firm increasingly turned from litigation (charging $950 for a criminal case and, if it lost the case, $250 for the appeal) to counseling clients on purely business problems. The major work involved rescuing companies stricken by reverses, forming new companies and merging existing ones into larger units, and obtaining financing, primarily from the foreign sources whose capital was then essential to the American economy. Among the earliest companies Sullivan & Cromwell helped organize was the Edison General Electric Co. in 1882. The firm also helped rescue Henry Villard’s Northern Pacific Railroad from bankruptcy in this decade.
After Sullivan died in 1887, Cromwell chose William J. Curtis as junior partner. Curtis was instrumental in persuading New Jersey’s legislature to pass an act making the state a haven for corporation filings. In addition to lowering fees, the act made it legally possible for one corporation to own stock in another one, which led to the formation of holding companies. Holding companies replaced the trusts that had been broken up by legislation and court decisions. The first companies to incorporate under New Jersey’s new corporation law were Sullivan & Cromwell clients.
By 1900 Sullivan & Cromwell had 14 lawyers, working four to a room in bullpens surrounding the library. The firm was involved in the creation of the U.S. Steel Corp. in 1901, for which Cromwell received $2 million worth of stock in return for $250,000 in cash. By this time utilities were replacing railroads as the most powerful force in the U.S. economy. Sullivan & Cromwell helped them form holding companies with a trail of subsidiaries; in the case of Union Electric Co., the firm created more than 1,000 subsidiaries. The firm also added to its reputation for saving troubled corporations by means of the “Cromwell Plan,” which involved an orderly liquidation and reorganization of companies such as American Water Works, Decker, Howell & Co., and Price, McCormick & Co. Essentially, the plan aimed at holding off creditors as long as possible in times of market panic while awaiting economic recovery.
Sullivan & Cromwell also represented foreign clients, including the French interests that had tried and failed to build a canal in Panama linking the Atlantic and Pacific Oceans. Cromwell’s task was to bail out the French company by arranging the sale of its property—which included a railroad—to the U.S. government. Cromwell launched a successful lobbying campaign to convince senators and other powerful insiders that Panama rather than Nicaragua was the right place for a canal. After the Colombian Senate rejected the treaty needed to proceed, Cromwell became a behind-the-scenes agent for the revolution that resulted in Panama’s independence from Colombia. The firm’s French client then was able to collect $40 million from the United States for its property. Sullivan & Cromwell billed the company $800,000 for its services but had to settle for an arbitration award of $167,500 and expenses.
Cromwell increasingly absented himself from the firm’s quarters, and Alfred Jaretzki became managing partner of Sullivan & Cromwell about 1900. By 1915, when Royall Victor succeeded Jaretzki, Cromwell was living in Paris, where the firm had established an office in 1911. He spent most of World War I and considerable time after the war, until 1937, in France. Even when in New York, he rarely came to Sullivan & Cromwell’s offices, becoming a semirecluse residing in a midtown mansion crowded with tapestries, paintings, and statuettes. He survived until 1948, after which Rockefeller Center pulled down his residence to erect a high-rise office building.
Prosperity, Depression, Hot and Cold Wars: 1920-53
During the 1920s Sullivan & Cromwell’s basic business was “green goods”: drafting the indenture agreements under which financial institutions advanced money to corporations and foreign governments. It was active in restoring the international commercial links broken by World War I; between 1924 and 1931 the firm handled 94 securities issues involving more than $1 billion in loans to European parties, especially in Germany. Many of these loans fell into default during the world economic depression of the 1930s. By the end of 1928 Sullivan & Cromwell had offices in Paris, Berlin, and Buenos Aires. John Foster Dulles succeeded Victor as managing partner in 1926.
When the firm moved to larger quarters at 48 Wall Street in 1929, there were 63 lawyers, of whom 14 were partners and 37 were associates. Four women lawyers—the firm’s first—were hired in 1930. During the 1920s and 1930s Sullivan & Cromwell revived its trial practice under the leadership of Harlan Fiske Stone, who later became U.S. attorney general and chief justice of the United States.
During the 1930s and most of the 1940s Sullivan & Cromwell was the largest law firm in the world. Through the Depression years Dulles established a litigation group to fight a New Deal measure designed to break up public utility holding companies. After the firm’s legal challenge failed in the courts, the firm stayed busy dissolving the holding companies it had once helped put together. It also was very active in the legal work made necessary by stringent new federal regulations in the securities field. Overseas, Sullivan & Cromwell closed its Berlin office in 1935, but Dulles was criticized—both at the time and after World War II—for trying to maintain good relations with the Nazi regime to serve its clients. Among these clients was General Aniline & Film Corp., the biggest subsidiary in the Western Hemisphere of the notorious German cartel I.G. Farben, which employed slave labor during the war.
Dulles resigned as Sullivan & Cromwell’s chairman in 1949 and was succeeded by Arthur H. Dean. The firm’s influence on foreign policy reached its zenith in 1953, when Dulles became secretary of state and his brother Allen (also a Sullivan & Cromwell partner) became director of the Central Intelligence Agency. Dean took leave to serve the government in a number of posts, including as negotiator in the talks that ended the Korean War in 1953.
Specialized Units: 1950-90
During the 1950s Sullivan & Cromwell’s most lucrative work was in the area of antitrust defenses. It successfully defended five of the largest investment banking firms in the nation against antitrust charges filed by the federal government. The general practice division dealt with the complexities of increasingly large public stock offerings. In 1956 it handled Ford Motor Co.’s $643 million initial public offering, the largest ever to that time. Sullivan & Cromwell reopened its Paris office—closed during World War II—in 1962 and opened a London office in 1972. The firm also opened a Park Avenue office in midtown Manhattan in 1971 to handle estates and personal affairs and one in Washington, D.C., in 1977. It moved headquarters to 125 Broad Street, overlooking New York Harbor, in 1979.
William Ward Foshay succeeded Dean as chairman in 1972. Sullivan & Cromwell now consisted of litigation, general practice, and tax groups, plus a group for the administration of estates and trusts. A mergers and acquisition group was formed in 1980. The firm opened offices in Melbourne in 1983, Los Angeles in 1984, and Tokyo in 1987.
To settle a class action suit Sullivan & Cromwell agreed in 1977 to recruit, hire, and pay women lawyers on the same basis as men. The firm at that time had 59 partners, all men, and 116 associates, of whom 26 were women. The first woman partner was appointed in 1982, and by the summer of 1987 there were four, but no blacks. The firm was continuing its quaint practice—unique among major law firms—of simply charging its clients a fee it considered “appropriate” rather than submitting hourly billing. A management committee of ten partners was in charge of setting Sullivan & Cromwell’s policies, and a smaller committee of seven decided on how the firm would distribute more than half of its annual profits. The firm had a mandatory three-year phaseout retirement plan that went into effect when the partners reached age 67.
John R. Stevenson, who like his predecessors had considerable diplomatic experience, became chairman and senior partner of Sullivan & Cromwell in 1979. He retired in 1987 and was succeeded by John E. Merow. Merow took the helm during one of the most tempestuous periods in the firm’s history. George C. Kern, Jr., head of the mergers and acquisitions unit, was accused by the Securities and Exchange Commission of violating disclosure rules while defending a company against a hostile bid. In addition, a court-supervised disciplinary panel was investigating charges that a partner had bribed and bullied witnesses in the court battle over the estate of the pharmaceuticals heir J. Seward Johnson, and an investor group accused the firm of improperly withholding vital information while fighting the group’s lawsuit against a corporate client of Sullivan & Cromwell.
Some of the lawyers working for Sullivan & Cromwell’s competitors suggested that the blue-chip firm’s troubles stemmed from an air of arrogance. One likened opposing Sullivan & Cromwell to “having a thousand-pound tuna on the line.” “They know the rules,” another told a reporter, “but sometimes they act as if the rules just don’t apply to them.” All the above matters, however, apparently were disposed of without penalty to the firm. Kern continued to be Sullivan & Cromwell‘s star because his mergers and acquisitions unit was the firm’s most profitable group, bringing in as much as one-third of all billings. In 1986 alone the unit was involved in more than $50 billion worth of acquisitions.
Before 1968 Sullivan & Cromwell’s banking practice consisted of a couple of partners in estates and trusts performing routine work such as rolling over term loans. A separate banking practice was established in 1968. Within Sullivan & Cromwell’s lucrative mergers and acquisitions group, bank mergers emerged in the 1980s as a major source of activity and profit for Sullivan & Cromwell. The firm helped structure more than 60 major banking mergers in the United States, valued at more than $40.2 billion, during this decade.
Sullivan & Cromwell in the 1990s
In 1991 Sullivan & Cromwell played a part in nearly every major banking deal, including the merger of Manufacturers Hanover Corp. and Chemical Banking Corp. and the acquisition of C&S/Sovran Corp. by NCNB Corp. to form NationsBank Corp. There were seven Sullivan & Cromwell partners and 25 staffers in all engaged in this field at the time.
By the mid-1990s Sullivan & Cromwell partner H. Rodgin Cohen was presiding over the firm’s banking practice area, supervising nine partners and ten to 12 associates. The caseload was heavier than ever because of the increasing globalization of banking and the worldwide convergence of financial services. Cohen was recognized as “king of the bank lawyers”—“Mount Everest surrounded by the Appalachians,” according to one mergers and acquisitions banker. Either he or one other lawyer represented one of the principals in 18 of the top 25 bank deals in the United States in 1997. Cohen was one of the partners serving on the executive committee charged with overseeing the firm.
In mergers and acquisitions, Sullivan & Cromwell was ranked fourth among law firms in 1997, acting as legal adviser in $91.5 billion worth of announced deals through October. The firm ranked third among underwriting legal advisers during this period, involved in domestic new issues totaling $14.6 billion in proceeds. New offices were established in Hong Kong in 1992 and in Frankfurt, Germany, in 1995.
In 1996 Sullivan & Cromwell had four divisions. General practice (corporate and financial work) was the largest and included mergers and acquisitions as one of its many units. The other divisions were litigation, tax, and estates and personal. (A fifth, practice development, had been added by 1998.) Securities work accounted for 25 percent of the firm’s activity, mergers and acquisitions, 22 percent, and litigation, 21 percent. Half of the firm’s clients were outside of the United States. Sullivan & Cromwell had 484 lawyers, including 114 partners, in November 1997. It has maintained a longstanding policy of not recruiting its partners from other firms.
Principal Operating Units
Departments: Estates and Personal Practice Group; General Practice Group; Litigation Practice Group; Practice Development Group; Tax Practice Group. Practice Areas: Asset-Based Finance; Broker/Dealer Regulation; Commercial Banking; Commercial Real Estate; Commodities, Futures and Derivatives; Corporate Reorganization/Bankruptcy; Environmental Law; Insurance and Tort Liability; Intellectual Property; International Trade and Investment; Investment Management; Labor and Employment; Mergers and Acquisitions; Project Finance.
Brill, Steven, The American Lawyer Guide to Law Firms, 1981-1982, New York: n.p., 1982, pp. 738-43.
Geyelin, Milo, “Big Law Firm’s Gaffe Over Sealed Records Raises Troubling Issues,” Wall Street Journal, October 4, 1995, pp. Al, A6.
Gray, Patricia Bellow, “Legal Nightmare: Multiple Allegation of Impropriety Beset Sullivan & Cromwell,” Wall Street Journal, August 3, 1987, pp. 1, 14.
Lisagor, Nancy, and Lipsius, Frank, A Law Unto Itself, New York: William Morrow, 1988.
Lubasch, Arnold H., “Top Law Firm Bans Sex Discrimination,” New York Times, May 8, 1977, p. A13.
Matthews, Gordon, “Sullivan & Cromwell Rides Merger Wave,” American Banker, January 10, 1992, pp. 1, 10.
McCullough, David, The Path Between the Seas, New York: Simon and Schuster, 1977.
Rosenberg, Geanne, “Bring in the Lawyers,” Investment Dealers’ Digest, November 3, 1997, pp. 19-20, 23.
Siegel, Matt, “The Bank Merger Masters,” Fortune, May 25, 1998, p. 44.
Sullivan & Cromwell, 1879-1979: A Century at Law, New York: privately printed, 1979.
Teitelman, Robert, “King of the Bank Lawyers,” Institutional Investor, November 1994, pp. 64-70, 72.