In a suddenly uncertain lateral market, expect bankruptcy and restructuring practices to stand out.
As a teetering economy once again pushes countercyclical bankruptcy and restructuring practices into the spotlight, a nearly 20-year veteran of Akin Gump Strauss Hauer & Feld found a new home at New York’s Stroock & Stroock & Lavan this week.
Allison Miller, who is joining Stroock as a partner in its financial restructuring practice, had spent her entire career at Akin Gump in Washington, D.C., and New York, making partner three years ago. Her resume includes heading up transactional matters in the Sears, Avaya, iHeart Communications, SunEdison, American Tire Distributors and Seadrill restructurings.
Miller said that as an Akin Gump lifer, she had nothing but good things to say about the firm and hadn’t been looking to leave. But when a recruiter approached her about the opportunity in the fall, she liked what she heard.
“Their platform is perfectly suited for my core strengths—liability management, special situations and distressed transactions—in a fully integrated restructuring practice,” she said of Stroock. “It’s a smaller firm than Akin Gump, which was appealing to me because it can move more quickly on certain aspects and be more flexible and less structured than a bigger firm.” She said Stroock’s creditor-side practice was a draw, and so was a client base that is aligned with hers.
Miller’s move comes as bankruptcy and restructuring practice groups are expecting a busy period as a result of the coronavirus outbreak, which has shut down much of the country and mandated most employees work from home.
Many firms had already been working during the past few years to bolster their bankruptcy groups in anticipation of an economic downturn, which had yet to materialize. As law firms now adjust to the sudden onset of a recession, recruiters say lateral hiring will accelerate even more.
Keith Fall, a longtime recruiter at Walker Associates who facilitated Miller’s move to Stroock, noted that the coronavirus affected her transition even though the hire was set in motion before the pandemic took hold.
“There’s always a bit of stress at the end of a deal, which was magnified here with the timing of COVID-19,” Fall said. “But she has the benefit of being in a restructuring practice, which is countercyclical, and both she and Stroock have been extremely busy in the last few years. The space will probably only get busier, making this hire less risky than it otherwise might have been.”
Fall, who depends on lawyer moves for his livelihood, said he expects a resurgence in lateral activity in general as soon as the worst economic effects of the virus are contained.
“There’s a lot of cautious optimism from law firm leadership, who are confident things will go back to normal and then will want to pick [lateral recruiting] back up,” he said.
Fall said there’s a large degree of uncertainty in the market right now, with some law firms putting expansion efforts on pause while others are continuing their lateral hire strategy. But even as some law firms halt partner pay, furlough associates and lay off staff, his clients still have needs to be met, leaving an opening for hires even throughout the economic uncertainty.
“Firms will need to be specific with their needs as opposed to their wants,” he said, adding that while building up an investment practice may be a luxury many can’t afford, bankruptcy and restructuring expertise will be crucial going forward.
“Law firms are still accountable to their clients and need to service clients’ needs,” he said. “You can’t afford to have holes in any practices.”
Samantha Stokes, based in New York, is a staff reporter at American Lawyer covering the business of law. You can reach her at firstname.lastname@example.org or on Twitter: @stokessamanthaj.
Keith Fall is a partner with the New York-based legal recruiting firm, Walker Associates. He can be reached at Kfall@walkersearch.com
By Samantha Stokes
Photo: Diego M. Radzinschi/ALM
Rather than probing about candidates’ past earnings and future expectations, lateral recruiting teams would benefit by focusing on how candidates can address concrete business needs and growth.
Compensation. Remuneration. Base-and-bonus. Whatever term a recruiting team chooses, if they ask a lateral partner candidate about current earnings, they’re going to get pushback. Compensation is a touchy, personal subject. It’s also a topic that most partners would prefer to avoid, because, well, it’s complicated.
In New York, it’s been illegal to ask about a job applicant’s salary history since October 2017. More than two years later, however, when it comes to questioning lateral partner candidates, we find that about half of AmLaw firms choose to ask anyway. These firms (including some that are structured as corporations and pay partners as employees with a W-2), maintain that because the candidate seeks to join as a shareholder or partner, the rule banning compensation questions does not apply. This is a position that many employment discrimination experts contend is wrong. Meanwhile, the other half of firms opt to ask partner candidates about their earnings “expectations.” That’s an artful dodge, but the “expectations” question nonetheless triggers candidates’ anxieties by requiring a prospective candidate to self-assess—in a vacuum—their overall value to a new firm or else disclose their current compensation as an easy way out.
As New York-based recruiters who have placed hundreds of partners in New York City, we suggest that questions about a prospective partner’s past earnings or future expectations should become less relevant. The burden of coming up with a compensation figure shouldn’t be on a candidate. It should fall on the shoulders of the law firm’s management and hiring teams. Who else understands better how a firm’s compensation system works, and how much the firm can afford or stretch to pay an incoming lateral partner?
We have long recommended that firms map out—in advance of any search—the specific client demands and growth strategies that warrant bringing in lateral partner talent. Ideally, firm management will also have identified the particular business objectives they intend to achieve through lateral recruitment. According to Citi Hildebrandt’s 2020 client advisory, these planning tactics have taken hold: “Firms are now aligning their hiring decisions more closely with the firm’s overall strategy,” the report states.
Citi Hildebrandt’s latest findings also conclude that firms aim to resist the temptations of “opportunistic hiring.” In other words, unless hiring partners can state a compelling, business-driven rationale that their entire partnership will support, they’re increasingly reluctant to make offers that others might perceive as grandiose. Indeed, according to The American Lawyer’s 2020 Forecast, up-and-coming leaders at AmLaw 200 firms are keen to increase harmony among their partners. “Keeping the trust of their colleagues,” the magazine said of next-generation leaders, “Is a high priority.”
Still, striking the proper balance between respect for loyal partners, and rewarding prospective lateral rainmakers, is no easy task. And multiple sources, including Citi Hildebrandt and ALM Intelligence, cite lateral partner hiring as a key component of most firms’ plans to grow revenues. Which brings us back to the delicate topic of compensation.
Obviously, in order for any negotiation to move forward, the parties need to agree on some compensation parameters. We suggest that the law firm should begin that conversation by formulating a figure based on the candidate’s expertise and their portable book of business, aligned with the firm’s overall growth strategy and internal compensation methodology. When firms consider the compensation question this way, they’ll find that the business case for bringing in a lateral partner has very little to do with a lawyer’s past earnings
Recent high-profile placements prove our point. Last October, for example, when London’s Freshfields Bruckhaus Deringer reportedly agreed to pay M&A expert Ethan Klingsberg $10 million a year through 2024 to head up its burgeoning New York corporate practice, the deal wasn’t a reflection of Klingsberg’s prior pay. In our analysis, Freshfields calculated that a $50 million five-year investment in a practice led by one of the top players on the worldwide M&A stage would be a solid strategic move in building a New York deal practice from the ground up. Granted, the recruiter who claimed credit for the deal, Mark Rosen, told Law.com that in moving to Freshfields, Klingsberg more than tripled his previous earnings at Cleary Gottlieb Steen & Hamilton. In our opinion, Rosen violated client confidentiality by revealing Klingsberg’s compensation, but his disclosure nonetheless supports our argument that prior compensation is irrelevant to determining a lateral’s worth.
The same could be said of Sandra Goldstein’s 2019 move from Cravath, Swaine & Moore to the New York office of Kirkland & Ellis. Under Cravath’s lockstep system, Goldstein, who had been a senior partner and its chief of litigation, undoubtedly took home a good deal less than Kirkland’s guarantee of $11 million-a-year for five years. (According to the AmLaw 100, Cravath’s 2019 profits-per-partner were $4.62 million.) But as we see it, Kirkland didn’t base its offer on what Goldstein made at Cravath. Kirkland proposed a deal that, in the firm’s view, reflected her overall value in the country’s most-competitive and high-priced legal market.
The Klingsberg and Goldstein examples illustrate how and why market demands and a firm’s business-driven hiring needs are far more important than a candidate’s past earnings or future expectations. Besides, as we mentioned at the outset, partners’ compensation histories are often complicated by factors that have nothing to do with their performance. A couple of years ago, for example, we worked with a partner whose compensation had been cut repeatedly despite his keeping pace with his past originations and collections. Firm policies linking seniority with pay caused the declines, which ultimately resulted in an annual pay cut of around 30 percent. We facilitated a lateral move for this partner, with a firm that brought his remuneration up to market—around what it would have been without the punitive policy.
Recently, we spoke with a New York partner at a highly respected litigation boutique who expressed an altogether different compensation-related concern. Although she made around $1.8 million on her own book of business, she said, compared with the city’s big-law salary standards, her pay was probably above-market. She nonetheless wanted to explore lateral partner opportunities among AmLaw firms with business platforms that meshed well with her client base. If management could assure her that the firm would support and reward her contributions going forward, she added, she would entertain opportunities that involved an initial pay cut. What’s more, if prospective firms were to ask this partner only about her prior compensation, those firms would have missed out on knowing that she was willing to take a step back in money to take two steps forward in opportunity.
Law firm leaders and lateral partner candidates alike could take a cue from this candidate’s realism and candor. At the end of the day, arriving at a compensation figure that satisfies everyone requires a complex and nuanced process. Although smart candidates will come to the table with a clear understanding of market demands for their services and the value of their practices, we believe it’s up to the hiring firm’s leadership to address, head-on, their compensation package and system.
Ross Weil and Keith Fall are partners with the New York-based legal recruiting firm, Walker Associates. They can be reached at RWeil@walkersearch.com and Kfall@walkersearch.com, respectively.
This article was published by The New York Law Journal:
Anyone who works in the Big Law industry has probably heard the myth that lone lateral partner hires are a waste of law firms’ time and money. First, the legend goes, more than half of all laterals fail to meet their new firms’ expectations. Having promised more than they can deliver, these laterals predictably prove inept at adapting to, and integrating with, their new firms. As a result, close to four in ten lateral partners don’t stay at their new firms long enough to cover the cost of their hiring.
The above narrative has spun throughout the legal trade press and gained traction in consulting circles, but it’s overblown and fails to address the full scope of the issue. Bear in mind, the data supporting the claims that lateral partners yield lackluster returns has been lifted from surveys of the same firms that made the investments. Meanwhile, with the exception of a nudge for firms to improve their vetting on future lateral candidates, there’s been very little assessment of the hiring firms’ performance in deals that didn’t work out. “It appears that law firms are so adept at undertaking due diligence for their clients that they overlook doing it for themselves,” concluded a January 2018 report by Decipher Global that was picked up on law.com. “It’s the proverbial ‘shoemaker’s children’ story come to life.”
Firms that complete a more robust review of future prospects’ qualifications will unquestionably enhance their chances of recruiting laterals who stick. We recommend that they go a step further by expanding their integration efforts. Managing partners, practice group leaders and business development professionals can and should play an active role in helping laterals succeed. Jenner & Block has instituted a year-long transition program for incoming lateral partners that serves as an excellent example. By shepherding new partners through informal and formal meetings with firm leaders and other partners and administrators, the firm at once builds buy-in for the hire and at the same time builds a bridge between the recruit and prospective business relationships across the firm.
Our experience has taught us that successful relationships hinge on that kind of bridge-building, and great deals often begin with law firm leadership who understand and describe explicitly how a lateral will fit within the firm’s big-picture strategic goals. We’ve also seen firms benefit from outlining a concrete business plan in advance of the lateral partner coming on board.
In addition to mapping out how the firm intends to service the incoming partner’s clients, an ideal lateral hiring plan addresses the urgent need to get the incoming lawyer working on existing client matters as soon as possible. Every firm is understandably anxious for the lateral partner’s business to carry over instantly, but that’s rarely the reality. There’s a good chance the new partner’s business will start off slow, and existing partners should be prepared to supplement their workload. Unless existing partners share work, and unless they bring the lateral along on pitches and introduce them to clients across multiple practice areas, those partners will jeopardize the lateral’s success, and, by extension, their own.
These days, among managing partners of Am Law 200 firms, it’s rare that a week goes by without receiving a merger or acquisition offer. Law firms announced a record-breaking 79 mergers and acquisitions in the first three quarters of 2018, according to Altman Weil’s MergerLine, and as of December 6, big firms (with more than 250 lawyers) had launched another five acquisitions.
With the revenues and profits of firms in the bottom 200 sagging far below the top 50, underperformers are scrambling for growth strategies. It’s a volatile and fragmented market, and one in which we’ve seen some unlikely players take a hit. At some well-known firms, high-performing partners who collect top-tier rates are having their earnings dragged down by partners in sluggish markets.
That was the experience of an attorney we worked with in 2018, formerly a partner at a tri-state office of an Am Law 200 firm. He’s a litigation expert in the insurance industry, and between 2015 and 2018 he had grown his practice by more than 150 percent. Based in a city where Am Law leaders such as Greenberg Traurig, Proskauer Rose and Reed Smith host offices, he could also command top-of-the-market fees.
Among the firm’s other offices meanwhile—in regions including the midwest and southeast—revenue growth and rate increases were comparatively modest. At the same time, office-to-office, the differential in fees had expanded. As a result, he watched his share in the firm’s profits get diluted. He feared that the firm’s compensation formula would continue to put him at a disadvantage and depress his earnings potential over the next ten-to-fifteen years. In addition, he concluded that his insurance clients weren’t likely to utilize any of the other legal services available across a national full-service firm of almost 1,000 attorneys.
As a result, the partner decided to consider a lateral move, and he was surprised to learn that he could earn much more money at a regional mid-sized firm of about 150 attorneys. Earlier this year we helped him lateral in as an equity partner. Unlike his Am Law mega firm with big-brand marquee, his new firm keeps a lid on overhead by relying less on offices in lower-profit markets. His clients are equally well-served, and he’s gained a rosier outlook on his future among a new group of colleagues who value both his contributions and expertise. He’s also finding it simpler and more rewarding to collaborate and engage with a management team that’s across the hall rather than across the country.
While some legal industry pundits contend the merger mania we’ve seen in Big Law over the past several years is fueled by myths, others predict consolidation will extend into 2019 and beyond. Some have gone so far as to predict that it’s impossible for Am Law 200 firms to survive unless they buckle up and brace themselves for serial mergers and acquisitions.
In the face of such sweeping forecasts, it’s worth considering this partner’s story. Bigger isn’t necessarily better, or smarter. And compensation varies wildly among differing markets. That’s a factor management would do well to consider when moving forward with combinations like those announced earlier this year by St. Louis–based Bryan Cave with London’s Berwin Leighton Paisner and Milwaukee’s Foley & Lardner with Dallas-based Gardere Wynne Sewell. Salaried-lawyers in these firms’ offices in Minnesota, Wisconsin and Texas will of course earn less than those in more competitive and lucrative states. Partner compensation should mirror the same metrics.
Among Big Law associates, 2018 should go down as a banner year. A majority of Am Law 200 firms adopted sweeping pay increases. Several firms continued last year’s positive trends, including expansion of gender-neutral parental leave policies as well as remote-work arrangements. And market leader Kirkland & Ellis introduced a concierge service—a lifestyle perk, the firm insisted, “not a Band-Aid to a grueling bleed.”
At mid-year, with firms posting their highest gains since 2007, and mergers and acquisitions totaling an unprecedented $2.5 trillion, the lateral hiring market for mid-level and senior associates in New York also fired up, resulting in opportunities we haven’t seen before. In the second half of 2018, for example, we advised four senior associates who lateraled in as partners with mid-sized firms. We also worked with fourth- and fifth-year associates from lesser-known firms who moved into firms that rank among the Am Law 50-75. Eager to get lateral recruits on board fast, the New York offices of these and other firms agreed to pay full year-end bonuses, including to associates hired as late as October. In New York, the strongest lateral demand has been for corporate attorneys, but—in an usual fourth-quarter spike—many firms have widened their searches to encompass countercyclical and niche practices as well.
All of this bodes well for Big Law associates considering career moves in 2019. Act fast, though: Traditionally, firms focus on filling their lateral hiring needs early in the year. If you do decide to seek a move, I recommend submitting not only your resume and law school transcripts but also a list of deals or cases you’ve worked on, along with a description of your role. This additional layer of detail affords firms a more nuanced understanding of who you are and how you might fit their specific hiring needs.
As 2018 winds down, it appears that the market for lateral associates has begun a radical turnabout from 2009. Most Big Law associates are too young to remember, but at that time, a year after the financial collapse, lateral hiring of salaried lawyers plummeted by 46 percent nationwide, and by 54 percent among big law firms, according to research from the National Association for Law Placement. Since 2010, lateral associate hiring has wavered between incremental gains and losses.
Given the ongoing deal boom and Big Law’s recent largesse, however, I expect that in New York, at least, lateral associate hiring in 2018 will surge well beyond last year’s meager 1.7 percent bump. Check back next March, when I’ll report on whether my prediction proves right.
Partners in leading law firms excel at guiding clients through business cycles and around the obstacles of corporate disputes, but when it comes to plotting their own careers, many never find the time. They’re so consumed with fulfilling the tasks at hand, and so pressured by originating business and billing time, the mere suggestion of a long-term plan strikes them as laughable and far-fetched.
Why don’t more partners envision a practice plan of their own? Just as law firms resist planning for the future, a lot of the partners I talk to say that they’d rather soldier on than take the risks associated with change. Most are also reasonably happy with their professional lives and work, according to a first-of-its-kind survey by Major Lindsey and Africa. When asked to leave money out of the equation, of some 2,100 partners surveyed, “only 21% expressed dissatisfaction.” Clearly, most partners (but not all) would prefer to leave well enough alone.
In the changed legal market that’s emerged since the financial crisis, however, promising young partners have gained mobility and clout. As Baby-Boomers wind down, and Gen-Xers advance, traditional firms are (finally) recognizing that unless they adapt, they’re going to lose out. That’s creating opportunities for lateral-partner candidates, including a rare chance to chart their own course. I’ve helped place lateral partners whose experience proves me right.
In leaving their former firms, these partners rejected culturally entrenched norms that disproportionately rewarded seniority and fomented internal competition. Although their old firms had acknowledged and pledged to remedy the structural problems that sustained those norms, these partners saw necessary changes proceeding at a snail’s pace. Rather than waiting, and with many productive years ahead of them, they decided to bolt. Their individual practice plans are less relevant here than what they chose to reject:
- Insulated silos
Law firms that reward partners who hog clients not only undermine their own shot at gaining market share, they also risk losing work to competitors. Partners deserve to be rewarded for feeding work (and a measure of credit) to other lawyers and practice groups.
2. Hidden financials
The rise of international mega-firms achieved via mergers has sometimes resulted in mixed-up financials and complicated balance sheets. While it makes sense to have office- and region-specific budgets and business goals, inter-office competition harms a firm’s brand and does a disservice to clients.
Although business originations and collections will always be markers of performance, lawyers aren’t widgets. Firms should encourage and reward partners who develop personal plans that identify opportunities for market-driven growth. That’s not just empowering, it’s the professional thing to do.
Earlier this year, the American Bar Association cited the relentless demands put upon lawyers as a contributing factor in what it described as a crisis marked by staggering alcohol and substance abuse. Going forward, I’m confident that the market leaders in Big Law won’t succeed by demanding the kind of blind loyalty and grueling devotion they have until now. If you’re interested in exploring your career options, let me know. It’s high time that law firm partners own what they do.
“Equity partners are not busy enough at 51 percent of all law firms,” declares Altman Weil’s 2018 survey on the state of the legal market post-recession. It’s a stinging report, one that depicts a market glutted with “chronically underperforming lawyers” who siphon off profits, impede change, and threaten their firms’ very survival. At 58 percent of 801 firms polled, including just over half of the AmLaw 200, the survey says, “Overcapacity is diluting profitability.”
We don’t contest Altman Weil’s conclusions, but the survey doesn’t reflect reality in New York, where many firms are hustling to grow. Granted, even in the city that never sleeps, some firms are harboring idle partners, but they’re a trivial factor given the current demand for high-performing lateral partners. In our experience, practically every out-of-state national firm is in hot pursuit of lateral partners who strategically fit in their New York offices. Earlier this year, for example, we found for the New York office of a Boston-based firm a partner whose expertise in the Israeli start-up sector fits the firm’s expanding early-stage company practice. We also identified for the New York office of a Philadelphia–based firm a young commercial litigation partner who’s afforded access to anew breed of clients and contactsand also enhanced the firm’s local profile.
By growing in New York, national firms are polishing their reputations and gaining greater access to the city’s dominant deal flow. As of midyear, the New York Times reported 2018 has yielded a record $3.5 trillion in mergers, the overwhelming majority of which have been lawyered out of New York. While elites such as Cravath, Skadden Arps, and Sullivan & Cromwell won the legal work on the biggest of these deals—including The Walt Disney Co.’s hard-fought acquisition of 21st Century Fox, and AT&T’s merger with Time Warner Inc.—partners at national firms we talk to say they’re expanding in New York to compete for similarly lucrative deal work and related litigation. As a result, these same firms are paying top-dollar, and that’s great news for high-performance lateral candidates.
National firms’ enthusiastic expansion into New York illustrates the strength of this market, as well as big law firms’ resiliency. For further proof, consider Citi Private Bank Law Firm Group’s June report that “revenue growth of 5.5 percent in the first half of 2018 was the highest since 2007.”
In fairness to Altman Weil, we concede that several partners we’ve worked with sought to leave their old firms because they were fed up with having their earnings dragged down by underperformers. Old guard resistance to relinquishing profits and power to up-and-comers is a sensitive, important issue, and one we’ve written about.That said, in ultra-competitive New York, we’re confident that natural market forces will ultimately drive out any well-heeled lawyers who aren’t pulling their own weight.
Ask partners in management at the nation’s leading law firms about what worries them most these days, and you won’t hear them express fears of a market downturn; they’re not losing sleep wondering when the current boom might bust, nor fretting about their strengths in recession-friendly practices like bankruptcy and restructuring. The number one concern I hear from these firms is that they lack talented young junior partners capable of carrying on their legacies.
The future of any law firm depends on the youthfulness of its partnership, and recruiting young partners could be the best strategy for achieving a sustainable competitive advantage. As a recent Zeughauser Group report in The American Lawyer noted, in a field now crowded with competing service businesses, increasing market share is the surest way for law firms to achieve profitable growth. By extension, the surest way to increase market share is to bring on junior partners and empower them to prove themselves as rainmakers, practice-group chiefs, and firm leaders in their own rights.
I’m not suggesting dramatic turnabouts along the lines of HBO’s Succession, but—like the patriarch depicted in that series—senior partners at AmLaw 200 firms have afforded scant attention to who will succeed them. Even at the venerated Wachtell, Lipton, Rosen & Katz, profiled earlier this month by Bloomberg Law, the management vanguard (Ed Herlihy, 71, and Dan Neff, 65) seems like an old guard, having been behind the wheel for twelve years. According to a 2017 American Bar Association report, close to 65 percent of equity partners will likely retire within the next decade. So why aren’t firms doing more to recruit young blood?
Since the financial crisis hit in 2008, firms have been so consumed with regaining lost ground, succession planning has been a blind spot, but that’s only part of the answer. Many equity partners dislike the risks inherent in long-term investments. They’re also reluctant to cut profit distributions to cover the cash outlay
Here’s the good news: The market is packed with young candidates who have impeccable credentials, flourishing business contacts, and boundless potential. While these lawyers might not have the instant credibility of more traditional lateral partner hires, they are nimble and hungry for opportunities. Having survived the crash and matured amidst radical shifts in big law firm economics, they’ve also got grit and stamina. I suggest firms consider bringing them on as partners. Regardless of whether such partners have instant portable business, their chances of success will increase if they’re afforded wide latitude in recruiting, a generous client development budget, and a meaningful voice in the firm’s business strategy. Otherwise, how can they shape the firm’s future?
By investing in young lateral partners, firms can help bridge the gap between Boomers and Millennials. They stand to improve their responses to client expectations concerning technology-driven innovation,alternative fee arrangements, and across-the-board increases in diversity and inclusion. Along the way, they might also find the lawyers who will carry their firms forward.
A few weeks ago, when I described to a colleague how I’d been talking with a partner for eight years before facilitating his move to a different firm, he was surprised. “Eight years?” he asked. “Isn’t that unusual?”
Most legal recruiters would have replied with a definitive “Yes,” but I’m not among them. Prompted by my colleague’s question, I reviewed my partner placements over the past decade. I found that about half of the lateral moves I’ve played a part in grew out of relationships cultivated over the course of three years or more. While the other half of my placements could be described as quick-draw hits—spontaneous instances of being in the right place with the right idea at the right time—I’m a big fan of the long game.
I cold-called the partner mentioned above in June of 2010. He told me he was happy where he was, but always willing to keep an open mind. Thereafter, I stayed in touch, letting him know when unique and suitable opportunities came along. These informal conversations enabled me to learn that he had a consistent $5 million-plus practice. I also gathered details on his platform preferences and his goals.
In 2015, things began to shift. There was a shakeup in his firm’s leadership, followed by the departures of several of his closest partners. Although his hours and originations hadn’t slipped, in the space of three years, he saw his compensation drop by more than 30 percent. Worst of all, he felt he was being relegated to the sidelines.
So, when I suggested that he consider speaking with the New York office of a US-based international firm, where he would be charged with expanding the litigation practice in his area of expertise, he agreed to take a first meeting. His new prospective partners expressed respect for his accomplishments, and made it clear that they wanted him to play a pivotal role in developing their practice—assurances he found inspiring. While the firm made him an offer that brought him back up to his 2015 compensation, he chose to move forward with them not so much for the money, but for the chance to reinvigorate his career.
Obviously, had that this partner not taken my call, and had we not stayed in touch, the move I just described never would have happened. While this is an admittedly self-serving point, when a reputable recruiter calls, it can’t hurt to respond. Top-notch recruiting firms (particularly those who are members of the National Association of Legal Search Consultants) can advance careers in unpredictable ways, and it doesn’t always happen overnight.
The next time you see a recruiter’s caller ID pop up on your phone, answer. Every dodged call could be a missed opportunity.
As Labor Day rolls around and first-year associates embark on their careers at AmLaw 200 firms, it’s an opportune time to reflect on how the salary and bonus increases triggered this summer by Milbank, Tweed, Hadley & McCoy and Cravath, Swaine & Moore will impact the lateral associate market. With top-of-the-market associate salaries now ranging from $190,00-to-$340,000, and continuing strong demand for lateral associates, we suggest that many firms would do well to rethink their compensation strategies.
Let’s start with an analysis of salary data published by Above the Law: Although close to 100 firms matched or exceeded the new $190,000 starting salary, some made first-year earnings contingent on billable hours. By our count, fewer than 80 US-based firms (of which 14 are boutiques) have adopted identical, across-the-board increases for all associates. Put differently, only 32.5 percent of all AmLaw 200 firms have mimicked Milbank and Cravath.
The remaining 67.5 percent of firms, meanwhile, risk being priced out of the market for the best lateral talent. The pay hikes have afforded lateral candidates new leverage, and we’ve seen associates walk away from offers that aren’t top dollar. That said, below-market firms do have options to sweeten the pot. Here are some innovative strategies we have helped facilitate:
1.Establish meaningful incentives for bringing in new business. We suggest firms take a page from the playbook of emerging companies and venture capital practices by recruiting lawyers who are willing to shoulder the risks associated with entrepreneurship. Traditional law firm economics go against this model, but we’ve persuaded a few firms to give incoming lateral lawyers 10-to-30 percent of revenues collected on their originations. Granted, it’s impossible to predict an associate’s business development capabilities, but there’s no downside exposure for the firm. With a bit of due diligence, including advance conflicts-checks, revenue sharing arrangements can build trust and serve as a going-forward template for a lateral lawyer’s career.
Revenue sharing can also help law firms retain senior associates. We recently worked with a sixth- year associate who—after entertaining higher base compensation offers from other firms—agreed to stay with his firm (at a below-market salary) with the understanding that he’ll receive half the revenues collected from his clients, up to a specified limit.
2. Expand policies that enhance work-life balance. Two sure-fire ways to improve your firm’s appeal to lateral associates? Reduce billable hours requirements and award merit-based bonuses. Consider rewarding non-partner lawyers for promoting diversity, for (typically thankless) committee work, and for devoting time to professional development. Model popular policies in place at firms that rank on “best places to work” listings by Fortune, Forbes, and Working Woman. Be lenient with associates when they need to work from home, and interrupt their vacation days only when absolutely necessary.
3. Put lateral recruits on a clear-cut partnership track. If your firm’s decided it needs a lateral associate, candidates deserve to know how their skills and expertise fit within your overarching business goals. Be prepared to articulate in straightforward terms opportunities for client development, and options for non-equity or equity partnership. If at all feasible, consider offering lateral hires well-defined, fast track option.
While the long-term effects of 2018’s associate compensation increases remain to be seen, we’re confident that associates will see continuing discrepancies in the dollar value of their work. Since 2016, we’ve seen wild variations in how firms compensate lawyers of the same seniority. These days, it’s not uncommon to find third-year associates earning less than first-years. Among senior associates, income differentials are even more pronounced.
Unlike in 2016, when practically every AmLaw 100 firm followed the Milbank-Cravath lead, this year’s response has been more thoughtful and measured. Firm such as Reed Smith, Fish & Richardson, McGuireWoods, and Pillsbury, (ranked 25th, 48th, 52nd, and 60th, respectfully, on the 2018 list) chose to bow out of the race, as have all but a handful of the AmLaw 200. Going forward, firms that address their hiring needs with an open mind, a flexible approach, and maximum generosity will be most likely to succeed.
Two years ago, when Irell & Manella’s Morgan Chu hit 65, his partners were more than happy to make an exception to the firm’s mandatory retirement policy. After all, Chu’s not just an uncontested giant in intellectual property and patent law; he’s also been Irell’s chief rainmaker for decades. Lately, other firms have adopted a similarly more relaxed attitude toward retirement. That’s good news for baby boomers.
In 2015, close to half of AmLaw 200 firms reportedly had a mandatory retirement policy. While some firms (notably at the top of the charts) cling to strict policies, the subject is not as black-and-white as it once was.
These days, many firms are in fact creating fresh opportunities for attorneys in their sixties. A few months ago, we facilitated a senior partner’s move into the New York office of an AmLaw-50 firm. Because of his depth of specialized expertise, that lateral partner has driven a major expansion in the firm’s litigation practice. Separately, in January, Reed Smith welcomed to its New York office Louis M. Solomon, who stepped into a newly created role as head of international litigation-US. Solomon brought along with him two other partners who had also followed him out of Cadwalader, Wickersham & Taft to Greenberg Traurig in 2016. According to Reed Smith’s announcement, its new “senior trial team” has “practiced together for more than 20 years.” For firms seeking to round out generic practice groups with specialized expertise, such lateral partner hires make amazing sense.
In our experience, successful senior partner transitions require the following:
- Law firms must clearly articulate to lateral candidates how their unique practices and experiences will fit within the firm’s strategic plan. At the same time, attorneys in the affected practice groups should have a genuine appreciation for the senior partner’s skill set and experience, as well as an understanding of the partner’s anticipated role in leadership, management, and growth.
- For senior partners considering a move, it’s important to find a firm that offers a renewed sense of purpose and fulfillment. Senior lateral partners thrive when they feel that they’re becoming valuable players in building something new, and that they will be appreciated for their contributions.
A final note on the not-so-secret practice of firms docking senior partner compensation: It happens! While most partners affected by such pay cuts can find themselves of greater value in the lateral market, in cases where a partner’s compensation has decreased by less than 10-15 percent, a later-in-life lateral move might not make sense. In our experience, the most successful lateral partner moves hinge not exclusively on money, but also on new opportunities for professional growth and career fulfillment.
In any instance, if you’re a senior partner or a law firm seeking lateral partner candidates, we’d like to hear from you. We’ll give you our unvarnished thoughts and advice. It should also go without saying that we understand the sensitive nature of such discussions, and we place an extreme emphasis on confidentiality.