Killing & Eating and its Ascent to the Summit

As we approach the midway point of calendar year 2018, we observe the New York Yankees of BigLaw, Kirkland & Ellis, acquiring Guillermo Stantons ad nauseaum in its quest to pull away from the rest of the world’s major league firms in the revenue rankings.  Clearly, K&E is not resting on its laurels in breaking the $3 billion barrier in gross revenue last year after increasing its bottom line to $3.165 billion from $2.65 the previous year, squeaking by now number two Latham in that category by $100 million.  See https://www.law.com/2018/03/22/what-is-the-new-normal-for-kirkland-ellis/

To fully appreciate K&E’s laser-focused quest to ascend to the top of the charts, one need only look at the pace at which K&E is achieving its record setting accomplishments, its 2017 gross revenue figure representing a more than 100 percent increase over its pre-recession total in 2007 and 19.4 percent increase from 2016.  But perhaps even more remarkably, K&E is simultaneously nearing the top of the BigLaw standings in profitability as well, reporting $4.7 million in profits per equity partner for number three in the nation in that category, topped only by Wachtell and Quinn Emanuel.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.

K&E’s strategy essentially boils down to offering tremendous compensation packages to BigLaw’s heaviest power-hitting revenue producers in traditionally lucrative transactional areas like M&A, private equity and restructuring, in contrast to less dependable revenue flows from big-ticket litigation, the decrease in the firm’s percentage of litigators of over ten percent in the last ten years signalling that change in strategic focus.  See http://www.chicagobusiness.com/article/20180518/issue01/180519866/kirkland-ellis-reaches-the-top-as-it-focuses-on-corporate-work

K&E’s rise to the top has also been facilitated by the resistance of other major firms to change the way they compensate their partners, venerable firms like Cravath, Debevoise & Plimpton and London-based Freshfields maintaining their lockstep compensation structures and their gentility but at the cost of rendering their most productive partners easy prey for K&E, where gentility is generally anathema to the extent it may impede the latter’s ability to compete for revenue streams and maximize profits among their limited echelon of equity partners.  See https://www.thelawyer.com/issues/online-march-2016/partnership-prospects-at-kirkland-ellis/

Consequently, K&E has been able to lure perennial power-hitters seemingly at will, most recently signing litigator Sandra Goldstein from Cravath by reportedly offering her about $11 million for each of her first five years there – perhaps twice as much as she was earning at Cravath – plus a signing bonus.  See https://www.wsj.com/articles/m-a-litigator-sandra-goldstein-leaves-cravath-for-kirkland-ellis-1523663003, and see https://www.reuters.com/article/moves-kirklandells-goldstein/moves-cravath-ma-litigator-goldstein-leaves-for-kirkland-ellis-sources-idUSL1N1RQ28T.  Their acquisition of Goldstein came on the heels  of their acquisition from Cravath earlier this year of M&A superstar Eric Shiele, see https://www.reuters.com/article/kirklandellis-moves-schiele/moves-cravath-ma-lawyer-schiele-to-join-kirkland-ellis-sources-idUSL2N1PI027, who lateraled only about one month after Erica Berthou, formerly global head of Debevoise’s investment management and funds group, jumped aboard along with former Debevoise deputy corporate chair Jordan Murray.  See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/01/just-in-time-for-the-holidays-kirkland-recruits-another-rainmaker/.  That same month K&E landed private equity star David Higgins from Freshfields as well. See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/18/freshfields-private-equity-heavyweight-david-higgins-quits-to-join-kirkland-as-london-co-head/.  This no-holds-barred approach to compensation also allowed them to out-compete any venerable lockstep competitor in bidding for Robert Khuzami when he was transitioning from his position of SEC Director of Enforcement, according to public disclosure forms paying him $11.1 million from late 2016 to early 2018.  See https://biglawbusiness.com/government-disclosures-shed-light-on-big-law-salaries/. Other prominent examples of K&E’s successful talent-acquisition ventures include their 2016 luring of appellate superstars Paul Clement and Viet Dinh, while absorbing the rest of their elite 17-lawyer Washington, D.C. boutique as well.  See https://www.wsj.com/articles/kirkland-ellis-to-absorb-bancroft-1473711303.

K&E is working hard not only to win the race for highest revenue and profits per equity partner, but also to brace its attorneys for the rough and tumble emotional ride that goes hand in hand with billing the mountains of hours needed to generate the cash required to satisfy the compensation commitments extended to all these heavy hitters.  About two years ago the firm made headlines for implementing a yoga and meditation program to help their army of non-equity partners, counsel and associates maintain their health while working hard.  Here, for the equity ranks at least, the proof is in the eating of the pudding:  they are currently savoring a hearty 5.2 percent increase in revenue per lawyer to $1.58 million.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.  See also https://blogs.wsj.com/law/2016/05/03/kirkland-ellis-lawyers-to-get-emotional-fitness-training/

In sum, in this era of free-agency, even leading partners at the elite lockstep firms are switching teams at rates never before seen in the history of BigLaw in order to maximize compensation.  While we have no concerns with respect to the ability of those elite lockstep firms to continue to thrive nonetheless in the short term, we expect to see more of those firms modifying their lockstep compensation systems in order to better fend off the attacks of the elite eat-what-you-kill firms on their rainmakers.  As to the rest of the BigLaw market, we expect to see continuing contraction at the rate of at least one major firm collapse every year and a half, while managing partners everywhere invest additional resources in eating heavy-hitters elsewhere and simultaneously protecting against the risk of losing their own to the increasingly predatory lateral market.

We at Hanover Legal remain on board consulting with managing partners and attorneys at all levels as to staying alive and thriving in this competitive and dynamic environment.

 

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