BigLaw’s Heartbreak Hill

Anyone following the market of BigLaw is aware that over the course of the past two decades, AmLaw 100 firms have collapsed or been acquired at the rate of one every year-and-a-half or so, remembering with either nostalgia or disdain once venerable names like Brobeck, Coudert Brothers, Heller Ehrman, Thelen, Brown Raysman, Thacher Profitt, McKee Nelson, Dreier, Howrey, Dewey & LeBoeuf, Wolf Block, Bingham McCutcheon, and Chadbourne.  The demise of most of these firms can be attributed primarily to a fatal flaw which manifested during the various crises we’ve collectively experienced since the onset of this millennium: irrational exuberance and the dot-com bubble, greed and the sub-prime bubble or lack of practice area-diversity and the great recession. Others took stock during periods of relatively stability, arriving at sanguine decisions to salvage what remained viable and attach to a stronger ship or simply dissolve. Either way, the market of BigLaw is contracting quickly and in constant flux, the current pandemic offering no respite.

At the onset of Covid-19, BigLaw by and large halted lateral partner hiring, but as the pandemic continued on with no end in sight, while weaker and more risk-averse firms stagnated on the lateral partner acquisition front many simultaneously suffering increased rates of lateral partner departures, stronger and less risk-averse firms solidified their respective bases acquiring aggressively on the lateral partner market thus increasing revenue and profitability gaps and rendering weaker and less aggressive firms more vulnerable and further diminishing their ability to effectively compete.

Specifically, over the course of this pandemic during which lateral partner activity has dropped approximately thirty percent from pre-pandemic rates (see https://www.law.com/dailybusinessreview/2020/10/08/dragged-down-by-finance-and-energy-the-lateral-market-has-cratered/), firms that have pushed hard and achieved net gains on the lateral partner acquisition front thus widening the gap between them and their competitors include King & Spalding, McDermott, DLA, Greenberg Traurig and Cozen O’Connor (see https://www.law.com/americanlawyer/2020/10/12/opportunity-in-crisis-these-firms-seized-on-an-unusual-lateral-hiring-market-in-2020/, citing data accumulated by legal consultancy firm Decipher)), In contrast, from January through August 2020, Boies, Schiller & Flexner hemorrhaged 50 of its 142 partners or over one-third of its partnership while only adding two lateral partners during the same period. (See https://www.abajournal.com/news/article/these-larger-law-firms-had-the-most-partner-exits-one-firm-says-pandemic-changed-career-plans/).

Over the next few months we can expect to see more firms coming out of lateral partner hibernation and anticipate hiring approaching pre-pandemic rates, with continuing strong lateral activity in bankruptcy and data privacy and increasing movement in labor and employment, white collar and other regulatory specialties. That said, as our fiercely competitive market works its way through these current challenging times, the pack of leading firms will continue to dwindle in number and distance itself from weaker or more risk-averse firms, some of which will inevitably be acquired or dissolve as BigLaw further contracts.

Thankfully and much more importantly though, now with an effective Covid-19 vaccine apparently only months away, we may finally be approaching the top of this particularly excruciating Heartbreak Hill. In the meantime, we at Hanover Legal remain on call and available to assist law firm managers and partners with whom we are privileged to work towards the achievement of their goals with respect to the market, as we have during the previous challenging periods we have experienced together since our founding in 2000.

Stay safe and healthy and Happy Holidays!

Recruiting During the Corona Pandemic

As the world struggles to cope with the Coronavirus pandemic and societies world-wide adapt in order to minimize risk of infection while remaining as productive as possible under the circumstances, most major law firms continue to recruit. What has changed primarily during this highly infectious crisis is merely the basic mechanics; firms are increasingly opting for telephone interviews instead of in-person meetings.

Perhaps more significantly, law firms like other entities are employing a gamut of strategic approaches to this crisis as in any other crisis; some viewing it as an opportunity to take advantage of diminished competition to recruit even more aggressively and realize gains that may have been unattainable in a relatively calm and stable environment, others plodding forward as if it’s business as usual, while a few more skittish players have paused recruiting altogether promising to reconvene only once the crisis has stabilized. We remind the attorneys we are privileged to represent that while we live in interesting times and how we react during heightened uncertainty can be defining to us, the same applies to the firms they are considering joining, this time of crisis providing a rarely available window for due diligence with respect to a firm’s culture and their way of conducting business.

We urge our law firm and attorney clients alike to proceed with the mindset that this too shall pass, and to resist the temptation to put recruiting on hold. On the contrary, view this as an opportunity to make particularly attractive gains in a largely panicked market that will likely be unavailable again until long after we have come to grips with this crisis as we have all the others that have preceded it.

Since Hanover Legal’s founding is 2000, we have together survived a number of other crises and can fully expect to see a few more once this one too has faded into memory. We assure all of you that as our understanding of the Coronavirus continues to evolve, we will remain on board with you here as well and eager to assist you in any way.

The Next Trans-Atlantic Merger?


Clifford Chance Rogers & Wells, Hogan Lovells, Norton Rose Fulbright, Bryan Cave Leighton Paisner and Eversheds Sutherland did it. So can Allen & O’Melveny.

Of the few brave US firms that have bitten the bullet with a partner from across the pond, only one has maintained their cultural identity as half of a merger of equals. As to the others, most attorneys today have never even heard of Rogers & Wells, the once great Fulbright has been thoroughly digested by Norton Rose, and Eversheds views Sutherland as a curious outpost. The jury is still out on Bryan Cave Leighton Paisner, although we believe Bryan Cave stands an excellent chance at survival as it is more evenly matched with its counterpart and also has an easier name to remember.

The next transatlantic merger is a matter of time, and while their respective Chairmen continue to offer vociferous denials, Vegas has an Allen & Overy – O’Melveny tie up before the end of 2019 at better than even odds. But to the extent names matter – and they do – O’Melveny should be quivering to the alter because even if they manage to maintain cultural prowess with a firm three times their size, the new partnership will be perpetually known as “A&O” anyway.

In the meantime, we appreciate the good sense of major firm leaders to refrain from discussing their courtships and marital woes in public, as we have sufficient law firm dysfunction entertainment from our firebrand litigation boutiques and from time to time the megalomaniacs from whom they have managed to break away.

Be what may, we look forward to continuing on this journey with all of our attorney and law firm clients, and wish everyone smooth sailing during the second half of 2019!

Wishes and Predictions

While we are all relishing our last day of this holiday season and gearing up for 2019 and the inevitable challenges the new year will bring, we thought it may be worthwhile to offer a few predictions as to the landscape of BigLaw during the year to come:

  • At least one AmLaw 50 firm will dissolve or be acquired;
  • At least two AmLaw 100 firms will dissolve or be acquired;
  • There will be a record number of lateral partner moves among the AmLaw 100 firms;
  • There will be a record number of law firm mergers among the AmLaw 200 firms;
  • All but one of the current AmLaw 50 firms will post increased revenue over 2018;
  • 48 of the current AmLaw 50 firms will post increased profitability over 2018;
  • AmLaw 50 firms will see record numbers of partner departures leaving to join boutiques or start boutiques of their own;
  • No transatlantic merger of Global 50 firms will be consummated.

With those predictions on the table, we look forward to reviewing each of our major firms’ reports of their own 2018 performance and tracking their respective performances in 2019 — wishing all of them the best of luck as the gun goes off bright and early tomorrow morning and while we commence our own 19th year of offering support to their attorneys and managing partners as they face their inevitable challenges over the course of the upcoming twelve months!

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.