Thank You, Joseph Shenker and Sullivan & Cromwell

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There are many reasons why Sullivan & Cromwell is arguably the world’s most prestigious law firm, but perhaps first and foremost is the fact that they always seem to lead the market in doing the right thing when it comes to their clients, vendors and employees.   The firm hires the most talented and ethical people to service their clients, pays over-the-market rates to their valued vendors, makes doing business with them a pleasure, and compensates their own people at the very top of the market as well. 

A recent instance of Sullivan & Cromwell leadership-by-example is the firm’s public stance against hiring individuals who have engaged in the activity indicative of support for the terrorist group Hamas that has infested America’s universities since Ocober 7, 2023, the day that Hamas and Palestinians under their control engaged in a murder, rape, torture and kidnapping spree in Israel that resulted in the death of over 1200 civilians, the torture and maiming of hundreds of others and the taking of over 250 hostages.  As reported in Bloomberg Law, Sullivan & Cromwell’s senior chair Joseph Shenker stated that the firm “ha[s] been following closely the events at the schools from which we recruit, and [we] have been in touch with the placement offices, deans, and trustees, as well as many concerned students.  Creating, or participating in, a climate of harassment, intimidation and discrimination is unacceptable. We have been very open about our firm’s views on these matters … We have been, and will be, extremely vigilant in our hiring activities to ensure we are only hiring those students we are comfortable will proudly represent the values and principles of our firm.”   https://news.bloomberglaw.com/business-and-practice/sullivan-cromwell-plans-vigilant-hiring-checks-after-protests

It is beyond question that Hamas is a death cult committed to the genocide of Jews.  As Chaim Steinmetz, the senior Rabbi of New York’s largest orthodox Jewish congregation, brilliantly summarized on Instagram earlier this week in the aftermath of the Israeli Defense Force’s rescue of a Moslem Arab-Israeli citizen from the dungeons of Hamas after 326 days in captivity: 

“Yesterday’s hostage rescue can teach you everything you need to know about the Hamas-Israel conflict.  Let’s see what Hamas is all about and what Israel is all about.   Let’s look at what the Hamas charter says:  ‘The day of judgment will not come about until Muslims fight the Jews killing the Jews.’  That’s what Hamas believes in, killing Jews. Not Zionists, not Israelis, but Jews.  Let’s look at the Hamas leader Yahya Sinwar.  He’s known as the butcher of Khan Yunis because he’s killed so many of his own Palestinians.  Hamas has a Stasi like secret police force that observes every person in Gaza.   Let’s look at Hamas’ objectives.  Sinwar wants more civilian casualties.  He’s written in private communications:  ‘No blood, no news’ and all he wants is the attention of the world.  Now let’s look at Israel.   Israel’s Declaration of Independence says that it will ensure complete equality of social and political rights to all its inhabitants irrespective of religion race or sex.  Israel believes in the rights of minorities.  Arabs serve on Israel’s Supreme Court, in Israel’s Knesset and in the Officer Corps of the IDF.  When you visit Israel, you’ll see Arab citizens in the hotels of Tel Aviv and the shopping malls of Jerusalem, and any serious observer could see this contrast in the rescue of the hostage Farhan Al-Qadi.  Al-Qadi is an Israeli citizen who is a Muslim Arab.  He actually was a security guard in one of the Kibbutzim before he was kidnapped by Hamas.  Israel sent the IDF in to save his life.  The contrast between Israel and Hamas is a contrast between caring for your citizens or using them as cannon fodder.  It is a contrast between life and death, and as the Torah reading tells us this week, we need to choose the path of life.  Hamas has chosen the path of death.” https://www.instagram.com/reel/C_NixQrxHSi/?igsh=MWlyZjJ4cjZwb2duZQ==

So why would anyone in their right mind, let alone a preeminent law firm, want to hire or otherwise affiliate with any individual who supports Hamas in any way?   As Judge Matthew Solomson of the US Court of Federal Claims stated shortly after the October 7 massacre:  “To me, it’s a simple proposition that just like no judge would hire anyone who endorsed the KKK or the Nazis, anyone who endorses or approves or otherwise gives comfort to — in writing — Hamas, should not be hired.” See https://news.bloomberglaw.com/us-law-week/us-judge-wont-hire-law-clerks-who-signed-anti-israel-letters

Nobody is questioning the right of students or other individuals who are privileged to live in the United States of America to publicly express their evil inclinations, idiocy or ignorance by demonstrating in support of Hamas.  But no law firm should hire these people.  So thank you, Mr. Shenker for stating the obvious:  “[W]e are asking people to pay [our attorneys] a lot of money for their critical thinking skills. If their critical thinking skills land them in that place [blaming the victims of the terror for the terror], then they have no place here.” See Elite Biglaw Firm Adopts Tougher Background Checks For New Hires Amid Campus Protests – Above the Law

2023 and Big Law’s Accelerating Contraction

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It was refreshing to hear Jonathan Harmon, Chairman of 189 year-old Richmond-based McGuireWoods, declare last week what most of his BigLaw peers are or should be thinking:  “We are looking to grow and aggressively looking to talk to firms who are of the mindset.  I believe that the market’s consolidating and that you’re going to have to have scale.”  See McGuireWoods ‘Aggressively’ Seeks Merger Partner, Chairman Says.   The extent to which McGuireWoods will be successful in its efforts to find firms to acquire or with which to merge remains to be seen, but we have no doubt that they are more likely to be successful than firms waiting for opportunities to come in over the transom.  Mergers and acquisitions are inevitably fraught with obstacles and challenges, and thorough market due diligence of merger and acquisition opportunities obviously maximizes the potential to find suitable partners while minimizing the risk of stagnation and failure.  As Harmon elaborated: “Finding the right firm to acquire, merge with, is hard,” recollecting an acquisition a few years ago that turned out to be a “disaster” as the new attoneys “weren’t culturally aligned” with the venerable Richmond firm.  Id.  You have to be aggressive, you have to expect that most of your conversations will not lead to a marriage, and accept that nothing ventured usually equals nothing gained and a passive approach is less likely to yield positive results.  As Harmon put it, “I’m more frank about it.  If you’re coy and you’re pretending ‘Hey, I don’t want to date,’ you may not get one.”  Id.  

The good news for Harmon and like-minded firm leaders is that there is a substantial array of attractive merger candidates for robust and healthy firms.  As to McGuireWoods, with gross revenues rising 16% over the last five years to its current level of just south of $1B and profits per equity partner increasing at an even faster rate over the same period to just south of $2M, there can be no doubt that they will be seriously considered as a merger partner by more big firms whether those firms choose to remain coy about their respective appetites for exploring or not.  Moreover, as the geopolitical climate continues to feel unstable and financial markets remain volatile and at levels substantially off their highs of two years ago, major players are likely to be less brash and confident about their ability to thrive on their own or remain competitive merely through organic or individual or small group lateral growth.  Finally, law firms are continually facing new competition from non-attorneys operating ventures seeking to provide comparable legal services at lower rates.  See id.   All of which will lead to more firms talking to one another, and more mergers and acquisitions. See also Law firm mergers gained steam in 2022, with more on the way in 2023, and Wake Up Call: Law Firm Mergers Apt to Rise in 2023, Report Says.  And see McKinsey’s 10 Principles for Successful Law Firm Mergers, which succinctly notes as follows:  “Market forces have led to the consolidation of a number of professional services sectors. In accounting, for example, the Big Four account for more than 60% of the U.S. market. There is good reason for this: research has shown that across industries, organizations with a systemic M&A strategy delivered better shareholder returns. Organizations that relied solely on organic growth, on the other hand, performed relatively poorly.  Legal services are not immune to this trend: consolidation is well under way, albeit not to the same extent as in other sectors. In 2017, the largest five law firms by revenue accounted for 8% of the American Lawyer 200 revenue pool. By the end of 2021, that figure had risen to 14%… [A]s market pressures intensify and the first $10 billion firms emerge, the case for M&A is becoming stronger.”  Id.

So excellent work, Jonathan Harmon, and kudos to you for being so refreshingly straightforward.  We are certain that McGuireWoods’ future is bright, and are on board to assist you and like-minded BigLaw leaders in helping to take your extraordinary firms to even greater heights!

 

CORONA, PUTIN AND BIG LAW’S LATERAL HIRING RODEO

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These last two years may have been the wildest ever in the history of BigLaw lateral hiring.  Before recruiting at major law firms came to a virtual standstill In March 2020 when much of America shut down in the hope of curbing the COVID epidemic, we had been enjoying boom market conditions for about a decade since the end of the sub-prime crisis of 2008 and the resulting Great Recession.  But we were ready to hit the brakes fast and so we did.  An interesting indicator of the extent to which COVID-related fears impacted hiring is simply noting the number of job postings that were eliminated from law firm websites in March 2020 in comparison to the previous four-year average for March;  while from 2016 to 2019, on average only 730 attorney job listings were eliminated from firm websites, almost three times that number (1857) were erased in March 2020.  See Lateral Hirings Plummet Amid COVID-19 Fears.  See also Lateral Hiring Fell in 2020 – You Can Probably Guess Why – The Texas Lawbook. 

It is no overstatement to recall that many felt the end of the world was upon us, and law firm hiring managers were no exception;  the vast and brutal devastation caused by the new deadly virus was all around us and the utter helplessness we felt in defending against it was paralyzing for all but the most steadfast law-firm hiring managers as corporate clients tightened belts, keeping more and more legal work in-house and in many cases delaying payment on law firm bills for services already rendered.  But hiring freezes was just step one; most major firms reacted quickly to shed every ounce of fat possible from their overhead, many cutting into lean meat as well in order to enhance chances of survival with attorney and staff pay cuts, layoffs and reduction of real estate commitments being the primary means of preparing for the worst.  See BigLaw Associate Layoffs in 2020 Were ‘Reminiscent Of 2009 And the Great Recession, see also Wake Up Call: Goodwin Unloads Associates Via ‘Stealth Layoffs’: Report (noting that some 69 law firms had announced pay cuts for associates and non-equity partners by May 2020 in reaction to the COVID pandemic), and see Skadden is latest firm to announce layoffs; experts say more law firms will follow, and see More Associate Salaries on the BigLaw COVID-19 Chopping Bloc.

But lo and behold, as 2020 progressed and business leaders proved deal hungry resulting in increased demand for legal services, law firms found themselves not only leanly staffed but busier than ever, enjoying record revenues and profits and compelling law firm hiring managers to shift gears from pedal-to-the-metal reverse to first gear forward.  See Law Firm Revenue Shoots Up in Booming First Nine Months of 2021.  And see Big Law Firms Prosper Despite Covid-Impaired Economy.

This dramatic shift resulted in a hiring frenzy for service attorneys accompanied with the adoption of record base-salaries and bonuses in order to effectively compete for talent.  Davis Polk was the first firm to swing its wad, offering pandemic bonuses to service attorneys ranging from $7,500 to $40,000 as a function of seniority, many other elite firms quickly following suit.  See Top 20 BigLaw Firm Matches Salaries That Go Up To $415K.  See also Salary Wars Scorecard: Firms That Have Announced Raises (2022).   And see A Quarter of U.S. Firms Raised Wages, Gave Bonuses in Covid Era.   At the same time, service attorneys who had become accustomed to working remotely during the pandemic expressed their sense of heightened power vis-a-vis their law firm employers by rejecting calls to return to the office at least three days per week when the pandemic began to feel more under control:  See Wake Up Call: Lawyers Reject Three Days in Office, Survey Finds. 

That said, the euphoria among service attorneys and managers alike appeared extreme and it felt to market observers that many of them seemed to forget that such good times always eventually end (see, for example The legal talent war that broke out in 2021 shows no sign of slowing down) despite warnings that restraint was in order.  See, for example ‘The pay rates for lawyers are unsustainable.  See also Big Law’s Soaring Profits May Be Next Pandemic Darling to Falter.  And see Law Firms Reverse Coronavirus Cuts, but ‘Triage’ Not Over Yet.  

Then, just short of two years from the date the music stopped in March 2020, Russia invaded Ukraine and, when the invasion was met with more resistance than Putin anticipated, the unthinkable happened: he threatened the use of nuclear weapons if he alone deemed that measure necessary.  While BigLaw pulled out of Russia in an expression of outrage, see, for example, Dentons, DLA Piper End Ties With Russia as War’s Toll Mounts, the thought that one irrational actor could unleash a nuclear arsenal on the West helped send deal activity and equity markets tanking, along with them all those vast paper profits, Paul Weiss reporting that in March 2022 U.S. deal count and total deal value decreased 29% and 34%, respectively among other similarly sobering statistics.  See PowerPoint Presentation (paulweiss.com).

It’s still too early to tell for sure, but this legal recruiter anticipates another quick switch of the gears to reverse on the part of law firm hiring managers, law firms once again anticipating struggles to make good on compensation guarantees and other financial commitments entered into during the euphoria of COVID-era record revenue and profits and corresponding demand for legal services.  At Hanover Legal, we constantly urge restraint, caution and due diligence in exploring options, reminding our clients that since the dot-com bubble burst of 2000, on average one AmLaw 100 firm has collapsed every year and a half, the most recent being LeClaire Ryan after a string including once venerable giants Brobeck, Heller Ehrman, Wolf Block, Thelen, McKee Nelson, Thacher Proffitt, Bingham McCutcheon, Dewey & LeBoeuf and Chadbourne.  See, for example Law firms had another big quarter, but associate pay is taking a toll.  Unfortunately, we believe that the question is not if but when a major law firm or two will be bucked off this raging bull.  We also anticipate an increase in law firm merger activity as a hedge to ensure survival.  Come what may, Hanover Legal remains on board to assist our law firm and attorney clients in any way.