Category Archives: Associates

CORONA, PUTIN AND BIG LAW’S LATERAL HIRING RODEO

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 FearsSee 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 2021And 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 $415KSee 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 unsustainableSee also Big Law’s Soaring Profits May Be Next Pandemic Darling to FalterAnd 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.

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.

 

Happy New Year and Full Steam Ahead

As we head into 2015, our major law firms are by and large optimistic with respect to their revenue and profitability, and eager to take opportunistic gambles on lateral talent as well as ventures into new markets.   This optimism is tempered however with the still-fresh memories of the brutal financial crisis of 2008 and the unprecedented law firm layoffs that followed, coupled with heightened sensitivity to the reality of the ongoing avalanche of major law firm collapses at a rate of one every year-and-a-half since the year 2000.

As such, while law firm managers are eager to grow strategically, they do so  with heightened due diligence and caution;  no firm wants to be the next Bingham McCutcheon, Dewey & LeBouef, Howrey, Heller Ehrman, Wolf Block, McKee Nelson, Thacher Profit, Thelen, Dreier or Brobeck.  Similarly, no attorney wants to be on board the next Titanic as it starts to sink.

As we enter our fifteenth year in business, Hanover Legal remains constantly vigilant of the health of our major law firms both financially and culturally and prepared to assist our finest attorneys in their efforts to secure spots at those most likely to provide enhanced stability as well as financial and cultural well-being to them going forward, and reciprocally to our finest firms in the increasingly fierce competition for top talent on the lateral attorney market.

We wish all our firm and attorney clients a healthy, happy and prosperous 2015!