All posts by Lateral Link

5 Ways To Increase Your BigLaw Salary

If you stood outside the AT&T Center on June 15th at 9:10 p.m. local time, you would have witnessed a steady stream of crestfallen Miami Heat fans bemoaning the performance of anyone other than Lebron James. Ask any of those fans if they thought Chris Bosh was worth a max contract in the off-season and they most likely would have answered “No!” with feverish enthusiasm.

Fast forward to the off-season, teams have now expressed interest in signing Bosh to a max-contract sheet. As it stands on Thursday, July 8, the Rockets are willing to pay him $22 million a year.

So what does this mean for you? It means that just because your law firm tells you that you’re worth a certain amount of dollars does not mean you can’t secure more greenbacks. Salary negotiations are tricky, and it is helpful to get in touch with a recruiter before you attempt to renegotiate with your current firm. Before you start maneuvering, here are five pointers to consider before strategizing…

1. Lateral Moves: A lateral move is usually one of the easiest ways to bump your pay by creating a market or realizing a 10-20% bump in compensation. A large portion of the moves we facilitate are from partners looking for a bigger payday or something that they see is closer to their market value. It is simply the nature of the business that different firms will value you at different levels—much like Bosh means more to Houston as a complement to Dwight Howard than he does to Miami as a stretch center. You should leverage the market to maximize your payday. After twelve years of prep, four years of undergrad (or maybe five to the ire of your parents), three years of law school and possibly eight years as an associate, partnership is your chance for payday. What may seem like a marginal increase in pay can compound immensely after a 20-30 year partnership and any increase in pay can also provide grounds for future increases as well. Don’t simply just chase the next payday, but rather make sure it sets up the subsequent ones as well.

2. Approach Management: Tactfully make your case to firm management. Whatever you do, do not go on a fishing expedition. If you approach management without doing your research, they will not recognize your efforts and most likely you won’t get any offer at all. There are numerous resources available to partners to help them figure out their market worth. You can call me or anyone else at Lateral Link for advice. If you try to negotiate without help, you are negotiating against yourself since you don’t have market information as a starting point. If you do not feel like talking to a recruiter, there are many free resources available to you so you can try to ascertain your maximum market value. But like Yelp and other user-generated-content sites, you probably won’t find the data realistic for your pay grade. That said, sites like Glassdoor may help you compare your salary to those of attorneys at other firms. Recruiters have access to a bevy of tools to help you figure out your potential salary and where you can get it.

Recent laterals are also a good indicator of what you are worth on the market—albeit not always at your firm. If a partner with a similar background laterals to your firm with a significantly higher salary, go to management and show them that this is indicative of an increase in your value as well.

3. Grow Your Business: A lot of the best lawyers feel that cultivating clients is not their strong suit and that their highest and best value is to practice a purely intellectual and unadulterated profession that should be unsullied by anything else. Unless you practice at a firm like Cravath with lots of institutional clients, this idealistic style of legal sanctity will quickly quell your aspirations of moving up the ladder.

Fostering relationships is essential in any facet of life and law is not an exception. In a world of increased transparency with attorney’s information, aptitude and clientele more readily available than ever before, business development has become essential in the face of stickier market rates. You must distinguish yourself from the thousands of other lawyers with similar pedigrees if you wish to increase your salary. You can always hire great help to work on your matters as long as your clients trust your judgment.

When you first look to increase your business, the easiest place to look is at your existing clients. Keep track of your clients’ dealings, anticipate any needs they might have and then meet with your clients to see if you can open a new matter. The relationship has already been built so you will have an easier time capturing new matters from existing clients than you will with another company or person. It may sound banal or obvious, but this is usually the easiest way to bring in new business and the firm will appreciate your initiative and they will certainly appreciate the extra dollars you are generating.

A second method is bringing in new clients. Securing clients is much like dating. You probably won’t have much success if you pick up the phone and cold call your way through the yellow pages (in either scenario really). Capture the attention of a client through a mutual acquaintance. If you have a friend or former colleague that works for a potential client, reach out to them and ask them to make a “warm” introduction. It’s an investment to build a relationship, so once you establish one, make sure to keep it fresh. This is where it helps to keep up your network, so don’t think that you can slack on making connections once you make partner, it’s even more important at this time in your career.

If you do not have any referral sources, make them. Join clubs, groups and associations that your potential clients frequent. These can be trade associations, social clubs, country clubs, gyms etc. Get to know the people there, but do not be forceful, you don’t want to be known as the Annie Wilkes of law. Good places to start are the California Club in Los Angeles and the Union League Club in New York.

4. Success From Within: Connections should not be forged solely outside your firm; your workplace can be a great resource for connections. Seek out lawyers in similar practices and you may be able to source additional work should the client’s needs be more suited towards your expertise. Cross sell! Cross sell! Cross sell! Furthermore align yourself with successful group heads and get to know them. If you consistently show management that you are a hard worker and have a positive presence in the office, they will be more inclined to reward you when the time is right.

Whether you are an associate, partner, or counsel, the firm is (hopefully) benefiting from your services and as you accrue more experience and business, your value grows. This is obvious enough, but many attorneys undervalue their skills or become complacent over time. The reality is if you are a partner and your salary has not changed much over the past 10 years, you are making only 3/4 of what you were back in 2004. Make sure your salary is adjusted not only for inflation, but also for your market value.

5. Don’t Sink The Ship: Look no further than the breakup of Dewey & LeBoeuf for the epitome of this principle. If you negotiate a salary that is disproportionate to your value (or more likely you over promise and under deliver), your bloated salary will stick out and you could find yourself in a worse position than where you started. When you negotiate a salary with your current or prospective firm, make sure you keep your long-term practice in mind. A large salary is enticing, but if you are terminated and lose clients, you will likely wind up with less overall than your previous market value.

If you are having trouble with salary negotiations or feel that your skill set is underappreciated, give me a call and I can help you determine your true market value as a starting point.

 

What To Do When The Partner Track Closes

For senior associates up for partner, firms have become increasingly focused on business potential and less so on an associate’s ability to outclass others in the courtroom or at the negotiating table.

In the days of yore, the partner track in Biglaw was oftentimes a reward for consistent competence and professionalism. In an era of PPP and RPL, most firms (other than the Cravath, Quinn, or Simpson Thacher types) are less likely to promote associates unless they see real revenue-generating potential.

If you find yourself in your fifth to tenth year and are unsure whether you will make partner, here are four steps to help you steer your career…

1) Evaluate. First evaluate where you stand in terms of making partner. There are several indicators that can tell you if you are on track to make partner.

If you have perfect or nearly perfect reviews, then you are likely on track to make partner. If you have a close relationship with partners within and without your practice group, this also bolsters your candidacy. If you are in a practice group that is busy without too many associates in your class year, you have a better shot than if you were one of many in a deep bench. If you have any business, then you are ahead of the curve. Finally, if you have strong billable hours and are selected to work on firm-wide committees or programs, the firm is probably looking to you as a loyal companion.

The economy has a lot to do with your chances as well. As of today, it is a good time to be up for partner as a real estate associate, while not as good of a time as a pure bankruptcy partner. Your practice and promotion are at the mercy of business cycles, unless you can retool to another practice by predicting economic trends.

Another thing to look at is your firm’s leverage ratio. If your firm has high leverage, you will have a harder time making partner because of the glut of associates. There is no standard measurement for determining your odds of making partner. In New York there are about 444 real estate partners and 517 real estate associates in the Am Law 200. The overall leverage for Biglaw real estate in New York 1.16. This does not mean you have a sure-fire chance of making partner. Some practices are slow growing and with the continual influx of new associates every year and the slow retirement of older partners, leverage by itself can be a misleading predictor of partnership opportunities in an overall practice. If you see your firm has a high leverage ratio for your practice, slow growth and not many outgoing senior partners, it may be helpful to look elsewhere.

Furthermore, if your firm rarely promotes a large partner class or eschews partner promotion for lateral partner hiring, then it may be helpful to consider one that gives you a better shot.

There are many options if you believe that partnership is an unlikely scenario for you.

2) Look In-House. A Biglaw partnership is not the only way to pay off that school debt. Many attorneys prefer the stability and challenge of in-house practice. However, many attorneys mistake stability to mean easy. Working in-house can be just as, if not more challenging, than working at a Biglaw firm. Working in-house may entail working on dozens of deals at once without a team of junior associates or paralegals. In-house hardly deserves its reputation as a stress-free practice. Not to say all in-house positions are this way, which is why it is important to evaluate each company and in-house legal department, before making generalizations.

3) Look To Serve. Another option to consider is public service. Like myself, many attorneys received their undergraduate degree in political science or a related field. Law school may have recalibrated our trajectory, but public service can lead to prestigious jobs, which in turn can lead back to partnership. Every election cycle there are a plethora of senators, representatives and counsels who march down Capitol Hill and up K Street to take up a job as a partner at an Am Law 200 firm. In the legislative branch, 148 representatives and 52 senators listed law as their prior occupation. There are plenty of opportunities in public service ranging from federal prosecutor to counsel.

4) Look At Other Firms. If you are looking to stay in Biglaw, but don’t see light at the end of the tunnel at your current firm, then look laterally before it is too late. Contrary to nearly every other job market, the more senior you get as an associate, the less attractive you are to other firms as a lateral. Because your lateral value has diminishing returns the more senior you get, you should start thinking about these issues as a fifth-year, when you are at peak marketability. The nuances among firms and practices even within a firm make it almost impossible for associates to make an educated decision here. That is why you should leverage the information of insiders or good recruiters to guide your decision. For example, when a partner like Jesse Sharf at Gibson Dunn has an opportunity for a fourth-year associate to join his thriving real estate practice, that’s one you need to consider even if you are otherwise not on the market. To find out why, you can ask Josh Lockman.

Just because your firm does not make you partner does not mean you are not partnership material. A good recruiter will be able to tell you the overall trends of the market and will be able to help you find the right fit for you to lateral up. Here at Lateral Link, our recruiters include Larry Latourette, a former managing partner of a major Am Law firm, Ed Wisneski, a former partner at an Am Law 100 firm, and Deanne Ozaki, the former head of trademarks at Universal Music Group. We are happy to help you make an informed decision with your career.

Ethical Considerations For Lateral Moves

There are some common ethical issues every partner should know, or at least be able to identify what they don’t know, when planning for a lateral transition.

Most partners do not give ethical considerations enough attention in the process. Without proper planning, partners may breach fiduciary duties to their prior firms and create unnecessary conflicts between their former and new firms.

I asked Trisha Rich, a professional responsibility attorney who practices with Holland & Knight’s Lawyer Ethics, Risk Management and Regulation team, to respond to some of the most common ethical questions I have come across while moving partners and groups between law firms…

Mike: Partners generally want to reach out to their clients as soon as they know they are going to move, especially clients that have moved with them before. This is a sensitive matter especially because partners want to run their lateral destination by the clients they deem portable. Generally, what do you do when it comes to informing a client of an impending lateral move?

Trisha: Well, a general answer should not be considered legal advice for any particular lawyer in a specific situation. Every lawyer’s situation will be different, and should be evaluated in light of those specific facts involved. Keeping that in mind, most questions in this area involve balancing the duties that lawyers owe to their clients with the duties that lawyers owe to their present firm and its other lawyers.

For clients, the ethics rules tell us that clients have a right to know important information about their matters, and this will generally include issues of staffing and firm choice.

With respect to the firm (and other lawyers), things are more complicated since relationships between lawyers and firms vary — as does state law. Nonetheless, questions pertaining to a lawyer’s duties to the lawyer’s present firm cannot simply be ignored.

It is true that lawyers may want to notify their clients as soon as possible about impending departures and may be tempted to seek client assurances, directly or with a nod and a wink, that the clients will transfer matters to the new firm. In light of what may well be the fiduciary obligations that the lawyer owes to the firm, however, the general practice and rule of thumb is not to confer with any firm clients until — at the very least — the lawyer has notified the firm of the intent to depart. This is true even though the lawyer may have been the one who brought the client into the firm and may in fact be the only one at the firm working for the client.

Once the firm has been notified, the clients are generally entitled to be informed in a manner and with enough time to make an informed decision about the staffing of their legal matters going forward. At that point, the client has a right to make a choice, and neither the lawyer nor the firm can unilaterally prohibit the client from doing so. Exactly how this all plays out will vary depending on particular circumstances and the particular jurisdiction involved. Florida, for example, has gone further to create a set of procedures in its Rules of Professional Conduct than most if not all other states.

The authorities generally provide, however, that a lawyer may prepare to compete while still at the old firm, but may not actually compete. After departure, a lawyer who has left a firm generally has the same rights and faces the same limitations with regard to the solicitation of work from that firm’s present or former clients that any other lawyer would have.

Mike: I have worked with countless partners each with different comfort levels in discussing sensitive matters. Though my counsel is not of legal nature and therefore not privy to attorney client privilege, it is understood that any communication between a partner and myself is confidential unless otherwise noted by the partner. That being said, what is your perspective on how much information attorneys can divulge to recruiters and prospective firms?

Trisha: This is an extraordinarily difficult issue. A lawyer changing firms should expect that the potential acquiring firms may ask for things that are sensitive. Recruiters can be a useful intermediary to protect confidentiality and uphold ethics.

ABA Model Rule 1.6 broadly prohibits disclosure of information related to the representation of clients, but Model Rule 1.6(b)(7), which has been adopted in some (but not all) states, generally allows for sufficient disclosures to allow the potential new firm to run conflicts checks. Even in those states that have not adopted Model Rule 1.6(b)(7), it seems generally to be recognized that conflicts checks must be run at some point. It is also worth bearing in mind that ABA Model Rule 1.6(b)(7) and Official Comment [13] not only limit what information can be shared, but also impose duties on the prospective or recipient firm about what can be done with the information.

We know of no state in which a lawyer cannot share information about the amount of the lawyer’s past or present compensation. We tend to handle questions relating to information about gross client billings and the like on an individual basis.

Mike: Some partners I work with have been with their firm for their entire life and are entering into uncharted waters. It seems fundamentally easy, but if you are a partner you have responsibilities to your firm to notify them in an appropriate way. So since it’s not as easy as emailing your boss with a quick two weeks’ notice, what is your advice on giving notice?

Trisha: First and foremost, a lawyer considering departure should begin by reading the applicable firm documents – partnership agreement, employment contracts, or policies. Many, if not most, include some notice period. We understand that some firms may want a lawyer to leave immediately following the notice of intent to do so. Some firms also have notice periods that may be impermissibly long in light of the ethics rules of the jurisdiction or jurisdictions in question.

If a lawyer who is considering leaving a firm can find out how the firm has treated other departing lawyers in the past that may be helpful. Because some firms do advise lawyers to leave immediately when notice is given, we generally advise lawyers to go into their resignation meetings fully prepared either to do so or to prepare for a reasonable transition period.

Depending upon the specific circumstances, we generally recommend that the lawyer give notice in person and that the lawyer enters that meeting with draft documents in hand, such as a draft withdrawal notice, proposed joint notification letter, and client election document. We generally suggest as well that the lawyer have already prepared a list of clients that the lawyer believes should remain with the firm and a list of clients that the lawyer is interested in pursuing and should therefore receive joint notification. We also generally recommend that the lawyer have a list of any critical upcoming dates on client matters and a plan for how all such dates can be met.

Mike: In my experience, client transfer is a difficult task to execute, but an important one to properly consider. What do you recommend to help ease this transition?

Trisha: The most important consideration must be preventing prejudice to clients. This is reflected in part in ABA Model Rule 1.16 regarding the termination of representations. When the client goes with the lawyer, RPC 1.16 informs the former firms handling of the transition in the same manner it would be obligated to transition a client matter when there is an everyday substitution of counsel. This means that the lawyer will have to work with the old and new firms to assure a smooth transition. As a general proposition, the former firm is entitled to written authorization on behalf of the client prior to file transfer. One other issue that may come up is the costs of transferring those files, and which firm should bear those costs. The rules on this issue are not uniform throughout the country.

Clients that move with a lawyer may also have closed or inactive files at the soon-to-be-former firm. That should be a consideration in the transition process as well. Another issue is to make sure that what is transferred includes not only the physical file, but also any electronic files, emails, docket information, and trust account information.

Mike: A lot of partners I have worked with generally are not aware of the guidelines dictating partner-client relationships with clients that stay with the firm they left. How should lawyers handle the transition of the clients that stay behind?

Trisha: Both the rules regarding termination of an attorney-client relationship and the need for professionalism should inform this process. An attorney is obligated to withdraw in a manner that does not prejudice the client.

For those clients or matters that stay at the former firm, the lawyer will therefore want to make clear that the lawyer will do what is reasonably necessary to assist in any transition. That assistance could include anything from writing a file transfer memorandum to meeting with the subsequent attorneys who will be handling a file. Changes of address and court filings are required and completing those steps remains the obligation of the attorney of record.

Mike: A concern that some partners that I work with have is that the firm will withhold communications addressed to their past firm. What do you think these partners should do to prevent any lag in communication?

Trisha: This is certainly an issue that the lawyer and the firm that the lawyer is leaving should discuss. If nothing else, mismanagement and failures of communication are invitations to see both the lawyer’s and the firm’s name on the wrong side of the “v” in a legal malpractice or breach of fiduciary duty claim. We therefore prefer to see a written agreement about how this process will be handled, although an exchange of emails will suffice. We generally recommend as well that the lawyer test the system to make sure it is working as agreed. Even if a lawyer’s actual departure is unpleasant, both the lawyer and the firm have an interest in making sure that nothing subsequently falls through the cracks due to a failure to forwarding mail, email, or telephone calls.

L.A. Market Heating Up

Home to 80 degree Januaries, the lateral market has been equally hot in L.A. to start the year. The first six weeks of the year showed unmistakable improvement over last year and even bested 2012. The national lateral market is up 43% while the Los Angeles market is up 126% from 2013. Lateral Link alone is currently working with over 200 partners with aggregated practices north of $250,000,000.

The strong Los Angeles trend is highlighted by the recent move of John Shaffer into Quinn Emanuel’s bankruptcy practice. Shaffer, one of the nation’s preeminent restructuring lawyers, should bolster an already stacked Quinn Emmanuel office.  Winston also just picked up two prominent partners, Eva Davis from Kirkland and Dan Passage from Bingham.   Last, but not least, John Gatti left Stroock for Manatt.   I predict a dozen or more significant moves over the next few months in Los Angeles alone.

Of these recent partner moves, nearly half of them practice litigation. Surprisingly only 12% of recent associate moves in the Los Angeles area are from corporate attorneys. The newest Beige Book cites an increased pressure on compensation for corporate associates. Nonetheless, the Beige Book also reveals that firms have seen steady growth over the last six weeks (ending with January 15th). Litigation and corporate practices saw a slight increase in demand while real estate continued to grow at a strong pace.

The Los Angeles market is unique. Most other markets have one or two hegemonic practices. For example, about 60% of Am Law 100 Corporate associates and partners practice in New York. Los Angeles is more of a mélange of top attorneys throughout many disciplines. One of its most prized practices—entertainment—only has a 42% market share in the Am Law 100—though the city is rife with top-notch entertainment boutiques. Furthermore the disparity between the offices of the Am Law 100 firms in New York and Los Angeles is not that great. Los Angeles offices are around 25% smaller than their respective New York offices. However, when corporate practice is excluded, this figure drops to 15%.

Although Los Angeles is the second largest legal market outside of New York measured by the number of attorneys in the market, the market for legal services itself is more middle market practice. This shifts the focus away from book of business (but not entirely) to culture fit and potential.

Los Angeles firms are diligent in their pursuit of partners who not only have the requisite business, but those who also fit in with the firm’s culture. That is why the Los Angeles market requires extra diligence (as do all) because lateral movements are not just a pairing of business, but also a meshing of personalities.

Mandatory Law Firm Retirement, Succession Planning, And You

Of the roughly 36,000 partners in Biglaw, roughly 6,800 (18.8%) of them are within a few years of or have surpassed (and then some) the mandatory retirement age. Lawyers 55 or older make up about 1/3 of the practicing partners in the Am Law 200, a figure that will likely hold steady as the tail end of the baby boomer generation ages. Am Law 200 law firms have on average about 34 chairs, executive members, and senior partners whose 35-plus years of experience, client relationships, and leadership must be transferred to a new generation of rising stars. The process is hardly ever smooth and often involuntary.Most partners in senior vintages begrudge the practice of mandatory retirement; some bemoan that it is an overcautious safeguard or the epitome of ageism. Some claim the practice is supported by scientific studies that link cognitive decline with advancing age — especially after 65, which is about the average for mandatory retirement. However, with advancing medical standards the idea of being forced to retire at 65 may soon seem ludicrous, but for now, how many law firms are prepared to deal with the void left by these partners?

 

Succession planning is a difficult task for law firms. Do you want to be the one to tell the fiery warhorse in the corner office it’s time to put away the briefcase? Law is often a reactionary practice. Firms are hesitant to expand practices or bring in new attorneys until they are certain there is requisite demand. No two firms are completely alike and many are expert succession planners, but many also fall into a “complacency trap,” meaning the senior leadership is seen as bringing in enough revenue to not disrupt a good thing (i.e., wait and see until the last minute to find a suitable replacement), especially if a partner can help make a smooth transition of personal client relationships maintained over decades.Those firms with institutionalized business, the Davis Polks and Cravaths of the world, are often seen as much more stable assuming their clients use the firm and not any one partner for their work. However, institutionalized business is becoming less certain these days with the major lateral partner moves we are seeing even within the confines of firms historically counting on repeat business from clients like Goldman Sachs.Firms enforce mandatory retirement to varying degrees of severity. Firms like Bradley Arant and Knobbe Martens are diligent in regards to mandatory retirement, they have almost no attorneys over 65 years of age. On the other end of the spectrum, Holland & Knight, Greenberg Traurig, Duane Morris, Pillsbury, and K&L Gates tend to eschew the mandatory retirement requirement. Together they account for around 10% of all attorneys over 65 years of age in the Am Law 200.Traditionally, high-powered partners would mentor younger partners or associates whom they would transfer the bulk of their business over to when they retired. This practice is little more than a relic as Biglaw practice has become more competitive and lateral moves have increased. Law firms now rely almost exclusively on three separate practices as a form of succession: promotion to partner, promotion of partners, and lateral hirings.Promoting partners and associates (if a firm has sufficient foresight) to create a path to leadership positions, or rewarding them with lucrative work, is an efficient way to seamlessly transfer responsibility to younger lawyers. However, increased lateral movement has made this less feasible. Firms want business. Instead of building, most buy since it is seen as a more certain bet. Say for the last five years you have been priming a partner to take over for your chair of litigation, but then another firm just offered her 25% more than what you are offering. All of a sudden you have lost a partner, and more importantly, a potential successor. If, however, partners see a real path to seniority within their confines, why look elsewhere?This example is one reason why firms turn to us to help them find potential successors for their chairs and powerhouse partners. It requires diligent work to find partners who are willing to move, have the requisite experience, personality, clients, support, and finally at the end you pray that there are no hidden conflicts.Spotting a succession issue is easy. Coming up with a plan is not overly difficult. Executing on the plan is where most firms get cold feet. Even though firms have mandatory retirement dates, not all of them abide by them with the same diligence, which can dissuade ambitious laterals who are looking to transition into leadership roles. Instead of calling out any specific firm for the above, let’s just say its more common than not among the Am Law 200.While the bell curve of aging lawyers is just moving to the right, firms may have to rethink their insistence on mandatory retirement and succession planning. One suggestion: not all sixty-five year olds are made equally, but if you have made it in Biglaw for this long, chances are you still retain the bulk of your talents and even fire in the belly. The experience and practice of a lawyer is what matters; the idea of an absolute age of futility is superficial. Too many firms are strict in their insistence of mandatory retirement dates as absolute. This hurts both the lawyer and the firm, especially if there is no succession plan in place. Firms would be wiser to ease the severity of the rule and instead impose a transition period during which the lawyer could operate in a mentoring capacity to facilitate a smooth transfer of responsibility — which many firms like Winston & Strawn already do.I am happy to discuss with firms how they can best resolve their succession planning issue. Ninety percent of the solution is in executing a proper plan, not just identifying that an aging leadership issue exists. If you want to benchmark where you stand and learn about best practices in the industry, I am happy to share my suggestions and help you craft a gameplan.

What Is The Future Of Bingham McCutchen?

Is Bingham about to fall victim to its own strategy?

Since 1994, the firm has leapt from a regional firm that worked almost exclusively with the Bank of Boston to one of the fifty largest firms in the world. The impetus behind this expansion was a series of about ten mergers over the course of sixteen years. The firm picked up productive but possibly struggling boutiques and mid-size firms, growing from a 200-attorney firm in 1994 to an 850+ attorney firm in 2009.

How did Bingham reach its current state? Let’s look at the history.

Bingham has expanded through various combinations and acquisitions. In 1995, Bingham head Jay Zimmerman recruited a real estate practice group to join the D.C. office, which had only three attorneys. Zimmerman then recruited former New York managing partner Bob Dombroff to join the team in Hartford. With established offices, the firm turned to growth through combinations.

In 1997, New England banking was drying up and Bingham recognized that it needed to establish a large New York office. That year they combined with Marks & Murase to open a New York office. Looking to further consolidate their East Coast base, they joined with a financial-services firm, Hebb & Gitlin, in 1999, and a mid-size Manhattan firm, Richards & O’Neil, in 2001. These combinations created a strong, full-service New York office with enough diversification to weather cyclical downturns and ride the bull in upswings.

In 2002, Bingham maneuvered again by courting McCutchen, Doyle, Brown & Enersen, one of San Francisco’s top firms at the time. Together they created an 850-lawyer firm with a coast-to-coast platform.

In 2007, the firm opened offices in Hong Kong and leveraged their Tokyo connections through the previously absorbed Marks & Murase to open a Tokyo office. In 2006 they again absorbed a Tokyo restructuring firm and in 2007, New Tokyo International, to build the third-largest office in Tokyo for a U.S.-based firm.

In 2004, Bingham also expanded into Los Angeles by combining with Riordan & McKinzie, a 110-person firm led by former Los Angeles Mayor Richard Riordan. In 2007, they further bolstered their Los Angeles office by acquiring Alschuler Grossman, a Los Angeles litigation boutique.

Finally, in 2009, with the help of my friend and prominent headhunter, Alan Miles, Bingham acquired McKee Nelson, a tax firm that had lost its biggest client, Lehman Brothers. With this final acquisition, Bingham created a firm with top-tier practices in restructuring, complex securities, financial litigation, finance, structured finance, capital markets, tax planning, and tax controversy. Some sources are reporting that part of the reason for these recent (and not so recent) partner defections was over the guaranteed compensation offered to McKee Nelson attorneys, who were guaranteed $59 million in compensation for 2010.

Bingham largely thrived in 2009 because of their wide breadth of practices that could weather countercyclical storms. However, as these practices have slowed down, they have started to deal with the repercussions of merger-and-acquisition-led growth. Growth through combinations as opposed to growth via single or group lateral acquisitions and summer hiring is like operating with a bludgeon instead of a scalpel.Combinations (i.e., mergers and acquisitions) are nearly impossible to approve without some assurances that a significant majority of partners and associates will be retained given high performance or cut as well given low productivity. However, since firms cannot tie up attorneys with non-competes given the ethical rule of a client’s right to choose, a firm’s income stream could walk out the door at anytime.

In its early days, Bingham did an excellent job at picking its ponies. The firm largely resisted the temptation to bulk up by acquiring firms outside their regional and practice sweet spots. However, the firm has also suffered high rates of attrition over the years from apparently unhappy partners and associates. From 2004 to 2007, nearly half of the attorneys acquired from the merger with Riordan & McKinzie left for other firms. Bingham may say that they cut the fat but kept the muscle here.

Although Bingham is 123 years old, it did not establish itself as a full-service firm until the mid-90’s. Firms like Gibson Dunn and Cravath have decades and decades of stability and prestige that play well for retention, recruiting, and profitability. On the other hand, Bingham’s acquisition-led growth put the firm at the top of the Am Law list only in the past 10 years. Most of the firm’s practices were recently established, making it difficult for some prospective lateral partners to move to Bingham without either spearheading a practice themselves, or fitting into one that has a deeply routed culture and history among the partners. Compounded with hiring fewer summer associates than other peer firms, Bingham had difficulty keeping or growing their number of lawyers without relying on lateral growth, despite having an excellent platform and roster of attorneys.

The question of today: Will Bingham survive without combining with another firm? Possibly, but the firm’s biggest challenge will be with retention and recruiting, given the perception (even if not the reality) of the firm’s current state.Although Bingham has approached several firms with overtures to merge, I have not confirmed that these firms have expressed any interest. That said, it is my understanding that Bingham has intimated interest in four potential merger candidates: Morgan Lewis, O’Melveny, MoFo, and Winston. Reportedly, O’Melveny and MoFo have rebuffed the overtures.

Looking at the other two firms, I have some preliminary thoughts. Morgan Lewis could logistically be a good fit. They are headquartered in Philadelphia and would coalesce fairly well with Bingham’s existing offices. The office crossovers between the two firms include Beijing, Boston, Frankfurt, Irvine, London, Los Angeles, New York, Palo Alto, San Francisco, Tokyo and Washington, D.C. The overlap of practices in each office is less consistent with the exception of corporate and litigation practices in New York, Boston, Los Angeles, San Francisco and D.C. There are obvious practice synergies from this potential combination.

Recent lateral moves by Bingham attorneys to Morgan Lewis lessen the likelihood of any possible merger. One of the largest beneficiaries of Bingham’s recent lateral losses has been Morgan Lewis. The process of reintegrating or retaining these attorneys in the event of a merger could be difficult.

One potential hurdle with a Bingham-Morgan Lewis merger is each firm’s leverage ratio. Bingham operates with a 4.48 leverage, which is slightly above average for its size. Morgan Lewis boasts a 2.72 leverage, which is about 40% lower than Bingham. If Morgan Lewis were to insist on maintaining their leverage ratio, a significant portion of Bingham associates could be left behind.

Like with any potential merger, we are hearing rumors of a possible combination with Winston. This could face similar obstacles as a merger with Morgan Lewis, but would have a nice upside if done right. Both firms have strong and overlapping corporate and litigation practices in their major offices, but Winston, like Morgan Lewis, is headquartered in Chicago. Winston does not have offices in Tokyo or Frankfurt, and the only international overlaps between the two firms are London, Hong Kong, and Beijing. There could be an attractive way for each firm to expand their platform through complementary practice strengths and regional footholds.

By just looking at the numbers, Winston is a more feasible option than Morgan Lewis. The two firm’s leverages are closer together (4.48 to 3.72), they have a similar equity to non-equity partner ratio, they are more similar in size this year, and they have an almost identical partner compensation average, profitability index, and PPP.

Peter Zeughauser of the Zeughauser Group commented that Bingham’s “naked” capital system could impede a potential merger. I disagree with Zeughauser. A naked capital system just means one less issue on the table to resolve, especially given the common splintering of groups and partners post-combination, which greatly affects post-merger profitability of a firm, and consequently, less certainty of profitability.

What is the future for Bingham — a major combination, further cuts, lateral acquisitions, or simply coming out stronger as a leaner firm? Any comparisons to troubled firms from the past would be hasty. Although Bingham may have to rethink its capital system, its investment in Lexington and its global vision, Steve Browne should be able to lead the firm to a better place.

Which Firms Are Potable For Your Portable Business?

As long as it has been around, the Am Law 200 list has been seen as what separates the best from the rest. It seems simple, transparent, and concise with each firm ranked in ascending order. However, many misconstrue Am Law ranks to mean overall value and assume that the firms at the top of the list are indubitably the best.Some partners with books of business larger than War & Peace assume that the biggest firm will be the one with the best platform and financial flexibility to absorb their practice. In reality, many firms towards the middle of the Am Law 200 can better accommodate these lawyers (although many just as likely cannot).When looking at the compensation average for partners, the gross profits of a firm are a relatively poor predictor compared to the other available metrics. Among the best indicators of firm health and the compensation is the profitability index…

 

The profitability index is derived by dividing PPP by RPL. When you break up PPP and RPL you can boil the equation down to this:

Essentially the formula rewards those with a lower cost to gross ratio (makes sense) and a higher leverage. This second part may seem counterintuitive; you would think that having a greater number or ratio of partners would be a good thing. However, a low leverage ratio can suggest that partners have smaller books and therefore need less work serviced but more importantly (and likely) associates are very cost effective. The formula assumes that an increase in leverage is indicative of an increase in book size and firm efficiency. This is however, not always true as book size also depends on bill rate.Selecting the best platform for your practice is not as simple as matching bill rates, it also requires you to consider the power structure, leverage, (in)equality, and the compensation formula for a prospective firm. Varying sizes of “books of business” will fit better at different firms, even if the bill rates are the same.It is important to note that the ideal firm for a partner varies significantly by practice area, but in terms of raw financials, if you are a partner with around $2 million in business, you would most benefit from a firm with a smaller spread between the highest paid partners and lowest paid partners. These will tend to have friendlier compensation models for partners with books of business around the $2 million mark. A few of the many firms ideal for these partners are Jeffer Mangels, Goodwin Proctor, Manatt, Dykema and Buchalter — note Buchalter’s stats are from 2012, when they last appeared on the Am Law 200. Compensation spread is not a perfect measure. It measures the ratio of the maximum and minimum instead of average values; a better measure would have been the standard deviation of partner compensation, or if one had time, the Gini coefficient.

If your practice is between $2-5 million, the number of firms that can absorb your practice and compensate you for your productivity is a bit more restricted. For example, for a partner to have a practice in the $5 million range, they would need to generate around 9,000 hours of work at a blended rate of $550 / hour for the partners and associates working on their matters or deals. A few of the top paying firms in this category include Hughes Hubbard, Proskauer, Paul Hastings, King & Spalding, and Cadwalader. As you can see, each firm has a healthy leverage ratio indicating an abundance of associates.

If your practice generates between $5–10 million in originations, the number of associates and partners required to service your practice is creeping towards six (or possibly even higher). When looking at firms, beware of using leverage or profitability index as a definitive guide to how well a firm could service your book. The service structure of different practices can vary significantly, with some matters requiring more associates or more partners. In this case, the leverage might make it seem like the firm is a bad match when in reality it is a good fit. Several of these firms are great options, including Gibson, Irell, Skadden, and Milbank.

For those few and far between who generate or at least are the client contact bringing in $10 million or more, there are few firms that could compensate you at top of the market. In my experience, Kirkland, Proskauer, and Simpson Thacher are exemplary firms that provide a strong base and healthy compensation for a large practice. As for Watchell and Quinn, it is tough to call anyone’s business portable, but as long as you are a key stakeholder, your compensation is top of market.

If you made it this far you have glanced at only a microcosm of the complexity of partner moves. From bill rates to firm structure to client conflicts, maximizing your compensation, happiness, and platform are difficult to do in an opaque legal market. Partner moves are far more cumbersome than associate moves which is why partners must do their due diligence before pulling the trigger. My colleagues and I at Lateral Link would be happy to discuss the current market with any curious partners.