Tag Archives: Law

Why Leave Biglaw To Form A Boutique?

If law practice were a normal business, this would make little sense. In theory, larger firms should be more profitable per partner than smaller firms because a large firm can spread its fixed costs of operation over a larger pool of lawyers, lowering per-lawyer cost. The move to form boutiques seems to violate the basic principle of economies of scale.

But law is not a normal business. As we have previously explored, the legal profession is remarkably fragmented relative to other professional services fields. It is clear that standard economies of scale logic does not explain law firm industry structure.

We see four central factors driving the boutique boom: founder autonomy to chart strategy, avoidance of client conflicts, the opportunity to limit overhead investment, and freedom from ongoing obligations to retired partners.

Strategic autonomy

Boutique founders value the ability to chart their own strategy and run the show. A rainmaker in a typical Biglaw firm can be expected to have a more influential voice than the average partner, but the fact remains that major decisions require some degree of consensus, and the status quo tends to prevail.

Take alternative fee arrangements, for example. Boutiques generally have embraced flat-fee or other alternative structures much more readily than their Biglaw peers. That shift is a lot easier to execute when a firm is controlled by a small group of partners who work in the same practice area and are operating on a relatively long time horizon.

Boutiques can also more easily limit themselves to competing only for higher-margin work. When you make no pretense of being a full-service firm, and you have no legacy low-margin practices encumbering you, there is little reason to bring on equity partners whose revenue contribution would reduce the average.

Conflict avoidance

In their public statements, boutique founders tend to highlight the appeal of escaping the conflicts entanglements of Biglaw. It sounds more noble than “I’m expecting to make way more money.” But in all seriousness, freedom from conflicts can be important. It is a frustrating experience to be in line to represent a client in a significant matter, only to find out that your firm has a conflict that seems entirely tangential but nevertheless requires you to decline the work.

No bloated overhead

If law firms were managed to maximize profits, overhead considerations would counsel against forming a boutique. All law firms must incur some level of fixed cost in order to operate. Consider IT costs. Properly managed, the amount spent on IT per lawyer should be materially smaller at a 1000-lawyer Biglaw firm than at a 10-lawyer boutique. Similar economies of scale should exist for real estate expenses.

And yet, boutique founders routinely cite reduced overhead as an advantage of the boutique model. This is an indictment of large firms’ spending decisions. Historically, there has been a cultural assumption among the Biglaw elite that fancy offices on the highest floors of the most prestigious towers are a necessary expense, both as a status symbol for clients and as a recruiting tool for attorney talent. Boutiques have illustrated that there is reason to doubt this assumption. Even before the pandemic made every law firm question its real estate needs, boutique founders realized that they could operate successfully with a considerably smaller office footprint.

Here we again see the value of the autonomy discussed above. It is easier for a small group of founding partners to agree to dispense with some of the traditional trappings of Biglaw office space than to drive consensus among a large partnership to make substantial cost cuts.

No retirement payments

The final factor is likely the least intuitive, especially for lawyers who are not yet partners: the burden of payments to a firm’s retired partnership. Biglaw firms vary in the generosity of annuities offered to retirees, but it is common for a retired partner to be paid in perpetuity something like one-third of the partner’s average compensation in the final five years of service.

As life expectancy has increased, these generous payouts have become an ever-growing drag on Biglaw profits. Imagine you are a relatively young and successful partner. You could spend the next two decades dutifully contributing to the pockets of your retired forebears and hoping that you will receive a similar deal in your old age. Or you could leave now, found your own boutique, and keep that portion of your billings for yourself. In a world in which even partners who stay in Biglaw are likely to make multiple lateral moves over the course of their careers, it is increasingly difficult to convince current partners that bearing the costs of retirement payments is a worthy investment.

Conclusion: Biglaw must reform its cost structure

Unless Biglaw firms take seriously the signals that the boutique boom is sending, they can expect escalating losses of their most productive partner talent. There is of course a limit to the reforms that Biglaw firms can undertake: the autonomy and conflicts factors are particularly hard to counter. But on cost control, the ball is in Biglaw’s court. And in the wake of the pandemic, the largest firms have a golden opportunity to reimagine their business models in fundamental ways.

Biglaw firms need to take a hard look at all elements of their cost structure, with real estate and retired partner compensation at the top of the list. To that end, now would be a great time to shift to more professional administration by trained management professionals, rather than untrained lawyers engaging in administration as a part-time, supplemental duty.

Biglaw firms have advantages that boutiques cannot easily match, including strong brands and the ability to cross-sell work among multiple practices. But without significant reform on the cost side, Biglaw will continue to lose ground to boutiques.

Who Is Better Compensated: Elite Biglaw Partners Or Top General Counsel?

If you’ve paid any attention to the ballooning compensation figures of Biglaw partners in recent years, you already know that it pays to be an equity partner at a large firm. Meanwhile, as average partner compensation escalates, top in-house lawyers are being left behind.   

In 2020, a Major Lindsey & Africa survey of partners in “Am Law 200 size firms” found average compensation of above $1 million. The ALM Intelligence 2020 Law Department Compensation Benchmarking Survey found general counsel and chief legal officers earned average total compensation of $573,000. So, as a general rule, it’s more lucrative to be a Biglaw partner than a general counsel.

But what about at the very top end of the profession? In this article, we take a look at the pay packages of the top 100 highest-paid general counsels, in comparison to partners of top Biglaw firms (as measured by profits per equity partner). We find that on a cash compensation basis, equity partnership is more lucrative than being a general counsel. But the story is more complicated when taking stock options into account.

A quick note on sources. For general counsel compensation data, we look at the top 100 highest-paid GCs as listed in the 2020 ALM Intelligence GC Compensation Survey. This data set is not comprehensive. For one thing, ALM compiles its data from proxy statements filed with the SEC, so only public companies are included. Our source for Biglaw partner compensation is the 2020 edition of the Am Law 200 ranking.

It’s hard to outearn a top Biglaw partner

The General Counsel Compensation Survey ranks general counsels based on total cash compensation. The top 100 highest-paid GCs earned total cash compensation of $2.42 million on average. We don’t know how much the 100 best-paid Biglaw partners earned in the comparable period, but we can say that the top firm in the Am Law ranking — Wachtell — had 85 equity partners and profits per partner of $6.33 million.

Just two general counsels took home cash compensation higher than $6.33 million: Alan Braverman of Disney ($8 million) and Eric Grossman of Morgan Stanley ($6.94 million). Meanwhile, 38 Am Law firms had profits per equity partner in excess of the $2.42 million average general counsel cash compensation.

How does this compare to the situation a decade earlier? Analyzing the 2010 editions of the same surveys, we find that not much has changed. Based on the 2010 General Counsel Compensation Survey, the top 100 general counsels took home average total cash compensation of $1.56 million. Wachtell’s profits per partner were $4.3 million, a figure exceeded by just one general counsel. 28 Am Law firms had higher profits per equity partner than the $1.56 million general counsel average.

What about compensation growth over that ten-year period? From a growth perspective, who did better: the top 100 general counsels or the partnership of the top Am Law firms? The table below shows the results, ranked by growth rate. The law firms in the table were the top 10 firms in the 2010 Am Law 200. We see that general counsels fall in the middle of the pack, outpacing some partnerships and trailing others.

Group (equity partnership or GCs)10-year compensation growth
Kirkland & Ellis108%
Simpson Thacher83%
Paul, Weiss75%
Cravath63%
Sullivan & Cromwell57%
Top 100 GCs55%
Cahill Gordon51%
Wachtell47%
Quinn Emanuel46%
Boies, Schiller17%
Irell & Manella8%

But stock options can make a big difference

The comparisons above obscure some important factors. On the in-house side, it is critical to note that the very highest-earning general counsels receive a substantial portion of their compensation in the form of equity. Taking stock options into account, some general counsel roles start to look considerably more attractive. For example, revisiting the 2020 surveys, when accounting for equity compensation, the number of general counsels topping Wachtell’s profits per partner rises from two to 41. And some of the general counsels have total compensation that would exceed that of even the highest-paid Biglaw rainmaker. For example, Chewy GC Susan Helfrick had total compensation of $30.3 million (of which less than $1 million was in cash). Apple GC Kate Adams had cash compensation of $3.56 million, but her total compensation was $25.2 million.

On the law firm side, profits per equity partner gives little indication of the rewards that flow to top rainmakers. Firms vary widely in their compensation ranges. At the most traditional end of the spectrum, a firm’s highest-paid partner might take home 4x the pay of the lowest-paid partner. In contrast, at a firm with a strong eat-what-you-kill culture, that ratio may be 10x or higher. A 2018 New York Times article about the lateral talent wars reported on eight-figure pay packages for star hires at firms like Kirkland & Ellis and Paul, Weiss. It’s impossible to know how many Biglaw attorneys have breached $10 million, but the lateral market for partners with a strong book of business remains red hot.

Conclusion

There are a lot of reasons why an attorney might prefer to be a general counsel than a law firm partner. But viewed strictly through the lens of compensation, high-performing lawyers are typically better off staying on the law firm track. Of course, that doesn’t necessarily mean they should stick with their current firm. With Biglaw partnerships increasingly diverging in their approaches to compensation, it’s a mistake to assume that a partner with a given book of business will be paid similarly at any comparably prestigious firm. Productive partners have a variety of options — and it pays to know about them.

A Changing London Landscape for U.S. JDs

As a former associate with Cleary Gottlieb’s Paris office and a Senior Director heading up Lateral Link’s London and Paris recruiting practices, I have been working with U.S. lawyers looking to move to Europe for the last 15 years.

In 2014, Above the Law published my series on Planning for a Legal Career Overseas (Part I and Part II) that outlines your best route for moving overseas as a U.S. JD. I stress the importance of working in the capital markets space if you are committed to working overseas. This still holds true for Paris and other European financial centers: Frankfurt and Milan, for example. But over the last few years, we’ve seen a decline in opportunities for U.S. capital markets lawyers in London and an uptick in opportunities for U.S. JDs trained in M&A (on the private equity side) and emerging companies work (venture capital, technology transactions, privacy, etc.)

Why this shift? Ever since Brexit became a certainty, hiring for U.S. capital markets in London has been slow. Firms were still sending their own associates on overseas rotations, but the lateral market all but dried up. But with the boom in private equity and emerging companies work recently, firms are realizing they can use this (U.S.-qualified) expertise in other time zones.

I am currently working with two top international firms, assisting them in finding solid mid-level to senior U.S. JD associates:

  • with M&A, capital markets or venture capital experience for a top emerging companies practice, and
  • for a Chambers Band 1 global M&A (primarily private equity) practice.

Capital markets associates, hang on! There will inevitably be more openings in London soon. Capital markets can only be booming in the U.S. for so long without some of that need crossing the pond. But this new diversity in practice areas in London that U.S. lawyers can aspire to is exciting!

If you are a U.S. JD with a top firm and curious about opportunities in London, Paris or elsewhere in Europe—now or planning for down the road—please reach out to me at and we’ll discuss!