Tag Archives: Legal Recruiter

Featured, Partner Market, Partner Tips, Tips

Is it Better to Be an Equity Partner or Non-Equity Partner?

Last week we reviewed the evolution of law firm partnership economics, from the early days of a single-tier, all-equity partnership, to the emergence of a non-equity partner track, to the increasingly complex range of current partnership arrangements. We pointed out that as the economic models of partnership have grown increasingly complex and differentiated, so have the implications for current and potential partners.

This week we’re going to delve into those implications and challenge the traditional assumption that equity partnership is necessarily more attractive than non-equity partnership. On balance, equity partnership is likely still more rewarding in most cases. But for lawyers in certain situations, non-equity arrangements can have strong appeal.

Benefits of equity

Plenty of lawyers still aspire to become equity partners, and for good reason. Equity partnership slots are increasingly scarce, and in a profession that greatly values prestige and status, securing partnership shares is viewed as the pinnacle. The equity partners of a growing and profitable firm can expect to take home an outsized share of the financial rewards. Holding equity also gives a partner a stronger voice in firm governance in the form of voting rights.

Voting rights and partner compensation are often closely connected. For example, one factor that contributes to the equity partnership’s outsized compensation share is origination credit. It is common for firms to structure origination credit formulas to reward equity partners more than their non-equity colleagues. Senior lawyers often pursue equity partner opportunities to receive greater origination credit for their matters. Having input into how the formulas that award origination credit are constructed is an example of the potential value of voting rights.

Downsides of equity 

It’s easy to focus on the considerable benefits of becoming an equity partner, but there are also some real downsides that should not be overlooked. Most notably, the boost in status that comes with being named an equity partner is paired with a sizable financial hit in the form of a required capital contribution. This contribution is typically in the range of 25 to 35 percent of annual compensation, but at some firms it can amount to 50 percent or more. Regardless, it’s a lot of money to fork over to the firm, especially for lawyers who are still relatively early in their careers. And getting the capital contribution back may not be so simple. Under the rules of many partnership agreements, the firm is not obligated to return the money until years after an equity partner’s exit. Less significant, but still worth noting: equity partners must pay for their own benefits. 

Another factor to consider is that equity partners’ voting rights are diminishing at many firms. Historically, a wide range of decisions—ranging from lateral partnership hires to office lease renewals—required a vote of the full equity partnership. As the size and geographic spread of partnerships has expanded, many firms have determined that it is more practical to delegate most decisions to a small committee or even to the sole discretion of the firm’s Chair. From an efficiency perspective, this is largely a positive development, but one side effect is reduced influence for equity partners who are not in top leadership posts. With respect to an increasingly broad set of issues, these partners are treated more like employees than owners.

When is non-equity best?

Weighing the benefits and downsides, non-equity partnership looks relatively appealing in some scenarios. The opportunity to avoid a substantial capital contribution can be a selling point to both the youngest and oldest partners. At the younger end, partners may not yet have built up enough of an investment portfolio to feel comfortable allocating such a large sum to an illiquid investment in the firm.

At the senior end of the spectrum, a departing equity partner who is contemplating one more short stint at another firm before retirement may be attracted to the simplicity of a non-equity arrangement. Partners in this situation have nothing to prove by again becoming equity partners. They may instead place more value on gaining the flexibility to invest in other ways the capital contribution that their prior firm will return to them. The opportunity to avoid assuming liability for the new firm’s debts is another benefit.

For partners in certain niche practices that do not entail a large standalone book of business, non-equity partnership can also make more sense. Practices such as Tax and Trusts & Estates often function as service providers to other practices in the firm, such that the firm’s origination credit formulas may not greatly reward the partners who specialize in these niche areas. A non-equity partnership arrangement that properly values these partners’ contributions may be the right answer.

A compromise approach: from non-equity to equity

For many partners, the best approach may be to split the difference by pursuing non-equity partnership opportunities that are likely to lead to equity partnership later. This enables the partner to delay the capital contribution hit, while preserving the opportunity to capitalize fully on client relationships as the partner’s book of business expands. Obviously, a partner hoping to go this route must first assess whether the firm offers a real and viable track from non-equity to equity. Where this pathway really does exist, it can offer the best of both worlds.

Associate Market, Featured, Market News, Newsletters, Partner Market, Team

Why Use a Recruiter in a Hot Lateral Market?

Everyone knows by now that the lateral market for law firm associates is unusually hot. Firms are routinely offering associates five-figure signing bonuses, and in some special cases bonuses are as high as $150,000. Firms are also increasing commissions for recruiters assisting with lateral placements in certain practice areas, in some cases doubling the usual rates.

With so many firms looking to hire laterals, a candidate might be tempted to think recruiters are unnecessary in this market. In the narrowest sense, that may be true: many candidates could likely land a lateral offer on their own. But the better question is: will the services of a skilled recruiter make it more likely that you will find the best lateral fit? The answer is unequivocally yes.

Who needs a recruiter?

For some lateral searches, the need for a recruiter is obvious. Partner moves are the best example. Competing offers are the only way to achieve a material compensation boost as a partner, and a recruiter plays an essential role in creating that market.

For associates, the value of a recruiter is less in stoking a bidding war and more in mitigating the asymmetry of information that lateral candidates face. As partner moves have become more frequent, the rankings and assessments available through annually updated sources such as Vault and Chambers are less likely to align with the current reality. In contrast, well-informed recruiters like Lateral Link are in a strong position to explain the market in real time. For example, we frequently know that a firm is about to gain a key partner in advance of the public announcement. We can therefore anticipate that the firm will need lateral associates in the relevant practice area and position our associate candidates accordingly. Candidates who choose not to work with a recruiter inevitably will have less information and will make less informed decisions in this highly fluid and dynamic market.

There is no downside

Candidates sometimes worry that firms will be less enthusiastic about hiring them as a lateral associate if the firm has to pay a placement fee to a recruiter. Although this concern may seem superficially reasonable, it does not reflect the market reality. To understand why, it helps to think through the economics of the law firm business model.

Associates are profit centers for law firms. For every day that a firm has fewer lawyers than necessary to meet the full demand for its services, the firm is losing profit. In a robust market for legal services, firms have a strong incentive to fill empty seats as soon as they can find a qualified candidate—in the context of the profit the firm is forgoing by not having that seat filled, a recruiter fee is basically a rounding error.

We can illustrate more precisely with a stylized example. Let’s assume that a firm seeking to hire a lateral associate expects to collect on 1600 of the associate’s billed hours, at an average rate of $625/hour. That will generate an annual contribution to the firm’s gross revenue of $1 million. Assume the associate’s base salary is $240,000 and that the firm must pay a recruiter 25% of the base, $60,000, as a placement fee. This amounts to a 6% transaction fee on the revenue the associate produces in her first year with the firm.

6% of the year equates to just over three weeks. If relying on a recruiter enables the firm to fill the seat 22 days sooner than it could have otherwise, the firm will come out ahead. Sure, the firm could refuse to work with recruiters, advertise vacancies on its website, wait for candidates to apply directly, then sort through the applications to identify the promising candidates. But in the current hot market that would be a totally irrational strategy. The fact that firms are not just willing to work with recruiters right now but are in many cases increasing the fees that they offer is proof of this basic economic logic.

In summary, there is no downside to using a recruiter and plenty of upside. Firms will not shy away from hiring you due to the placement fee. And you will benefit from non-public information about the market, increasing your likelihood of landing with the firm that best fits your unique selection criteria.

Featured, Market News, Newsletters, Partner Market, Team

Evolving Partnership Economics: The Equity and Non-Equity Models Are Starting to Blur

The “partner” title holds undeniable cachet in law firms. Elevation to the partnership is treated as a key professional milestone. But in the current law firm landscape, the fact that a lawyer has been designated a partner often conveys very little about the economic arrangement between that lawyer and the firm. A few firms have a single tier of partnership, but the majority have at least two. In some firms there are as many as four tiers, each with a different set of benefits and obligations.

The traditional equity model

In simpler times, partnership meant equity partnership. If you made partner, you received an ownership interest in your firm and the right to vote on firm governance matters. In exchange for that equity interest, you were required upon joining the partnership to contribute a lump sum of capital. The firm held onto your contribution for the duration of your partnership tenure, and upon your retirement from the partnership, you sold your interest back to the firm and reclaimed your capital. As for annual compensation, longer tenured partners typically took home a larger slice of the pie than the newly elevated, but no partner was paid a fixed salary. As the general fortunes of the firm rose or fell, all members of the partnership rode the wave together.

At a few major law firms the traditional model remains largely intact. Firms like Cravath and Debevoise are the purest examples: they continue to have only equity partners and to pay lockstep, seniority-based partner compensation. Firms such as Davis Polk have done away with lockstep compensation but still feature an all-equity partnership. However, firms committed to awarding equity to every partner comprise a shrinking minority of the legal industry.

The non-equity alternative

As early as the 1970s, some law firms began to introduce a bifurcated partnership model: there were equity partners and non-equity partners (sometimes described as income partners or non-share partners). Non-equity partners did not become owners of the firm, did not have full voting rights, and were not expected to contribute capital. Instead, they effectively were paid a salary. Becoming a non-equity partner meant you received the “partner” title but not the partner economics.

In some firms, the non-equity partnership tier was pitched as a stepping stone to equity partnership. The intermediate non-equity tier was a conceit designed to lengthen the track to true partnership while providing some social capital in the interim. It enabled lawyers who were effectively still senior associates, as traditionally defined, to market themselves externally as “partners.” Delaying the elevation of some senior associates to equity partnership by a couple of years may have been helpful for firm economics in the short term, but there is always the next generation of associates rising through the ranks. So the notion of non-equity partnership as simply a way station on the track to the equity tier was never especially credible, and before long, non-equity partnership became a common terminal status for many lawyers.

Blending equity and non-equity

The distinction between equity and non-equity partnership has become increasingly blurred at many firms. For example, several firms in the Am Law 100 now require non-equity partners to contribute capital. This is sometimes sold as a means of giving non-equity partners “skin in the firm game.” But in a world where only a small proportion of non-equity partners are likely to ascend to the equity ranks, one can understand why non-equity partners would be unenthusiastic about the capital contribution trend. They are being required to bear a burden of equity partnership with no guarantee of receiving the corresponding benefit.

Some firms are creating multiple partnership tiers (sometimes called compensation bands), with each tier featuring its own combination of rights and obligations that may not neatly correspond to either the equity or non-equity models. Perkins Coie has four tiers. The lowest tier is similar to the standard non-equity model, in that partners in that tier are paid a straight salary. The higher tiers are differentiated both in the level of compensation offered and in the voting rights afforded to the partners in the tier.

As the economic models of partnership have grown increasingly complex and differentiated, so have the implications for current and potential partners. In our next installment, we will explain how non-equity partnership can be a superior option for lawyers in certain scenarios.

Featured, Tips

So You Want to Lead Your Firm? Be Careful.

Global Chair. Head of Litigation. Office Managing Partner. Those are some nice sounding titles, right? In a profession that emphasizes prestige and status, it isn’t surprising that many high-achieving partners aspire to lead their firms. For a partner who has achieved success at each rung of the Biglaw hierarchy, the pinnacle of leadership may seem like a natural next conquest. But if you’re in a position to reach that pinnacle, you should ask yourself two questions before accepting the appointment. First, why do I want this job? Second, is the timing right?

Realities of law firm leadership

Successful law firm partners are accustomed to interacting with powerful corporate executives. Watching their clients run companies or in-house legal departments naturally encourages some lawyers to think, “hey, I could do that!” And what better way to prove it than by chairing their firm?

It’s important to recognize that the power wielded by a Managing Partner is materially different from that of a CEO. Companies are fundamentally hierarchical organizations, and although the most effective CEOs will inspire employees to align with the CEO’s vision, the reality is that a CEO can act unilaterally where necessary. Reporting lines are clearly delineated, and team members who resist directives from senior leadership are unlikely to last long. Moreover, employees who quit are rarely in a position to take a substantial portion of the company’s business with them.

Compared to a CEO, a Biglaw Chair is generally in a weaker position to drive change unilaterally. We can all think of examples of exceptionally powerful Managing Partners—often these are founders of their firms with their names on the letterhead. But in the more typical case of a partner who rises up the ranks to assume the role of Chair, the experience of leadership is more herding cats than giving orders. Partners are owners, and they feel entitled to a real say in the firm’s direction. This is especially true of the rainmakers, whose power is reinforced by their ever-present ability to take their book of business elsewhere. In contrast to the efficiencies of hierarchical corporate structures, law firm leadership entails a slower, more collaborative, and constrained process.

Another notable difference between CEOs and Biglaw Chairs is that Biglaw leaders frequently are not the highest-paid members of their firms. CEOs are generally assumed to have outsized responsibility for the financial performance of their companies, and their outsized compensation reflects this. In a law firm, the dynamic is different. A Managing Partner plays an important role in ensuring smooth operation of the firm, but revenue is generally credited principally to the decentralized business development efforts of individual partners. (Recall the analogy we recently drew between law firm partners and franchise owners.) Outsized compensation is earned through rainmaking, not through leading the firm in an administrative capacity.

Before agreeing to become Chair, you would be wise to take a step back and reflect on why you aspire to firm leadership. It is a challenging job, and compared to practicing full-time, you aren’t likely to earn a premium for assuming a top leadership post. Make sure you look beyond the title when assessing the desirability of these roles.

Pitfalls of an early rise to the top

Presuming you are under no illusions about what leadership will entail and you have decided that you want the role, the second critical issue is timing. Star partners often ascend to the top of their firms as soon as the opportunity presents itself. This makes perfect sense on one level—who knows if you’ll get a second chance at a later date? But if you are offered the opportunity to lead your firm as a mid-career partner, it’s important to think through the potential pitfalls.

The main risk is that you’ll come to the end of your leadership tenure and will be poorly positioned to resume your practice. If you expect chairing the firm to be your last job, you don’t have to worry about giving up your book of business. But if you take on the leadership role as a mid-career partner, with the expectation of practicing for another decade on the back end, you need to be mindful of the difficulties of reintegrating into full-time practice.

The nature of the risk depends on whether the Managing Partner role is a full-time job. If you are expected to devote your full attention to leadership, you will necessarily have to hand over your practice to other partners. And if you do that, you shouldn’t expect to get it back several years down the line. Transitions of this sort tend to be sticky: by the time you return to the scene, your clients will be accustomed to dealing with those other partners and may not see a benefit in switching back to you. In an era in which firms increasingly prioritize profitability above all, you will struggle to return to your pre-leadership position of strength without a robust book of business.

If your firm expects you to continue to practice part-time while in leadership, the risk of losing your client relationships is mitigated, but your practice may still be impaired. Your competitors will be focused solely on building their books, whereas you will be distracted by your firmwide responsibilities. Remember: fancy titles are nice, but your long-term value to the firm derives from your ability to grow and maintain your practice.

You should assume that taking on the Chair role is effectively a retirement plan. If that makes you uncomfortable, it’s probably best to delay the job for now.

Featured, Tips

Parents in Law Firms: Taking Stock of Pandemic Burdens and Retention Risks

Being a parent in Biglaw has always had its challenges, but we saw these challenges rise to new heights during the pandemic, especially for women.  Even in the best of times, the legal industry has had an uninspiring record of retaining and promoting female lawyers: the National Association of Women Lawyers’ 2020 survey found that just 21% of equity partners were women.  But with many women in law straining to maintain intense practices while bearing the brunt of a pandemic-induced increase in childcare demands, even that modest progress may be in jeopardy.

On a personal level, I experienced these struggles first-hand, and I don’t even practice law anymore.  With two young children at home, two working parents, and little to no outside childcare help (the nanny market is almost as crazy as the lateral attorney market, but that’s another story), I found myself drowning in unchartered waters (hello e-learning)!  Even when splitting the days with my husband so we could both work part-time, it was virtually impossible to get any work done while trying to balance the unreasonable and insatiable demands of my children.  Thankfully, things have normalized a bit since the start of the pandemic, and for the first time in over a year, we are finally in a place where we have somewhat of a routine and the kids are out of the house for most of the day.  But I will never get that 15 months of my life back, and neither will the thousands of other attorney-parents.  It’s hard to quantify the career damage actually caused by COVID-19, but we do have some data which shines some light on this issue. 

The toll on careers

A recently released American Bar Association survey gives some indication of the impact of pandemic stress on women and parents.  The survey was administered in October 2020 to over 4200 ABA members, of whom 43% identified as female.  It revealed that female respondents were significantly more likely than men to have taken on additional childcare during the pandemic (on top of the already unequal load that they were bearing pre-pandemic).  Women were also more likely to report that, relative to a year earlier, they found themselves thinking more often that it would be better to work part-time or not at all.  42% of female respondents said they more often or much more often thought it would be better to work part-time, not full-time.  37% more often or much more often thought it would be better to stop working.

These effects were particularly stark for parents of the youngest children.  53% of women with children age 5 or younger reported thinking it might be better to work part-time than full-time.  If these parents are having doubts about maintaining their current practices, the threat to firms’ future gender diversity at the senior levels could be significant.  After all, these women are the future of firm partnerships—if the firms can retain them.

How are law firms responding?

Some firms have stepped up to provide parents with additional resources during the pandemic.  In particular, firms have sought to ease some of the burden of online schooling, with support such as paying for tutoring sessions and loaning hardware for employees’ children to use.  Firms have also bolstered internal peer support networks and sponsored sessions with external well-being coaches.

Going forward, firms may wish to consider making some of those measures permanent.  Respondents to the ABA survey requested assistance such as back-up childcare and tutoring support, stipends to help defray childcare and elder care costs, parental support workshops, and adding more months of paid parental leave that can be taken to cover childcare gaps.

To the extent parents remain on the fence about whether to stick with their legal careers, firms will need to think creatively about retention strategies.  One obvious target for improvement is flex-time and part-time work arrangements.  These are hardly new concepts, but prior implementations have been uneven at best.  Too often, parents—and especially women—receive the implicit message that taking advantage of these programs will permanently damage their career trajectory.  This reduces participation and makes those who do shift to a more flexible schedule stand out even more.  Even in situations where part- or reduced-time schedules are implemented, it’s often the case that these attorneys end up working full-time hours, without the full-time salary, further disincentivizing these types of arrangements.  

Law firms need to commit to changing the culture around these programs and demonstrating that careers can thrive both during and after a stint of modified workload.  If the pandemic has taught us one thing about work, it is that there are multiple ways to achieve the necessary output.  Firms should extrapolate from the pandemic experience and embrace a range of flexible models.  Not only is this the humane thing to do, but it’s also a smart competitive move in a tight talent market.  Firms should be eager to continue to capitalize on all of the training they have invested in their female lawyers.  This is a much less expensive path than driving out parents and then trying to replace them with lateral hires.

How can Lateral Link help?
At Lateral Link, we are in constant conversation with partners and associates at Biglaw firms, mid-size firms, and boutiques all over the country, so we have reliable information on which firms are most supportive of parents.  All firms claim to support women and parents, but the reality is that some execute on those promises more effectively than others.  If your firm is not offering the support you need, we encourage you to explore your options.  A long-term law firm career is not for everyone, but if you’re feeling burned out, it’s worth learning about alternatives to your current firm before making a decision to leave the law.  Please feel free to reach out to me or any of my colleagues to discuss your unique situation.

Associate Market, Featured

Biglaw Associate Salaries and Cost of Living: An Imperfect Correlation

With Biglaw offices reopening and office attendance soon to be expected at most firms (at least for part of the week), many associates are contemplating their post-pandemic Biglaw futures and considering their options. It still remains to be seen whether the exodus from large, high-cost cities during the pandemic will end up being a momentary blip or a permanent shift. But even assuming the migration to lower-cost locales partially reverses, the relative advantages of living in different parts of the United States remain front-of-mind for many associates.

A move from a high-cost city to a lower-cost one is a particularly good deal if you can continue to earn the same compensation. But it may be a tougher call if it comes with a salary cut. That’s a trade-off that employees of some major tech companies are currently weighing. Facebook and Google have both taken a relatively flexible approach to the post-pandemic workplace, allowing employees to request office transfers or permanent remote arrangements. But there’s a catch: pay localization. Facebook and Google have thus far declined to explain publicly how they will recalculate the salaries of employees who move. But judging from the approach of companies like Stripe, base salary cuts of around 10% are likely on the table.

Tech workers may not like it, but the reality is that paying lower salaries in lower-cost cities has historically been the norm for many industries. That’s also true of the legal industry, to a point. But Biglaw is an anomaly. Top firms largely ignore cost of living and instead pay associates the “New York” rate in several “major” markets, including the Bay Area, Los Angeles, Chicago, Houston, Boston, and DC. On a cost of living basis, paying New York salaries in San Francisco is justified. In Houston? Not so much.

It’s good to be a Houston Biglaw associate

A November 2019 NALP analysis of median private practice first-year associate salaries relative to cost of living found stark differences in associate buying power. NALP calculated that Houston first-year associates enjoyed 2.4 times the buying power of their New York counterparts. Chicago associates were at 1.9 times the New York baseline. Meanwhile, first-year associates in cities like Miami, Portland, and San Diego were found to have less buying power than their New York peers.

The NALP survey looked at private practice salaries overall, rather than Biglaw salaries exclusively. If the analysis had been limited to Biglaw offices, the results would surely have been somewhat different. But the broader point is unassailable: associate salaries are poorly correlated with cost of living.

Billing rates are a key driver

If cost of living isn’t driving associate salaries, what is? The answer is billing rates. Houston and Chicago may not be high-cost cities, but they have plenty of clients willing to pay firms top-dollar rates. Viewed from that lens, paying top salaries in these markets seems fair: associates are being compensated for the value they create. Over time, as clients become more accustomed to the notion of top legal talent being based in regional cities, we may see more lawyers being paid New York rates in cities across the country. Biglaw firms in markets like Kansas City and St. Louis, for example, have raised their first year associate salaries up to 30% this year, significantly narrowing the salary gap.  That’s not to say that median associate salaries in secondary cities will rival the New York level. But for lawyers with top-flight credentials, geographic arbitrage may become increasingly possible and alluring.  

As we discussed last week, however, we aren’t quite there yet. The post-pandemic market is still sorting itself out, and for most Biglaw associates, the work-from-anywhere dream is not yet a reality. Still, that doesn’t mean you don’t have options. If you are a New York or Bay Area associate tired of putting up with relatively low buying power, you may wish to consider a lateral move to Texas. Needless to say, plenty of professionals have had the same idea recently, so housing isn’t as cheap as it used to be. But at least you’ll pay no state income tax!

Featured, Partner Market, Partner Tips

Biglaw Partners Should Think Like Franchise Owners

It’s a common refrain even from highly successful lawyers: “I wish I were on the business side.”

There can be more than one motivation underlying that sentiment. The chance to earn more money tends to be part of the appeal, particularly if the lawyer is treating an especially successful client as the reference point. But beyond money, attorneys who yearn for a business role are often drawn to the notion of managing a P&L. In other words, they like the idea of being in charge of a business and controlling their destiny.

The thing is, if you are a Biglaw partner, you’re already running a business: your practice. It might not feel that way. Maybe you view your firm’s managing partner as the person who is running the business, and relative to that leader, you feel like you don’t have much management autonomy. If that is your view, it may be worth considering that most of the clients on the “business side” are constrained by decisions made higher up the pyramid. Not all of them are CEOs. Many are leaders of divisions within a broader corporate structure, managing a P&L that is just one component of a larger whole.

But the best analogy for law firm partners isn’t to a corporate division. It’s to a franchise. A law firm partner is effectively a franchise owner. At first glance, running a capital markets practice looks vastly different from running a fast food restaurant. But if you set aside the surface differences, there are some fundamental similarities.

In a franchise model, the franchisor determines many details of the franchisee’s operation. The franchisor defines the brand in the public imagination through marketing campaigns. It controls the menu of products sold at the franchises. It supervises the design and construction of stores to maintain a common look and feel across the brand’s outlets. And it provides instructions and training to ensure a consistent customer experience.

But although the broad strategic and design choices are primarily the domain of the franchisor, the franchisee controls the actual operation of the business and ultimately determines whether it succeeds. The franchisee’s responsibilities include hiring employees and supervising their work, building the reputation of the franchise in the community it serves, and carefully tracking the performance of the franchise relative to industry benchmarks to identify opportunities for improvement.

A law firm’s management, like a franchisor, is the primary steward of the brand under which the firm’s partners offer their services. The managing partner or management committee determines which practice areas the firm will compete in, selects the partners who will lead service delivery in those practice areas, and sets the broad policies and cultural norms by which the firm operates.

To be sure, those are all important decisions. But the success of the firm’s business is ultimately contingent on client satisfaction, and that depends on the management skills of the individual partners. As a partner, your job is to bring in matters and execute on them such that the client’s expectations are met or exceeded.

Like a franchise owner, you are responsible for your practice, and it will grow primarily through your direct efforts. It’s on you to get out there and interact with influential members of the community, and it’s on you to ensure that the team of associates working under your direction is motivated and equipped to deliver on your promises to clients. Like a diligent franchise owner, you should be monitoring the performance of your practice relative to others, taking stock of its relative strengths and weaknesses, and gleaning insights that can be leveraged to drive continuous improvement. You don’t need to shift to the “business side.” You’re already on it.

Featured

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.

Featured, In-House Market, Partner Market

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.

Featured, Tips

8 Time Management Tips for Young Lawyers

As an associate, you often have limited control over your own schedule — but there are still some actions you can take to improve your use of time and cut out unnecessary stress.

If you’re an associate, you’re probably thinking, “What?! As if I have any control over my own schedule!” And you’re right, your ability to manage your time will never be perfect.

I understand. I was an associate myself for seven-plus years. But there are still some actions you can take to improve your use of time and cut out some of the unnecessary stress.

I understand. I was an associate myself for seven-plus years. But there are still some actions you can take to improve your use of time and cut out some of the unnecessary stress.

  1. When you are given a new assignment, always ask right away what the deadline is. I can’t tell you how many times as an associate I failed to ask this important question because I said to myself, “This will take no time at all, I can do it right away,” only to have a more urgent task land on my desk — and I wished I’d asked upfront instead of begging for more time later on.
  2. Many of us lawyers are Type A personalities, and we love that feeling of completing a task and checking it off the “to do” list. But I find the easiest way to prevent procrastinating about the next task is to start it right away. Just get three minutes in, then you can take that coffee or bathroom break. When I’m jumping back into an established rhythm instead of getting my mind around a new project, it’s much easier to get back to work.
  3. Believe that there is no such thing as a huge, daunting project. Everything can be broken down into smaller, bite-sized morsels. Take on one mini-project at a time.
  4. Put everything on your calendar. I assume I won’t remember anything. I include project deadlines and my to-do list items as 30-minute calendar entries. I have repeating calendar reminders to pay my credit card bills, renew my dog’s license annually… there is nothing in my life not on my calendar because the last thing I want to be stressed about is that I may have forgotten something I need to be stressed about!
  5. I also block time for work (and personal) projects on my calendar. Even if I end up changing the start and end times multiple times, it helps me to be able to eyeball my projects for the day, estimate how long they will take, and plan accordingly.
  6. Find ways to use your down time productively. What down time? Even law firm associates have down time. Mine often came at 1 a.m. as I was waiting on a senior lawyer to send me the next mark-up. But I was determined to reclaim this time for myself. So what did I do? I started a travel blog. It was a creative outlet I could turn to even at my desk in the middle of the night. So those late nights in the office were not a complete waste in terms of my personal life. I also made a point of having dinner with a work friend almost every night, even if it was for 10 minutes at their desk or mine. If you’re not inclined to start a blog or write a novel or screenplay, use your scarce breaks to update your resume and deal sheet, work on a business plan, keep in touch with contacts (build relationships!). Or research for your next vacation! Have a plan for how you’ll use your free time so it doesn’t go to waste.
  7. Whatever your goal may be — hitting the gym a few times a week, putting together a business plan, catching up with one law school classmate each day — establish an accountability partner. It could be a friend, a colleague or even a journal. Keeping track will help keep you honest!
  8. If you’re truly feeling underwater, ask for help. Firms are investing more and more into associate life and associate development resources. Even if you’re not comfortable talking with a partner, there is likely someone you can talk with. And you can always reach out to a trusted recruiter to learn what your realistic options might be for a new job offering a better work-life balance.

Making small changes to your daily routines may buy you only a few extra minutes each day at this stage in your career, but these actions will help you build good habits for when you do gradually take on more control of your schedule. I’d love to hear what time management tricks have worked for you!