Tag Archives: Partner Market

Market News, Partner Market, Tips

Partners Assessing a Secondary Market Move: Finding the Right Firm and Office

Back in December, we suggested that the expansion of Am Law firms into new secondary markets may have been the defining Am Law firm story of 2022, and we explained some of the many reasons why partners at Am Law firms in major cities are moving to secondary markets in unprecedented numbers.

As the 2023 partner lateral market comes into focus, we can report that opportunities at Am Law firms in secondary markets remain plentiful. This is especially true for practices that are less dependent on a strong economy such as litigation, antitrust, privacy, data security, intellectual property, employee benefits, and tax.

Secondary market Am Law opportunities may appeal to partners in two categories. First, they may be a fit for partners interested in moving from outside the state to a secondary market, for the reasons described in our December article. Second, they may be attractive to partners already based in a secondary market who see a chance to “trade up” to an Am Law firm that has recently arrived in their city.

If you find yourself in either of these categories, what are the most important factors to consider as you search for the right firm and office?

Practice alignment with office strategy

The most important criterion to assess is how well your practice aligns with the firm’s strategy for the particular secondary office you’re considering. Note that office-level strategy is not the same thing as firm-level strategy!

Typically, when a firm opens in a new city, it will have identified specific priority practice areas and clients (both existing and potential) for the new office. Two office openings from last month offer clear examples. Goodwin launched in Philadelphia, targeting health care, life sciences, private equity, and financial services work. Meanwhile, Davis Wright opened in Culver City with the aim of expanding its entertainment, media, and healthcare practices.

If your practice area aligns with the new office priorities, that’s an excellent sign. Especially where the firm has publicly announced the practices it intends to build, there will be a sense of urgency internally to back up the talk with demonstrable success. If your practice fits into the plan, you can expect the firm to make a real effort to support you. Conversely, if your practice is not a priority for the office in question, think twice. Even if the firm is willing to bring you in, you cannot expect the same level of support as will be extended to partners in the priority practices.

Cross-selling opportunities

A critical component of strategic fit is the extent to which you can reasonably expect to benefit from cross-selling opportunities, both at the local office level and firm-wide.

Cross-selling can sometimes be driven by proximity to key existing and potential clients: the logic is that by being nearby, partners will be positioned to build strong relationships that lead to servicing an increasing proportion of the client’s legal needs. In interviews about the Culver City opening, Davis Wright partners took care to emphasize their focus on creating cross-selling opportunities on LA’s Westside for lateral partners. Similarly, firms opening in Miami—one of the most popular secondary markets for recent Am Law office expansion—are taking care to site their offices as close to priority clients as possible, in some cases securing space in the same prime Brickell developments that are drawing recently arrived leading hedge funds.

Platform benefits

Although office strategy should be at the forefront, it’s also critical to consider the platform offered by the firm as a whole. How valuable would this firm’s platform be for your practice? K&L Gates’s communications around its office opening in Nashville in 2021 highlighted this factor. In the firm’s press release, partners connected the strong local opportunities in healthcare to the firm’s national healthcare practice and emphasized the value of “a fully integrated law firm with the breadth of practice area capabilities, industry insights and knowledge, and geographic reach that K&L Gates offers.” It’s particularly logical that K&L Gates would play up this factor in Nashville, which historically has not drawn interest from Am Law firms with global reach. But platform is an important consideration regardless of your destination.

Talent pool

Access to talent has been a key driver of recent secondary market expansions. That includes not only newly-hired associates and counsels drawn to secondary market offices but also lawyers currently employed by the firm who may stay longer if given the opportunity to transfer. The secondary markets that firms have favored are viewed by many as nice (and cost-effective!) places to live. Consider, for example, Kirkland’s new offices in Boise and Salt Lake City. Another selling point for many secondary market offices is the lack of state income tax. Think Miami, Austin or Seattle.

Talent has also been a key selling point in attracting lateral partners to these new offices. One reason that partners already working in secondary locations are often eager to join firms in the Am Law is because Am Law firms feature a materially more sophisticated legal talent pool, which newly arrived partners can leverage to accelerate their practices. For Am Law firms arriving in secondary markets, depth of talent is a key advantage—this is a dimension on which the regional firms with a longer history in these markets typically cannot compete.

Lateral partner integration

It’s also essential to inquire about and understand your potential new firm’s lateral partner integration plan. Successfully integrating new partners into the firm’s existing practices is in everyone’s best interests, but even so, we’ve witnessed many cases of poorly managed integration.

For an example of a firm vocalizing its commitment to integrating lateral partners, consider Latham’s opening in Austin in 2021. Latham brought in three lateral partners with deep Austin ties to anchor the new office, two from DLA Piper and one from Wilson Sonsini. In the press release, Latham Chair and Managing Partner Rich Trobman spoke of the firm’s intention “to offer clients in Austin the very best of the Latham platform, by combining our new partners’ experience and skill sets with our already deep and successful bench spanning capital markets, venture capital, and private equity.” If you’re considering a lateral move of any kind—but especially to a relatively smaller office—you will want to make sure your new firm is similarly committed to integrating you effectively.

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If you are a partner interested in exploring secondary market opportunities, we invite you to get in touch. Although there are ample partner-level opportunities out there, partner needs are hardly ever posted. Drawing on our longstanding relationships with leading Am Law firms, we make it our business to know who is looking. We assist with interview and business plan preparation, and when you reach the offer stage, we can negotiate on your behalf, minimizing awkward interactions with your soon-to-be partners. Remember, we do this for a living. It’s a wise choice to avail yourself of the benefit of our experience.

Featured, Market News, Partner Market, Tips

Biglaw Partners: Are You Capturing a Fair Share of Your Revenue?

If you are a Biglaw partner, you may have heard this compensation rule of thumb: you should be taking home a third of the revenue you generate for the firm. The 33% rule has the advantage of being simple, and it makes for a reasonable starting point. But to really know whether you are capturing a fair share of the value you create, it’s important to consider some other factors.

Your hours vs. your team’s hours

The first distinction you’ll want to make is between the hours you bill and those billed by the people working for you, such as associates and service partners. The 33% rule is supposed to apply to all revenue for which you are responsible. But we can make things more precise by breaking that revenue into two segments.

As a general rule, you should make about 40% of revenue from hours you billed personally. As for the hours billed by members of your team, it depends how profitable those lawyers are for the firm. Associates at some firms are substantially more profitable than others. The more profitable your associates, and the more leverage your book has, the greater the share of your team’s revenue you can expect to take home.

RPL and leverage are the key metrics

To understand what share of team revenue should accrue to you, consider how your firm stacks up on two key metrics: revenue per lawyer (RPL) and leverage.

RPL is critical because it is so poorly correlated with associate salaries. You could imagine a different compensation model in which firms paid associates a standard share of the revenue they generated, either individually or on average across the firm. But as we know, that isn’t how this industry works. Instead, all top-tier firms pay associates more or less the same salaries based on class year. As a result, partners at firms with relatively high RPL get to divide a much larger profit pool than partners at “top” firms with low RPL.

Within the Am Law 100, the spread between high and low RPL is striking. Firms at the low end have RPL of around $500,000. For example, Lewis Brisbois is the lowest of the Am Law 100, at $448,000. Firms at the high end have RPL around 4X that of the low-end firms. Sullivan & Cromwell, for example, clocks in above $2.2 million. (Wachtell is in a league of its own, with RPL in excess of $3.8 million.) Granted, a Sullivan & Cromwell associate earns higher total compensation than a Lewis Brisbois lawyer in the same class year, but that multiple is nowhere near 4X.

Now, RPL isn’t everything. We also have to consider leverage. If a partner’s book can feed a relatively large number of associates, the proportion of the team’s revenue that should accrue to the rainmaking partner will be higher. And to be fair to Lewis Brisbois, their partnership is doing well on that dimension, with leverage of 9.99 (third-highest among the Am Law 100).

Let’s take a look at leverage for the top 10 firms by RPL:

FirmRPL ($ millions)Leverage
Wachtell3.8602.2
Sullivan & Cromwell2.2153.8
Cravath2.0354.1
Kirkland1.9975.2
Ropes & Gray1.9504.1
Davis Polk1.9235.4
Simpson Thacher1.9134.7
Quinn Emanuel1.8394.2
Skadden1.8384.1
Paul Weiss1.8365.0

We see that Kirkland and Davis Polk are outperforming on leverage, which is good news for their equity partners. And in fact this flows through to the profits per equity partner (PEP) ranking: although Sullivan & Cromwell outranks Kirkland and Davis Polk on RPL, it is behind those firms in profits per equity partner. (Wachtell is first in both categories.)

FirmPEP ($ millions)
Wachtell8.400
Kirkland7.388
Davis Polk7.010
Sullivan & Cromwell6.366

Ambitious associates who are aiming for partnership should be aware of the importance of leverage in modeling their future expected compensation. To take another example, Gibson Dunn is immediately ahead of Paul Hastings and Weil Gotshal on the RPL ranking. But Gibson’s leverage is on the low end: 3.4. Because Paul Hastings and Weil have better leverage, they comfortably beat Gibson in PEP.

FirmRPL ($ millions)LeveragePEP ($ millions)
Gibson Dunn1.6133.44.400
Paul Hastings1.6064.54.703
Weil Gotshal1.5735.55.181

How does your practice compare to the firm average?

Your firm’s overall RPL and leverage are important considerations, but unless the partnership has a pure lockstep compensation model, the performance of your practice relative to the firm average is also critical. A good starting point for thinking about this dimension is to compare the firm’s profit margin to the share of your revenue that you are taking home. For example, let’s say your firm’s profit margin is 45%. Are you being paid 45% of the revenue you are generating?

If not, consider how your practice may differ from others in the firm. Does it have lower leverage than the firm average? Are you personally billing fewer hours than your peers in the partnership? If the answer to both of these questions is no, then your compensation should reflect the firm profit margin. If it doesn’t, you are likely underpaid, and you may want to consider your options.

Featured, Partner Tips, Tips

Testing the Market as a Law Firm Partner

If you are a law firm partner, there are many reasons why you might consider switching firms.  A competitor may offer a better platform and stronger bench, enabling you to serve your clients more effectively and ultimately generate more business.  Another firm may feature a different geographic footprint that could better align with your practice or business development goals.  Perhaps you’re looking to reduce the frequency of conflicts after having to turn away too many potential matters.  Or maybe you are interested in taking on a leadership role, but your current firm has been slow to open up opportunities.

Although each of these factors is distinct, they have something in common: all ultimately bear on your compensation. At Lateral Link, this is our peak season for compensation questions from partners.  The issue is front of mind for many, as they prepare their compensation memos and learn what they will take home this year.  Some partners are ruminating on their desire for promotion to equity.  Others have a nagging sense that their current compensation package does not fairly value their contributions.  And some may have broader concerns about the stability of their firm’s finances in an uncertain economy and the attendant risks to their compensation trajectory.  Might somewhere else offer a better package?

Reasons to consider testing the market

There are myriad ways in which firms can disappoint their partners financially.  Here are just a few examples:

  • Partner expected to receive more ownership units (i.e., a raise) but was disappointed to receive a smaller increase than anticipated.  Management asserts that this is one of the largest raises in the firm this year and that they cannot go higher.
  • Partner has finally originated enough business for a promotion to equity, only to learn that the target required to become an equity partner has increased.  The new, higher originations requirement keeps equity out of reach.
  • Partner is dismayed at the amount of his or her net worth tied up as a capital contribution and wonders if other firms might have different, more forgiving requirements.  (The answer is yes!  There are firms without capital contributions or with low capital contribution requirements.)
  • Partner turns away business regularly due to legal conflicts with the firm’s other clients, materially compromising his or her practice-building efforts and sometimes leading the partner to refer millions in business to other firms.  Inability to take on this work lowers originations, and as such compensation.

If you find yourself in a situation similar to the above, it could be an ideal time to test the market.  Whether you can secure a higher offer will depend on various factors, including level of demand for your practice area, your reputation in the broader legal community, and your current volume of originations.  But however it turns out, the process should be informative.  At worst, you’ll have peace of mind that you are in fact being compensated fairly.

How to test the market

The most effective way to test the market is to work with a trusted recruiter.  An experienced recruiter who understands your practice area and region will know exactly which firms are open to making lateral hires and which are offering the strongest compensation packages.  As a first step, the recruiter will have you assemble a business profile and pitch, highlighting the value you could bring to a potential new firm.  Even if you don’t end up moving, you may find this to be a valuable exercise that enables you to negotiate more confidently within your current firm’s compensation structure.

Of course, you can also attempt to test the market yourself, but you will lose the benefit of having a trusted advisor who knows your market and has secured offers at a range of firms.  That unique and valuable insight can only help you. 

Consider the broader opportunity

When testing the market, candidates sometimes have a tendency to focus excessively on the compensation guarantee that a firm is offering.  It’s important to bear in mind that there are many elements to a compensation system beyond the guaranteed paycheck.  For example, is the capital contribution unusually onerous?  Also be sure to consider the likely extent of conflicts, as this could have an important bearing on your ability to expand your book.

Always place the guaranteed dollar amount in the context of the broader opportunity.  For instance, if you have been turning away class actions work, joining a firm with a robust class actions practice is likely to accelerate your compensation materially.  Even seemingly minor factors like having an office in a geography relevant to your practice can make a real difference.

Be a smart negotiator

One of the curiosities of being a legal recruiter is seeing partners who are excellent negotiators for their clients make serious mistakes when negotiating for themselves.

Sometimes an attorney will get a call directly from another firm, gauging their interest in a move.  (Incidentally, this type of call raises unique issues for high-level government officials, where any answer other than “no” may lead to demands for recusal.)  Flattered, the attorney only considers the firm that called.  If you receive such a call, do not let the firm that reached out hold you back from exploring other options so that you understand your true market value.  If the firm that called does not want you to test the market, it may be because they want to avoid a compensation bidding war.  Failing to protect your interests in this scenario could cost you millions of dollars over the course of your career.  

Another frequent error is quickly accepting a counteroffer from the current firm after tendering your resignation.  Is the firm’s attempt to keep you too little, too late?  Ask yourself if that one-time bonus is a band-aid on larger systemic issues, including the issues that motivated you to explore other opportunities in the first place.

The decision to move is a complicated one, requiring careful consideration.  But it never hurts to check your market value, especially if you suspect your current firm isn’t treating you as well as it should.  If you feel you could benefit from a confidential discussion about your individual situation, please contact me.

Featured, Market News, Partner Market

More Bang for the Buck: Hiring Lateral Partners In Groups Is Gaining Popularity

Paul Hastings has been doing a lot of hiring lately. Same as many other firms, right? Actually, not quite. Paul Hastings has been in the headlines not for bringing on many new partners, but for hiring partners in groups. In March, the firm poached a group of 43 restructuring attorneys from Stroock & Stroock & Lavan, including 18 partners. In May, Paul Hastings brought over a three-partner energy team from Shearman & Sterling. And in June, the firm hired a group of four financial services partners from Buckley.

Paul Hastings is executing this recruiting strategy on a particularly notable scale, but the firm’s appetite for lateral partner group hiring is hardly unique. In February, Reed Smith brought on an 11-attorney real estate finance group, including five partners, who had previously been at Akerman. In April, Norton Rose Fulbright announced the hiring of an 11-lawyer group, including four partners, from Minneapolis litigation boutique Blackwell Burke.

The benefits of a group move are increasingly compelling to both firms and individual partners. At the most basic level, hiring a group of partners gives a firm more bang for the buck. Why settle for one book of business when you can get several? Of course, not all partners are equally valuable, and before hiring a group, a firm will need to become comfortable that each potential partner meets its bar. But broadly speaking, the more partners the firm can hire, the more incremental business it stands to gain.

From a partner perspective, making a lateral move as a group eases the challenge of integration, facilitates client transitions, and strengthens confidence that the new firm will stand by the partner even in more challenging times.

Easier Lateral Partner Integration

Although cultural fit is typically a factor that both firms and lateral candidates take care to assess when discussing a potential lateral move, no two firms are perfectly alike, and integrating into the culture of a new firm can be a challenge. Having some familiar faces around tends to help — after all, it’s a good bet that a group that chooses to move together has an existing successful working relationship. It is easier to integrate a “working group” into the firm’s culture than to integrate lawyers individually: instead of starting afresh with entirely new colleagues, attorneys who arrive in a group may be able to keep many of their existing teams intact.

The lateral partner questionnaires of the partners in the group can be an especially useful tool in curating the lateral partner integration plan. The questionnaires collectively set out a roadmap allowing for each partner (and the partner-to-be) in the group to benefit from the group’s bench strength.

The benefits of more rapid integration tend to be reflected in immediate business development success. The hiring firm is making a bet that a lateral partner will not only bring over existing business but will also use the new platform to attract new clients quickly. When a group of partners moves together, they benefit from immediate cohesion in the new firm setting. As with any move, there will be a learning curve as the newly-arrived partners figure out how to refine their marketing pitches to showcase the new firm’s distinctive capabilities. But with a solid base of longtime colleagues already in place, the refinement is more icing on the cake than a fundamental reworking of the partner’s story. Partners in this situation are poised to compete immediately and successfully for new clients.

Smoother Client Transitions

For both the hiring firm and the moving partner, a critical component of a successful lateral move is transitioning as much of the partner’s existing book of business as possible. That process can be a real test of the partner’s relationship with his or her clients. From a client’s point of view, the decision to move is considerably simpler if it is clear that the client’s matters will be handled at the new firm not just by the same lead partner but also by the same larger team of attorneys. That continuity of the “bench” is highly reassuring.

Long Term Strategic Support and Execution

When a law firm hires a group of partners, associates, and counsels, there is an implicit long-term commitment from the firm to support the integration of the group and the expansion of the group’s practice. A firm that brings in a group is presumably thinking beyond any individual member and is more likely to be intentional about creating a succession plan for the longevity of the practice. This degree of strategic support from the new firm can be especially critical when the group experiences a challenging period. Cutting loose an entire group is more of a black mark than releasing an individual partner in challenging times. So from an individual partner’s perspective, there is valuable security in joining as part of a larger group.