Seven years removed from the financial crisis, the Biglaw market as a whole looks stable with an optimistic future. Through the first three quarters, there has been a modest four percent increase in the amount of partner moves compared to the same period last year. However, the same period is down about 9% from two years ago — but this is largely due to an unexpectedly robust second quarter in 2012.
The beige book concurs with this assessment, noting that in most markets, legal demand rose. Over the next 20 years, the overall job market is expected to grow around 14%, according to the Bureau of Labor Statistics.
For the legal industry, this number is closer to 10%. With law school applications down 37% from 2010, junior associates will realize their relative attractiveness on the lateral market. For more seasoned mid-levels, their demand has subsided after a sharp peak in 2012. There is an even more pronounced difference in quarter four, where junior associate hiring (1-3) burgeoned. (Note the data collected did not start recording laterals by JD year for junior associates until late 2012, and 2011 for mid-level associates.)
Over the next few years, we should see an increased demand for mid-level associates as a consequence of decreased law school applications as the current crop of junior associates matures.
You’ll notice also from the graphs that partners generally tend to move during the first two quarters. There are many factors that complicate lateral moves in the fourth quarter, the most conspicuous being bonuses if on a calendar-year bonus system. Every law firm has a method for compensating its partners. Some compensation plans are highly structured, but many others include subjective elements. Distribution plans incorporating percentages or units of participation with a reserve are often-times structured to incentivize an attorney to remain at the firm through the fourth quarter. Simplified, a partner will receive a variable draw, and at the end of the year the balance of profit will be distributed as a bonus. Partners will wait to collect their bonuses before making a lateral move. Though this evidence sounds anecdotal, there is a -.75 correlation between quarters and lateral partner moves, which indicates a strong seasonal trend. Although not all firms are on the calendar year, enough of them are that we can identify the notable exceptions on two hands.
Recently, considerable news has been given to Bingham and how a few select firms are making a play for their partners. In reality, firms build up more through gradual increases rather than peaks and valleys. Over 150 of the AmLaw 200 firms had a standard deviation of fewer than four total partner acquisitions for that year, indicating a gradual buildup. These outliers on the right are largely a consequence of firm liquidations, such as Dewey in 2012 and Heller in 2008, and firm mergers. In 2015, barring any firm collapses or major mergers, it is unlikely that we’ll see any Biglaw firms acquire sizable groups of partners from other peer firms. Most of the action is with hiring one or two partners at a time.
For Q4 (2014), I expect another strong showing, yet it will inevitably be lower than Q1-Q3. Using an Autoregressive Integrated Moving Average model (ARIMA), I modeled the next year of Biglaw partner moves to project 2015. Based on the model, we should see a Q4 of 2014 with slightly less than 400 lateral moves and a Q1 of 2015 with around 600 lateral moves. Based on the model, we expect to see a high of around 700, which would be the greatest number of lateral partner moves in a quarter, in over seven years. (Note that ARIMA is a time series based on one variable so its results should be treated cautiously as markets are subject to shocks and external pressures.)
For partners looking to move in the first quarter, the firms with the largest lateral acquisition to size ratio over the last six years are Dickinson Wright, LeClair Ryan, Lewis Roca, Michael Best, Epstein Becker, and Lewis Brisbois. The firms with the largest overall Q1 partner acquisitions are Dentons, Greenberg Traurig, Reed Smith, DLA Piper, and Dickinson Wright.
The top partner destination over the last six years is filled with familiar names. Rounding off the top five are Greenberg Traurig (37/year), DLA Piper (34/year), Jones Day (29/year), Lewis Brisbois (29/year) and Dentons (26.5/year).
The least active lateral partner firms were Wachtell, Fitzpatrick, Williams & Connolly, Munger, Irell and Finnegan Henderson. Each had fewer than two partners lateral to the firm over the past six years.
Practice growth during the first three quarters has been varied compared to Q1-Q3 of 2013. Banking partners have lateraled 25% more this year than last. Environmental partners have been much less active this year; laterals moves are down almost 50% from 2013. Litigation unsurprisingly increased again. Compared to 2012, it was one of the few practice areas whose lateral frequency increased for partners. As the election cycle ramps up, government partners are on the move again. Since last year, there has been a 44% increase in lateral partner moves, and a 77% increase since 2012.
Should the trend of decreased applicants to law school continue, Biglaw firms will have to address the issue of continued expansion with a smaller pool of associates. If clients feel that firms are diluting their talent, they could push for a reduction in rates. Nonetheless, the lateral market over the next decade looks healthy for both incoming partners and associates as the baby boomers retire and associates become scarcer.