At the end of the year, we like to survey the legal landscape for future trends in the market. Some trends are more obvious than others — we won’t run you through the statistical gauntlet today — so we noted some bird’s-eye observations. Here are Lateral Link’s top 10 predictions for 2015 and beyond.
1. Another Am Law 100 firm’s best chance of survival is a creative combination. The unnamed firm has seen declining PPP over the last few years as it has experienced major attrition. Problems with succession planning have played a significant role in this attrition and have hindered the firm’s ability to recruit rising stars. These significant losses have led to a sizable reduction in market share for the firm, and its chance for survival likely hinges on whether or not it can find a merger partner within the next year or two. Sometimes pride from the past limits options for the future until reality causes law firm decision makers to recalibrate their perspective about their position in the market.
2. Ted Olson be the first to bill $2,000 an hour. Last year, Ted Olson’s hourly bill rates were announced through the bankruptcy representation of LightSquared. Bayer’s stock skyrocketed when it was revealed that Olson made roughly 12% of the yearly take home of a minimum wage worker in just one hour ($1,800). Olson has had a decorated career, winning some of the most important cases of the 21st century, including Gore v. Bush and Perry v. Schwarzenegger. We believe Olson, now 74, could cross the $2,000 boundary near his 80th birthday if his rates rise only with inflation (given average inflation of 2% over the last 6 years, though it is expected to be closer to 1.2% for the next year). That’s the market price to be paid when you need someone of his caliber (and really the few people at that level).
3. Another Am Law 100 firm will strike again with a major merger, creating an army of attorneys that rivals Fiji’s in size and combat competency. We are aware of several Am Law 100 firms preparing for significant combinations with others, yielding powerhouses with tendrils in every market. These creations could be the catalyst that pushes some of the top 10 Am Law firms to increase their ranks in an effort to retain their market share.
4. Firms open an office in an unconventional location. The coverage map of the Am Law 200 is not dissimilar to that of T-Mobile — unparalleled in the big cities and sparse in between. Internationally, around 94 countries are home to Am Law 200 offices (or satellite affiliates) ranging from Dentons in Rwanda to Hogan Lovells in Ulaanbaatar, Mongolia. In fact, our fearless leader in Asia, Justin Flowers, has placed candidates at regional firms in Ulaanbaatar, and luckily invoices were paid — otherwise, I can’t imagine how collections would have materialized. Many of these offices are created with a partnership with an existing firm. For example, although Dentons has around 62 international offices — more than most firms have in total — of these international offices, roughly 26 are affiliate offices (or 42%). Their domestic stateside offices consist of around 800 attorneys (roughly around the same size as Covington, King & Spalding, and Paul Hastings), which makes Dentons an ideal platform to practice domestically while having access to a deep international bench of services.
With Obama’s newly professed commitment to strengthening U.S.-Cuban ties, some Am Law firms will look into the prospect of further expanding their reach into the Caribbean, with easy access to the Yucatan Peninsula and Florida. While this new wave of “thawing” won’t take as long as Khrushchev’s, it will be at least a few years before an Am Law 200 firm opens an office on the island nation. Nonetheless, expect rampant internal discussion within Am Law firms as to the efficacy and feasibility of a Cuban office. Our money is on Littler Mendelson or Fragomen to open the first office in Cuba. Littler has a strong South and Central America practice in Costa Rica, Colombia, Dominican Republic, El Salvador, Honduras, Mexico, Panama, Peru, and Venezuela. A Cuban spinoff would not be out of the question in a few years.
5. Cravath resists the temptation to preempt Simpson’s bonus announcement next year, but Davis Polk jumps the gun and announces mid-August. Cravath and Simpson Thacher’s bonus rivalry runs deep as the two battle to set the standard for bonuses year in and out. Cravath has been the standard bearer of late, but Simpson preempted them this year, announcing their new gaudy bonuses. Soon after, Davis Polk blew away what was already deemed a generous bonus scale. Boies Schiller countered with their own Tsar Bomb that annihilated Davis Polk’s exuberant offering. Now that the some firms are no longer content to simply match the Cravath standard as in the past, the firms may hesitate to announce first, for fear of being one-upped. Irell & Manella could be the sleeper pick to set the new floor (and ironically ceiling for most) as the firm realizes unprecedented profits.
6. David Lat’s book, Supreme Ambitions (affiliate link), becomes the fastest selling novel since 50 Shades of Grey. He will use the funds to complete the construction on his full-scale replica of the Supreme courtroom. The genetically engineered Alito clone is still 3 years from full maturation, and has been replaced with a custom Alito cardboard cut-out in the interim.
7. Proskauer will continue to increase its PPP among the elite top 20 firms in New York. After recent solid lateral acquisitions, and increased profitability from major transactions and litigation, Proskauer looks poised to realize a bump in both gross revenue and PPP.
8. Philadelphia and Boston fight to become the newest member of the “Big 5″ markets. Sam Hinkie trades the number-one overall pick for 30 second-round picks and Boston wins after frustrated Philly lawyers leave en masse. Boston and Philadelphia are each poised to make the jump into the first-tier market, currently encompassed by L.A., D.C., N.Y., S.F., and Chicago. Competitive market rates in Philadelphia and Boston could convince Harvard and Boston U & C grads to stay in Boston, and may offer a reasonable alternative for New York associates battling the rising cost of living in the Big Apple.
9. Simpson Thacher escalates the arms race, offers bonuses of 190k for first-year associates, reduces base compensation to zero. With the significant increase in bonuses this year, it is unlikely that any firm will beat Boies Schiller’s gaudy bonuses unless the market continues to grow at an accelerated pace. Our past forecasts predict an increase in revenue and lateral moves for Biglaw, but whether base or bonus salary will increase proportionately is yet to be seen. Firms tend to wait for successive years of stable growth before pulling the trigger on compensation boosts, so compensation tends to lag behind real growth.
10. Lateral Link will open a new office in Latin America given client demands. As our clients continue to expand internationally, so will Lateral Link in Latin America. We predict major firms will acquire local Latin American boutiques to solidify their place in the market.