While the continued cherry-picking of top City talent by US law firms has been well-documented, the recent revelation of the ‘departure lounge’ clause deployed by Linklaters to prevent partner exits en masse came as a surprise to many – even those sympathetic to the magic circle firm’s plight.
The measures mean that Linklaters can restrict departing partners from joining a particular firm for 12 months, if the firm in question has recruited five or more of their colleagues in the preceding year.
Many City onlookers are quick to point out that such a defensive strategy does not reflect fantastically well on the firm. But faced with seemingly relentless approaches for their best people, will other top-tier UK law firms follow suit? And can these clauses really deter acquisitive US firms such as Latham & Watkins and Kirkland & Ellis?
As one legal recruiter points out, US firms are not shy about going back to the same firm for more hires. “There is a tendency that once you’ve got one partner, you go fishing in the same pond. So firms want to make it a manageable process. The good thing about the magic circle is that it’s rare for one partner to be the sole relationship partner. So clients won’t have just one contact.”
“This shows that US firms are very targeted and strategic in their approach. The intention of Linklaters – and other firms - is to mitigate the impact.”
But an impact has already unquestionably been made. Between 2015 and 2016, seven Linklaters partners left for Kirkland, including four in private equity, with Latham also picking off key partners from the firm in various areas. Clifford Chance also saw an exodus of corporate partners to Latham over a similar period.
While it is important to note that Linklaters’ management does have the final say on whether to enforce the restriction, a number of City partners spoken to for this article queried whether these so-called ‘departure lounge’ clauses can actually work in practice – although others with direct knowledge of them attest to their credibility.
If you have to lock your partners to a desk, it doesn’t send a good message
One thing that most agree upon, however, is the impact these clauses could have on a client who simply wants to use their preferred lawyer – whichever firm they may be at.
In Linklaters’ case, other non-compete provisions were already in place before this clause came into effect last year. Partners were prohibited from working with existing clients for up to one year after joining their new firm, if they had done work for said client within the previous two years.
One partner at a US firm confessed to being “slightly puzzled” by such clauses. “Either someone has a transferable book of business or it’s an institutional client, but clients get frustrated if their work is being distracted due to internal meddling in the firm.”
Another partner at a global firm adds: “Other firms have tried doing this in the past. It does work to an extent, but it precipitates a change of the partnership deeds. If it requires a change, it may mean that partners who were loose in the socket to begin with will think this is not the way to deal with it. They’re being offered the stick rather than the carrot – and the stick can be pretty strong.
“If you have to lock your partners to a desk, it doesn’t send a good message – the better way of retaining talent is to be the best place to work at.”
One partner at a magic circle rival suggests UK firms stand more chance of retaining their best people by making more of transatlantic differences in culture. “Look at the US - Kirkland has been taking lawyers from Cravath and Simpson Thacher & Bartlett, so naturally Linklaters is trying to keep people on board. But that feels like sticking plasters on things.
“Make the case for lockstep and the culture. What Linklaters needs to think about is making the firm a desirable place to work and stay.”
So what are the consequences for the wider market? Partnership experts say that such clauses, while rare, are not unheard of, and if the aggressive stance of US firms persists, they may become more common, and one City recruiter adds that Linklaters’ move “provides a clear picture of where the market is going”.
“If Linklaters, which is a fine firm that is doing well, is worried to this extent that they’re losing significant numbers to certain US firms, it isn’t a positive step. It’s indicative of the allure of the elite US firms, and it shows which way the tide is pulling.”