This is a peak time of year, especially for lateral partner/group hiring. It also tends to be busy for companies, as those that have funds in their 2018 budgets for lawyer hiring often use those dollars early. It’s not surprising, then, that I have received questions about the state of the market; this month’s column addresses two of the most common, recent queries.
Q: The stock market is extraordinarily volatile right now (as of the date of this article’s preparation, the Dow Jones dropped another 1,000-plus points and officially entered correction territory). What impact will this have on more senior-level hiring of lawyers? Is this a return to 2008?
A: I am not an economist, but there are significant differences from 2008. First, no one has used the “R” word and a recession, thus, does not appear to be in the offing. Second, unlike 2008, the U.S. economy is doing well—corporate profits are strong, overall growth is good, and unemployment is down. Third, and perhaps most relevant to your question, rates are rising, and more increases from the Fed may be coming throughout the year
I illustrate these differences, since it does not appear that the market instability, at least at this point, will trigger the types of layoffs and turn down in hiring that occurred in 2008. Major decreases in the valuations of public companies could impact in-house hiring, since law departments are frequently one of the first areas in a company to feel the pinch (as companies prefer putting resources into revenue producing portions of their operations).
Unless work from companies slows, law firm hiring, particularly at the senior level, should not be affected. One caveat, and this is where interest rates come into play, is that firms that are not well capitalized, or do not have sufficient retained earnings, will pay a steeper price if they need to go deeper into their line of credit. If that happens, this could cause those firms to retreat, or at least, pull back a bit, with respect to investing in lateral hiring.
There are two primary takeaways from 2008, though, that may apply now, especially if the stock market remains choppy and continues to decline. First, partners with business are king in law firms, and that is doubly (and even more) so, on the lateral market in tough times. If economic activity hits top line revenue, there is a corresponding increase in the attractiveness of lateral partners with books of business, and that was certainly the case in the 2008 recession.
Second, firms that are in strong financial positions, and are opportunistic, can change their destinies in a down market. This happened in 2008, and in the years that followed until the recession ended. Some firms capitalized on their positioning by making some big investments in lateral partner recruitment (and acquisition of other law firms). While some of those investments involved bringing in partners and groups with business, other firms made strategic acquisitions of lawyers in practice areas that were down (such as real estate) that they knew would eventually bounce back.
If one were to go back and look at the list of the country’s largest firms in early 2008, and compare that to today’s rankings, it would not be too difficult to deduce the identities of some of the firms that capitalized on hard times. Many of those firms expanded their footprint, practice offerings, and grew in such a way that moved them way up in the rankings—it very well could happen again.
Q: I get it that law firms want partners with business. Is there hope for those of us who want to make a move and don’t have business that is likely to follow us?
A. There is some hope, and I’ll provide a few examples. Nonetheless, it is not a vista that is dominated by sunny skies. The reality, for most partners who don’t have business, is that their compensation inside of their firms is higher than what they can get on the open market. Moreover, a lot of firms may be stacked up with lawyers, who, despite being excellent practitioners, are not rainmakers. It thus normally raises the bar for laterals, and, even if you can miraculously surmount that challenge, you may have to take a significant hit in compensation, which very few lawyers want to (or can) do.
So, what are some of the exceptions to the rule? First, a firm may have a one-off need that is experience-driven and not portables dependent. For instance, a firm may have just won an RFP that landed it a slew of cases for which it’s understaffed and needs a particular type of lawyer (such as one with trial experience). Or, a department head may have passed away or retired early, without a successor in place. If that practice area has good clients, the firm may have no choice to get the best lawyer it can, regardless of whether he brings business.
Second, there are some small to midsize firms that may have ambitions of building their brands, so that they can grow and compete against their larger competitors. This may present an opportunity for someone in a big-name firm, who lacks normally needed portables, to join a smaller firm. The cachet of adding someone from a more recognized firm may have some strategic value—to clients and future recruiting efforts—that could play right into the hands of the lateral.
Finally, there are some niche, or highly valued practices, in which portables are less important. Tax, employee benefits, and to some extent, investment management, are smaller practices (as to number of lawyers) in which partners frequently don’t have appreciable portable business. This is the case since that type of work is normally institutionalized in firms or is so tied to other practices (such as corporate) that it is difficult to break work away from the firm. As a result, firms will lower their portables expectations (or eliminate them entirely) if it has a need for such lawyers.
IP, is the type of highly valued practice that also triggers variances from the “general rule” as to the need for portables. A firm may have an important need for a specific type of IP lawyer—especially in areas such as patent prosecution or, at times, trademarks—that it simply has to fill (and fast). When that happens, the value of an IP lawyer, which normally is high, anyway, can skyrocket even further.
Frank Michael D’Amore is the founder of Attorney Career Catalysts, http://www.attycareers.com, a Pennsylvania-based legal recruiting and consulting firm that focuses on law firm mergers and partner placements. He is a former partner in an AmLaw 200 firm, general counsel in privately held and publicly traded companies, and vice president of business development. He can be reached at email@example.com.