By Aebra Coe | January 17, 2024, 2:49 PM EST
During the first two weeks of January, the legal industry was inundated with news of large group hires, law firm combinations and high-profile lateral partner departures.
A number of fluctuating factors in the sector contributed to the remarkable flurry of movement among large law firms during the first two weeks of the year, according to legal recruiters, including the wider economy, the economics of law firm performance, and a shift in how some of the most prestigious firms pay and recruit partners.
"It feels very much like 2024 is a new year in a lot of senses," said Michelle Fivel, a founding partner of legal recruiting firm Hatch Henderson Fivel, pointing to a number of new options she sees in the lateral market for partners. "There's a shake-up happening … because of the additional possibilities.
“When it comes to big group moves over the past two weeks, perhaps the biggest of them all was the impending exodus of more than 130 lawyers from Fisher Broyles to startup firm Pierson Ferdinand. The move nearly cleaved Fisher Broyles in half.
Multiple recruiters called the exodus devastating, saying it can be difficult for a firm to recover after a loss so substantial.
Lewis Brisbois Bisgaard & Smith also saw a number of departures during the beginning of this year, with seven lawyers leaving the firm to open an office for Dinsmore & Shohl in Houston, and a team of five transportation lawyers leaving to join Husch Blackwell.
Departures from Lewis Brisbois have continued to trickle in following a very large group move in May when more than 100 lawyers left the firm to form Barber Ranen, which ended up dissolving within two months after racist and sexist emails sent by the firm's founders surfaced.
Shearman & Sterling was another source of notable laterals and group moves during the first weeks of the year, with a team of five attorneys leaving to join Linklaters alongside former Shearman global co-managing partner George Casey, and the joint leader of the firm's energy group departing for Willkie Farr & Gallagher.
The law firm signed up to combine with U.K.-based giant Allen & Overy in a deal approved by the firms' partners in October. Recruiters say it's not uncommon for law firms to see departures leading up to a combination and at least one said it is likely the departures will slow or largely cease as the deal reaches closing.
A few other notable lateral placements include the departure of Paul Weiss Rifkind Wharton & Garrison's global private equity co-leader to White & Case, the departure of a group of three partners from Norton Rose Fulbright that included its head of antitrust to DLA Piper, Brown Rudnick’s addition of Weil Gotshal & Manges' former white collar practice co-leader, Cooley's hiring of an executive from Fried Frank Harris Shriver & Jacobson as its new chief operating officer, and Crowell& Moring's hiring of DLA Piper's global finance director as its new chief financial officer.
And then there were the combinations that created even more flux within the marketplace in the first two weeks of the year.
Kilpatrick Townsend & Stockton announced it was strapping on 55-lawyer HMB Legal Counsel, Phelps Dunbar said it was adding 24-lawyer Farris Boban go to expand into Tennessee, Fennemore Craig said it would be acquiring 12-lawyer Seattle firm Savitt Bruce & Willey, and Barclay Damon added D.C.-based Shapiro Lifschitz & Schram's 10 lawyers. In all, 11 combinations were announced during the first two weeks of the year.
Some of the movement is likely being driven by uneven financial results in 2023, a year during which average profits across the industry were largely flat. Some firms, however, performed better than others, according to Jon Truster, a partner at legal recruiting firm Macrae.
"Anytime you have firms where they're not going through a period of rapid growth in revenue … it’s tough for the decision makers to keep everyone happy," Truster said. "Some partners may think, 'We had a great 2023, why is my compensation being kept flat?' There can be frustrations in what the firm is able to do to pay its partners."
Additionally, exceptionally high pay among a portion of the top, elite law firms has been driving lateral movement for a while now, and this year is no exception, Truster said.
"The person making $14 million with a big book of business may be able to make $18 million somewhere else," he said. "Firms are grappling with how to keep them without completely changing the culture of the firm, because another $4 million would have to come from somewhere."
Fivel, too, pointed to a shake-up at the elite law firms that has contributed to some of the group moves and high-profile laterals so far this year.
Some of it is happening because of changes the elite white shoe firms have made in order to compete on partner compensation, including moving away from traditional lockstep compensation systems and adding non-equity partner tiers to their organizations. That means they're more open and competitive when it comes to hiring, and it also means some people could choose to leave, Fivel said.
"Anytime you see changes, the change works great for some but maybe not for others," she said.
All of that leads to some lateral and group moves that the industry may not have seen five or 10years ago, the recruiters said.
And the same goes for law firm combinations, according to Michael Short, a law firm combination consultant at Law Vision. Short says that firms are opening themselves up to merger partners they may not have once considered because of the competitive environment and simple supply and demand.
"Demand remains high as consolidation — in the largest firms, in particular — continues," he said. With the supply of firms far less reliable due to prior deals, the desire of many firms to remain independent, and the complexities of getting deals done, "the solutions will become more volatile, eye-catching and far less predictable."
Another notable shift in the legal market that was highlighted by the lateral moves during the first two weeks of the year is the increased value law firms are placing on C-suite-level business executives, according to Karen Andersen, a partner at legal recruiting firm Major Lindsey & Africa.
Andersen pointed to the COO and CFO placements made by Cooley and Crowell & Moring.
"Those moves have always taken place, but the moves are becoming much more high profile than they used to be and are being reported on," she said. "That strikes me as a reflection of how important business professionals are becoming in law firms."
At one time, a CFO move would not have been featured in the legal media, she said. Now, it's often big news.
"That's a result of the change in how non-partner personnel in the C-suite are valued at law firms," Andersen said. "They're valued more and more."
--Editing by Robert Rudinger.
Read the original article here.
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