Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at the challenges of lateral hiring at a time when Big Law firms are protecting their balance sheets.
One of the most notable Big Law lateral moves in recent memory took place this week when Jenner & Block’s former chairman, Craig Martin, and five other partners launched a Chicago office for Willkie Farr & Gallagher.
That multimillion-dollar investment happened on the same day that Cadwalader, another Wall Street firm, made different news for saying it would freeze capital distributions to partners during “peak months” of the Covid-19 crisis and cut associate and staff pay by 10% to 25%.
For anyone wondering what will become of the Big Law lateral market during a global pandemic, these were confusing signals. It was like stocks and bonds trading in the same direction, to borrow a Wall Street analogy.
With such great uncertainty looming, the Willkie and Cadwalader moves could serve as a sort of Rorschach test for your own level of optimism.
More law firms are expected to protect their finances by limiting partner draws, cutting staff and associate salaries, and backing away from other investments. So far, firms including Cadwalader, Reed Smith, Allen & Overy, Baker Donelson, and Womble Bond Dickinson have taken some of those steps.
Some Big Law recruiters are anticipating the cost-conscious environment will create what could be considered a “shelter-in-place” market for Big Law talent. Some hires seen as crucial for client needs—or too good to pass up—could still cross the finish line. But that will require a serious test of leadership for managing partners.
Law firm leaders promoting new lateral hires will face a partnership skeptical of investments in the future.
Hiring new lawyers may seem out of touch when managing partners are already asking their workforce to sacrifice pay—or even if lawyers know other firms are making cuts.
Further complicating the process is the fact that the “courting” of new hires will happen in Big Law’s new virtual reality. It’s a real question recruiters are asking: Is FaceTime a sufficient replacement for face-to-face time when it comes to meeting your future partners?
“This week has been drastically different even than last week,” said Larry Watanabe, a West Coast recruiter for Big Law firms. “That is how rapidly things are moving. Unless it is a crucial, strategic hire that a firm really needs to make, they are tabling these deals.”
Big Law lateral moves don’t happen overnight. So while plenty of lateral hires have been announced in recent days, it is likely those deals originated before the pandemic impacted law firm strategy.
Martin’s move to Willkie happened on an accelerated timeline. He was the chair of Jenner as recently as February. Martin and Tom Cerabino, Willkie’s chairman, acknowledged their courtship was largely a virtual one, even if they have known each other “for a long time.” (The world of Big Law chairs is fairly small.)
In an interview, Cerabino also acknowledged the uncertainty in the market but stressed that Martin’s hire was made with a longer-term vision in mind.
“We are very much aware of the crisis that is going on in our communities, and as a firm we are doing everything we can to support our employees and clients,” he said. “We are also taking a longer-term view here. And the uncertainty of what is going on is a factor for us. But we were able to do this quickly because we know Craig and we know the other members of the team.”
One office managing partner of an AmLaw 100 firm, who declined to be named talking about a pending lateral hire, said his firm was near finalizing a deal with a new partner whom he had only met virtually. The candidate was making office rounds via Zoom conferences. This is a notable change from the firmwide office tours, dinners, and other meet-and-greets that usually accompany lateral recruiting.
“That person will probably be hired without having met anybody at the firm but one person,” the partner said. “And he’ll be up and running without ever having set foot in an office. I never thought about that potentiality. It is happening in real-time.”
It is a managing partners’ job to set priorities. That is nothing new. But selling investments in the future at a time when fear has taken hold is a different challenge. Bad moves in a crisis will hurt a leader’s credibility on the other side, and even good moves carry risk until there are concrete payoffs.
Kay Hoppe, a veteran recruiter for Big Law firms in Chicago, said the crisis will sharpen law firm leaders’ skills. They will apply a new level of strategic thinking to potential moves, she said, and make more effort communicating to their partners the strategy behind new hires.
“The deals that are happening are strategic, and they are incredibly disciplined,” Hoppe said. “This tests the machinery of the firm, too. If you don’t have a really top-tier team that could handle this, the time-lags, the wobbling, the challenges, it will overwhelm the process.”
Worth Your Time
On Lateral Partners: Big Law firms are hiring more women in the lateral market, my colleague Meghan Tribe reports. Since 2015, the number of women recruited by large firms has steadily increased, according to a Bloomberg Law analysis.
On Coronavirus: U.S. courts are being asked to look for respirator masks and other healthcare products that could help in the fight against Covid-19, Madison Alder reports for Bloomberg Law.
On Litigation Finance: A UK regulatory authority has ended an investigation into market abuse as a reason why litigation funder Burford Capital’s shares tanked around the publication of a short-seller’s report last year. The investigation found no evidence of abuse, Bloomberg News reported.
That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.