Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look into the future by handicapping likely events in the months ahead. Sign up to receive this column in your inbox on Thursday mornings.
The theme of this week’s column hit me Sunday night early in the second half of another Chicago Bears loss to the Green Bay Packers.
The Bears had managed to take a lead into halftime. But I knew it was a mirage. I’ve been a Bears fan for a while now.
Sure enough, the lead disappeared early in the third quarter. The Packers scored two touchdowns a minute apart.
I wouldn’t say I saw the future. But plenty of us Bears fans knew what was coming.
Big Law readers might have the same instinct for what is ahead in their profession. I’m talking about things like profits, pay and mergers.
So, I’m going to set a benchmark for what may happen, and you can decide—in the tradition of sports betting—whether my “line” is high (in that case you’d take the “under”) or low (and you’d take the “over.”)
Let me be clear: I am not picking a side on these “bets.” I’m not taking any action on them, either, so don’t try to collect! This is just for fun.
Law firms with more than $5 billion in revenue in 2021: 1.5
How many firms have ever reported $5 billion in revenue? Zero. But these are heady times.
Kirkland & Ellis and Latham & Watkins are both threatening to breach the $5 billion threshold in 2021.
It’s likely Kirkland will achieve that figure. It needs to grow by about 5% from $4.8 billion in 2020, as reported by The American Lawyer. That seems a safe bet, judging by the firm’s historical growth rates. It’s grown by an annualized 12% since 2009, as I reported earlier this year.
So, the “under” or “over” at 1.5 largely hinges on how strong of a year Latham will report.
The firm needs to grow by a little more than 15% to cross the $5 billion threshold. That’s a great year, but it’s right in-line with the 15% growth rate Latham turned in during 2020. It’s also close to the performance the Top 50 firms have showed through the first nine months of the year, according to Citi Private Bank and Wells Fargo.
Highest Profits Per Partner: $9 million
Yes, it’s true no firm has ever reported even $8 million in profits per equity partner. But don’t scoff at the big number.
Wachtell, Lipton, Rosen & Katz could cross the $9 million threshold with a 20% increase in profits per equity partner, according to 2020 AmLaw data.
Adding $1.5 million to every 90-or-so Wachtell equity partners’ pay is a big jump, but the M&A powerhouse pulled off about 19% growth in 2020, and its transaction practice has been humming again. The firm’s M&A practice has already outpaced its 2020 performance both by deal count and volume, according to data compiled by Bloomberg.
Dentons Combinations in 2022: 8.5
You know Dentons is going to do deals. You just have to pick how many.
The world’s largest law firm now has more than 10,000 lawyers around the world. But there’s little evidence to suggest it plans on settling down. What’s the fun in standing still?
The firm is looking for U.S. law firms to partner with. According to data from AltmanWeil’s Merger Line, Dentons has averaged 7.5 law firm deals per year since 2015 (excluding 2016). Sharp bettors might note that that number, according to Merger Line, has dipped to 3.5 over the past two years. Is that a trend, or was Dentons just saving their bullets? Time will tell, but the number implies the house thinks Dentons will get back to its acquisitive ways.
“True” Lockstep Firms Remaining by 2023: 1.5
There are two “true” lockstep firms remaining, by most accounts: Wachtell and Debevoise. Without even commenting on either firm, we’ve seen at least two over the past two years ditch that strict seniority-based pay scale. Davis Polk walked away from it in 2020, and Cravath did the same this month.
The lockstep model has been under pressure for nearly a decade, ever since Kirkland & Ellis started dangling massive pay packages and a quicker path to the top as a way to poach mid-level or junior partners from the pre-eminent Wall Street firms.
On the other hand, the lockstep model might more valuable when there are fewer firms adhering to it. The idea always was that it is a way to provide superior client service. Perhaps clients will take notice.
Lateral Partner Hires Made by Cravath: 3.5
There are two main reasons firms break away from strict lockstep systems: To pay their current group of top lawyers more money, and/or to pay other law firms’ top lawyers more money.
Davis Polk is an example of a firm that became more acquisitive after modifying its lockstep scale. The firm hired at least five partners from other law firms in 2021, including Kara Mungovan, a former Cravath tax partner.
It’s unclear as of yet whether Cravath will look to bolster its roster by making more lateral hires. But in February the firm made a rare lateral partner hire—and that was even before the firm made changes to its compensation system.
Bonus: Cravath To Hire a Kirkland Partner: +400
What better way to make a statement than to hire a partner from the place that was most successful at recruiting your people? Kirkland hired four Cravath partners since 2012, so I’ll set the odds at 4:1.
First Year Associate Starting Salary at end of 2022: $205,001
The talent wars are raging. Law firms are making more money than ever. Sure, Davis Polk gave associates a raise in June. But who’s to say there isn’t more cash in the offing? This is like one of those promotional bets sportsbooks throw out there to get you hooked: All Davis Polk has to do is raise salaries by $1 and you win!
Population of Smallest City Where Kirkland Will Have an Office at end of 2022: 200,000
How many people do you think live in Salt Lake City? That’s a serious question. I figured half a million. It was actually just over 200,000 as of 2019, according to the U.S. Census Bureau. That’s where Kirkland last opened an office as the firm sought out cities where lawyers like to live.
Salt Lake City is the 125th largest U.S. city by population, according to World Population Review—which seems at least reasonably accurate. One city that could be a contender: Augusta, Georgia. It’s just under 200,000 in population, and while I have no idea about its population of lawyers, I know it has other perks that lawyers might consider. Tiger Woods might be there in early April. Fingers crossed!
That’s it for now. Let me know what other lines I should be considering. And next year, you can tell me whether you beat the sportsbook!
Worth Your Time
On Phishing Scams: Debevoise & Plimpton says someone is using a similar-looking website name to imitate its lawyers as part of a phishing scheme, reports Samantha Handler. The “phishing” emails redirect recipients to Debevoise’s actual website but are sent from a fake one.
On Investing: Cathie Wood’s Ark Investment Management has added three people to its now seven-person in-house legal and compliance team, Brian Baxter reports. That includes adding a general counsel for the first time in five years.
On Return-To-Office: Goodwin Procter announced that in-office work for U.S. lawyers will stay “entirely voluntary” until mid-March, AmLaw reported. That may be the latest return-to-office date among Big Law firms, but there’s probably a wager to be had about whether it will stay that way.
That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.