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The Tight Talent Market in Texas

Aug. 14, 2015, 3:29 PM

In 2010, Latham & Watkins opened the doors to its Houston office, a step the firm had considered on three separate occasions over a 15-year period, always failing to pull the trigger.

The reason for the delay, according to Michael Dillard, Latham & Watkins’ Houston office managing partner, was the firm needed to find the right lawyers with the right practice for the market.

“We wanted the office to have a Texas feel to it and wanted it to be a part of the community,” Dillard told Big Law Business.

Dillard explained that Latham had a long history of working on transactions in Houston. Furthermore, the firm’s research suggested there was an opening in the market for a law firm such as itself – with a significant capital markets practice in New York and experienced oil and gas industry lawyers.

But in addition to its market research supporting the opening, the firm wanted one more thing before it would open an office in Houston: lawyers who had been partners in other Texas law firms, and who had experience working in the market.

“Being able to combine those two would make us unique and give us credibility from day one,” Dillard said.

[caption id="attachment_3902" align="alignleft” width="305"][Image “https://www.flickr.com/photos/looking_out/5063999766/in/photolist-8HujGN-6vsKdD-hzsAmG-7dW2xf-9cbuVs-azrHQr-4BE46X-wxeTQa-9qnv9r-9omQ7F-u3Dmey-gm26ZD-hzsTkd-4yL3Ys-9qnuZZ-7Yi3AV-hKvJu8-4UmjVS-4Uh1qn-q9kp62-wSrFia-4ESYJU-wqqXVV-bgE2aX-dbrKpv-9vN9WY-aw1VED-ut8XGU-7DpkFy-aywGay-ePqEVM-4D7Z6e-hzrVwP-rqg4v7-6FoV8t-9Qk8hN-4bJjDz-dQP12h-4Uh5eP-fjy9PB-iDFiJW-4YYtSD-4ETU87-4bNjVd-9vK7SH-7DpgXW-azsQDV-9oT3Dv-4eV8vh-9oW8tL” (src=https://bol.bna.com/wp-content/uploads/2015/08/5063999766_9237ca66ed_z.jpg)]Photo by Looking Out (Texas) (Flickr/Public Domain)[/caption]

In the years since Latham opened its first office in Texas, other major firms including Kirkland & Ellis, Sidley Austin, Willkie Farr & Gallagher all opened offices. Today, 83 of the top 200 law firms have offices in Texas, employing more than 6,800 lawyers.

Still, the perception that Texas can be hostile for outsiders persists, and is fueling a heated battle for experienced, top lawyers as more firms look for local talent to help them plant roots in the state.

In the past year, seven major law firms have entered Texas – three opened their own offices, and four merged with local firms. Overall, 11 firms opened one or more new offices in the state during that time, six expanding in Dallas, three in Houston and two in Austin, according to an analysis conducted with Leopard Solutions’ Firmscape, which monitors legal market growth with web crawlers and analysts.

The California market may still be more active, but there appears to be less net growth: Law firms opened 18 new locations there, but closed 17 locations in the past year, according to Leopard Solutions’ Firmscape.

Still, about 10 percent of mergers in 2014 involved Texas firms, including Dallas-based Locke Lord with Edwards Wildman, and Fox Rothschild with David & Goodman, according to a survey by the legal consulting firm Altman Weil.

Even as the energy market has struggled for much of the year, law firm leaders point to a wave of restructuring and distressed M&A work that has come along with slumping oil prices. But leaders say the state’s economy is more diverse and has many multinational corporations outside the energy sector.

In 2014, Texas was the top state for job growth with 457,900 new jobs created, according to the U.S. Bureau of Labor Statistics. The state also placed five cities, Houston, Austin, Dallas, Fort Worth and San Antonio on Forbes Magazine 2015 list of America’s Fastest Growing Cities.

“Law firms generally follow the money,” said Kent Zimmermann, a law firm consultant with the Zeughauser Group, adding, “When managing partners in large firms think about where in the world they want to grow geographically, Texas is near or at the top of the list of many firms.”

One way to enter the market is to find lawyers already working there.

For example, Quinn Emanuel opened a Houston office in late 2014, by acquiring the boutique law firm, Gerger & Clark, which represents a rig worker on criminal charges related to the Deepwater Horizon oil spill and has previously represented the Chief Financial Officer of Enron in civil and criminal litigation.

“They’re not coming in with a plane load of their own lawyers from other markets in the world,” Timothy Powers, of Haynes and Boone, said. “They’re coming in and trying to find the best and the brightest of existing Texas law firms, and trying to attract them to their firm based on their position, their global platform and their clientele.”

Christine LaFollette, managing partner of Akin Gump’s Houston office, said talent poaching has become a top concern.

“The recruiters are dialing weekly, and that’s one thing I’m very attuned to,” said LaFollette, partner-in-charge. “Our resources are very talented lawyers so I’m very aware that aggressive hiring practice and competition is out there.”

Ken Menges, Akin Gump’s Dallas office partner-in-charge, said he shares LaFollette’s concerns: “Our biggest worry as partners in charge of our offices is our people being lured to another firm, by the promise of lower rates, or hirer comp or both. It’s an attractive siren song to some people, and we try very hard to compete.”

Its competitive tactics include a national compensation system, under which associates receive the same base salary in all offices – $160,000 for first year associates and $170,000 for second year associates.

Menges, however, said he doesn’t see the battle for Texas talent cooling down anytime soon, not with the way the state’s economy is growing.

“No question that Texas as a state has the strongest economy in the country,” he said.

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