Kirkland & Ellis’ new chairman Jon Ballis has wasted little time making his mark, poaching a rising star dealmaker away from one of Big Law’s most untouchable firms this week, despite a global pandemic slowing the economy and scaring rivals away from making big-dollar hires.
Hiring Edward Lee from Wachtell Lipton Rosen & Katz sent a clear signal to the industry that the Chicago-founded firm poses a threat to even the most venerable white-shoe firms and their “lockstep” pay structures that set compensation based on seniority. It’s a classic Kirkland move— a young up and comer from a major firm. But Ballis is making a statement in going after Kirkland’s first prominent hire from Wachtell, a New York firm known for its M&A prowess that rarely, if ever, loses its partners to rivals.
“This looks very much like Kirkland being Kirkland—coronavirus or no coronavirus—they’re staying true to form,” said Janet Stanton, a partner at law firm management consultancy Adam Smith Esq.
Over the past decade, Kirkland has raided once seemingly impenetrable Wall Street firms like Cravath Swaine & Moore and Simpson Thacher & Bartlett to build out its public company M&A practice, using the lure of a larger paycheck at a younger age to attract talent. It’s what veteran legal recruiter Mark Jungers calls “the Kirkland effect.”
“That private equity, litigation, bankruptcy shop that used to be really great coming out of Chicago, they’re not that anymore,” Jungers, co-founder of Lippman Jungers, said of Kirkland. “They’re a nightmare for the Wall Street firms.”
‘The Kirkland Effect’
Kirkland, along with some other out-of-town firms like Sidley Austin and Latham & Watkins, has used aggressive lateral recruiting to draw from New York’s dealmaking talent pool.
In 2003, Stephen Fraidin left Fried Frank Harris Shriver & Jacobsen after 38 years to join Kirkland’s New York office and its growing M&A team.
Since that hire, Kirkland has often focused on filling its roster with 30-and 40-something lawyers who are eager to build their own practice rather than wait in line under a lockstep regime.
They were followed by Sean Rodgers from Simpson Thacher in 2013. Up-and-coming Cravath partner Sarkis Jebejian, whose client list includes Accenture, Bain Capital and Northrop Grumman, joined Kirkland in 2012, followed by Jonathan Davis in 2016 and Eric Schiele in 2018.
Jebejian and Schiele were 43 when they joined Kirkland, while Davis was 34. The latest hire, Lee, graduated Harvard Law School in 2006.
“Kirkland has discovered they can hire very good, younger lawyers from other firms who work out as very good lawyers on Kirkland matters. That is valuable for them,” said a source close to Kirkland who declined to be named to preserve relationships within the firm.
All those hires had been made under Kirkland’s former chairman, Jeffrey Hammes, a former private equity dealmaker considered a bold leader willing to cut big checks. Hammes’ aggressive hiring remade the firm’s top management. When he departed from the role, at least six of the firm’s global management committee members joined Kirkland from rival firms.
Ballis, who became chair in January, is a lateral hire himself, joining from Sidley Austin in 2005. Rival firm leaders had questioned whether he would continue Kirkland’s aggressive hiring strategy.
“It’s a demonstration of Jon’s commitment to continue the firm’s long-term investment in building out M&A,” Kent Zimmermann of the Zeughauser Group said of Lee’s addition. “They’ve always said they’re continuing to invest in it and this is putting their money where their mouth is.”
Neither Kirkland nor Wachtell were immediately available for comment on Lee’s hire and their overall strategies.
‘Nightmare’ on Wall Street
Kirkland and its peers have shifted the stakes in New York over the last decade and forced Wall Street firms with lockstep systems to fend off new and fierce competition from out of town.
Lockstep firms like Cravath and Wachtell used to be completely insulated from the lateral market, Jungers said, with Wachtell standing as “the last fortress of lateral vulnerability” thanks in part to its high profits per equity partner.
Working at Wachtell, a firm founded in 1965 “on a handshake,"still pays handsomely. Partners at the firm took home $6.3 million on average in 2019, more than any other U.S. firm, according to the latest AmLaw rankings.
But Kirkland was No. 2, with equity partners making an average of $5.2 million. Kirkland’s gross revenue in 2019 surpassed $4.1 billion.
This sky-high profitability coupled with the firm’s merit-based compensation system, which allows them to pay certain rainmakers more than those at a lockstep firm, has proven potent.
“Kirkland is a very successful firm,” said the source close to Kirkland. “The important partners there, and even some of the partners who aren’t so important, make more than partners at any other law firm in the world, including Wachtell.”
Lockstep firms traditionally have relied on a strong cohesive culture and financials, believing clients belong to the firm and not to individuals. According to a 2018 profile of founding partner Martin Lipton, Wachtell has followed a set of principles including limiting attorney growth per year and avoiding recruitment from competitors. When asked what would motivate a young high-performing partner to stay at a firm that pays based on years of service rather than achievement Lipton responded, “Money isn’t the last thing in their lives.”
But many in Big Law have observed that the bonds that hold clients and lawyers to law firms aren’t the same as they used to be.
Clients are incentivized to spread their work around, Jungers said, so if partners think they can take work with them and firms like Kirkland are willing to pay them millions more, there’s a real question of whether “culture” will keep them from moving.