In a recent article, “The Rise of the Non-Equity Partner: Short Term Gain for Long Term Pain?,” James Willer, writing for Law.com, reports on the rise of non-equity partnership in today’s lateral market. According to ALM Intelligence, the number of non-equity partners across the Am Law 200 over the past ten years has increased by 36% from 17,086 to 23,166. On average, non-equity partners now represent a 44% share of the overall partnership at Am law 200 firms. This contrasts with 38% in 2009. In 2018 alone, 46% of Am Law 200 firms increased the proportion of non-equity partners within their overall partnership. By increasing non-equity numbers, while keeping equity partners relatively flat or at least growing incrementally, firms can maintain high-levels of Profits Per Equity Partner (PEP) and therefore bolster retainment of its top-performing equity partners, the article notes.
Accordingly, law firms in the top echelons of the legal market have come to realize how useful PEP can be as a competitive advantage in the lateral hiring market. For these firms, PEP is now not only one of the most important metrics at their disposal but provides the primary means to maintain a business model built largely on talent management, recruitment, and retention. This weaponizing of PEP has since trickled down to the rest of the market, as more firms begin to grapple with issues of retainment and retention of top performers. The result has been a market-wide shifting of the partnership model. Partnership adjustments are one of the few remaining mechanisms at the disposal of firms that can be reliably utilized to increase PEP expeditiously, (as quoted in Law.com).
The shift towards more non-equity partners is only likely to accelerate as the lateral hiring market’s requisite need for strong PEP growth intensifies, Willer notes. However, Willer cautions that firms should be wary of placing too much short-term emphasis on tweaking partnership structures. To do so runs this risk of losing sight of the need to ensure that more organic measures of long-term sustainability such as RPL growth and costs management still need to be adhered to. According to Willer, firms need to have in place clear strategies from the outset to secure and retain talent not just at the equity level, but across the full spectrum of partnership. This could include ensuring contributions to firm profitability or business development are effectively incentivized or having in place clear pathways of professional development, (as quoted in Law.com)
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The American Lawyer reports that more than 3,100 lateral partners moved between Am Law 200 firms in 2019, with corporate partners accounting for 25% of those moves, according to recent data released by ALM Intelligence. The total is 14.5% higher than last year’s lateral total of 2,754, largely as a result of an improved methodology used to collect this year’s data, which affects the year-over-year comparison. Over the past two decades, the number of lateral partner moves, tracked by The American Lawyer since 2000, has ranged from just above 2,000 to more than 3,000 a year, the article adds.
The article reported that at least 580 corporate partners joined the ranks of the Am Law 200, while 469 departed, which adds up to a net gain of 111 partners. Litigation partners accounted for another quarter of the past year’s laterals. Banking and Finance partners were the third-most-transient practice, comprising nearly 14% of all laterals. Interestingly enough, given the warnings of a recession, bankruptcy attorneys were the least transient, accounting for just a small fraction of the year’s lateral moves, at 2.4%, ALM Intelligence reports.
According to the report, Philadelphia-based Fox Rothschild saw the greatest percentage growth via lateral moves, as its partnership ranks grew by 60, or roughly 18%, on the back of 102 lateral hires, offsetting 42 departures. The firm has been growing steadily since it first cracked the Am Law 200 in 2015, the article notes. Additionally, the article noted that Winston & Strawn saw the greatest net defections among the Am Law 200, losing 52 partners and adding 17, for a net loss of 35, (as quoted in The American Lawyer).
Nearly three-quarters of Am Law 200 firms have had a lateral partner leave within the past five years due to an issue with personality or law firm culture, according to data released by ALM Intelligence. A lawyer’s business is easier fixed than their character, notes Polsinelli’s CEO Chase Simmons. And while there’s no one lateral partner who can affect a law firm’s revenue numbers on their own, a toxic partner could ruin a firm’s culture, he adds. “Culture is more permanent. Everything derives from the culture,” Simmons says. “If you mess with that, the dollars aren’t going to follow.”
“Law firms are constantly on the hunt for top talent, and they have recently began building programs focused on lateral integration. The reasons for doing so are interconnected. For one thing, firms use their programs as a selling point in their recruitment efforts. They also lead to better retention rates. Nearly every law firm The American Lawyer spoke with for this story touted a higher five-year retention rate than the 60% average that ALM Intellection reported last year among Am Law 200 firms,” (as quoted in The American Lawyer).
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Buoyed by a strong economy and expectations of continued growth in demand, the increasingly dynamic lateral market shows no signs of slowing in 2019, Law360 reports in a recent article. According to a report released by Citi Private Bank Law Firm Group and Hildebrandt Consulting, the lateral market had been the “primary driver of consolidation in the legal industry” in 2017 and 2018. During both of those years, the report found, lateral recruiting outpaced internal promotions, and that trend was unlikely to reverse in the near future.
In the article, Law360 reflects on the most effective hiring and integration strategies for attracting and retaining top talent at the fastest growing law firms in 2018. According to the article, law firm leaders at the most actively hiring firms identified a variety of strategies aimed at improving lateral hiring including seizing on opportunities from potentially flagging firms and building a competitive platform that integrates new talent and retains them for the long haul. Managing Partner of Akerman Scott Meyers weighs in on the success of the firm’s tactical lateral hiring strategies, which attributed to 47 lateral partners last year. According to Meyers, “None of this growth has been in the mold of, ‘If we build it, they will come,’ It’s been going to places where there is existing client demand, both in terms of geography as well as subject matter expertise,” (as quoted in Law360).
Another firm featured in Law360’s article was Kansas City-based Polsinelli, which also brought on 47 lateral partners in 2018. Polsinelli chairman and CEO Chase Simmons attributes its lateral growth to the firm’s 10-year focus on growing its bench in certain core practice areas, namely, real estate, financial services, mid-market corporate work, intellectual property and health care, as well as adjacent litigation and labor and employment matters. “We’re looking for people that fit culturally. If we see an opportunity that’s off-strategy, we’ll consider it,” notes Simmons. “We’re large enough as a firm that we can always be considering a few things that are maybe not right down the middle of what we’ve done in the past, but we know that that’s a different process,” (as quoted in Law360).
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The American Lawyer reports on several key trends for midsize law firms heading into 2019, according to a recent article featured in Am Law’s latest Mid-Market Report. In the article written by Alan Tarter, he provides his thoughts on industry trends affecting mid-size law firms in the coming year based on his many years of experience as a managing partner and practicing lawyer. These trends include a heightened focus on cybersecurity, continued lateral acquisitions, cost-effective specialization, providing innovative programming to all team members, and greater collaboration between large and small firms.
According to the article, Tarter notes that midsize law firms, like their brethren at large firms, will continue to put an increased focus on mitigation of cyber risk through enhanced security, protocols and more sophisticated risk management. We will see greater use of outside risk management consultants working directly with mid- size firms to address new risks and gaps on coverages. In addition, competition for the best candidates has increased, so midsize firms will need to be even more creative in their offerings. Midsize firms will need to better exploit their value propositions to clients in order to attract laterals from larger firms, Tarter adds.
Tarter notes that an added value proposition of full-service, midsize firms is that they are able to fill in the gaps in the specialized legal needs of both larger firms and smaller firms. According to Tarter, larger clients will continue to gravitate to midsize firms for certain types of work. “Midsize firms are in a unique position to provide more cost-effective, efficient services in matters not requiring large firm infrastructures. For example, midsize firms may be in a better position to provide more cost- effective services in specialized areas such as construction law, office space leasing or IP prosecution where larger teams and multiple offices are typically not necessary. In-house clients are becoming aware of the advantages of using midsize law firms for legal work like this,” explains Tarter.
Tarter adds that midsize firms have a unique opportunity to lead the industry in developing innovative programming to enhance the professional development of employees. These types of programs will help midsize firms stand out from their competitors, and will aid in attracting and retaining employees. These programs should place a greater emphasis on the longer-term professional development of attorneys and other team members. With the goal of providing the most value-driven services to clients, firms of all sizes are also realizing the benefits of partnering with each other, Tarter notes. You will see greater collaboration between large firms and midsize firms in working on projects together where they can each do what they do best and provide better service to clients, (as quoted in The American Lawyer).
See highlights from the full article on The American Lawyer.
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