Issues In Partner Recruiting: Digging Deeper

This is an article we published in 2009, at the bottom of the last hiring market for attorneys. It seems apropos to update it now as some of the market dynamics are present during this time of economic duress during the Covid-19 crisis. As a historical note, 2009 turned out to be an outstanding year from the lateral partner recruitment perspective, and associate recruitment also returned with a vengeance in China as the Chinese government flooded the markets with liquidity. Today, we have the Federal Reserve and Congress quickly flooding the markets in the US with liquidity, so this may be an altogether different ride.

Partner recruiting season is never closed, and there’s normally no restriction on hiring capacity. [Back in 2009, we said there was “no season and no bag limit” in partner recruiting, but it occurs to us that this might be too folksy for these times.] Nevertheless, as new partner allocations (whether they be called shares, sharing ratios, points, or just cold hard currency) get set to be announced over the coming months, this is the time of year that many ultimately fruitful and plenty of fruitless discussions between law firms and potential lateral partners begin. The meat of these discussions varies little, whether in Asia, the United States, or Europe. Unfortunately, many of the partners who are looking at their options could be saved a lot of time for themselves and the firms that they are considering with some introspection. Particularly in this über-cautious economic environment, prospects for marginal players are slim. With this in mind, since many of our readers are partners and some of our associate readers ultimately will be partners, it seems that now is a particularly useful time to discuss what makes a partner a viable lateral candidate.

Every firm asks for some of the same data points which give them information about the financial picture of a lawyer’s practice. All of the relevant, basic economic factors can be determined using three critical pieces of information:  personal billable hours for each team member, working attorney collections for each, and billing and/or originating attorney collections for the partners. From these pieces of information, one can derive hourly rate, revenue per lawyer, and most other relevant raw data. But each situation is different and distilling the data to these simple figures is rarely enough. One example (not necessarily from Asia, but very possibly…) may illustrate the point. 

The candidate team was from an international law firm. The lead partner came to us with a sizable book of business and a loyal team. He was around 50 years in age. His skill set, the size of the business, his ability to move it to several of our client firms, and his well-constructed team all looked promising because it folded well into the business plan of a couple of our client firms, at least tangentially. 

The lead partner was billing and collecting about 2,000 hours per year and his team was nearer 2,300 hours a year. All this work was driving a sizable amount of business and the collections were strong in part because of a large governmental client. However, the group was cutting fee deals, such that the lead partner’s effective billable rate was $350 per hour on a rack rate of $675 per hour [Note: 11 years later, in 2020, these rates would not get a sniff at any firm in the Amlaw 100]. The effective billable rates of the team were also low. On behalf of our clients, we did a five year history on the billings and collections and we saw that the effective billable rate had dropped each year for the last five years, showing that the partner was losing pricing power in the market and competing for work more often on a commodity basis. The large governmental client was bidding out the work and driving rates downward as a result. 

Without having revealed their identities, we were able to determine that our international firm clients who might have been fits would take a pass on this group. We saved them the trouble of getting their names out into the market with many firms that would not have initiated discussions, and we ultimately placed the group at a firm that was much more suitable to their set of skills and practice structure. Naturally, the international firms we work with were not interested in a practice based on high hours and low billable rates with a trend line indicating that the practice was going to come under more pricing pressure in the future. The money collected was decent, even moderately appealing, but the view of the firms that were possible fits (not shared by all firms, I recognize) is that 2,300 billable hours from associates is not sustainable every year. And because this was a lateral move, the partners naturally wanted a raise. But at international firms, the partner’s pay expectations were not in line with what the practice was currently generating and where the trend line was pointing. 

It was clear in the end that the group in question had been “bought” by their existing firm without that firm having done enough work on what the trend might be in the practice. The pressure to have a foothold in a new market had been overpowering, and not enough diligence had been done. With the pressured rates and poor trend line on income, and the expectation by the group members of a steady increase in their own income each year, the business was looking worse and worse as the years went by. In retrospect, the likely catalyst for our discussions with the group was recognition by the group’s current firm that some painful changes needed to be made in order to prevent dilution of the overall profitability of the firm by this poorly performing group. 

I hope this example provides some insight into the thinking of some of our smarter clients and a window into some of the analysis you may need to do of your own practice before taking a step to discussing a move with a potential employer. Since the lows of 2009, we have had a decade of unparalleled law firm growth and many of our lateral partner candidates benefited with multi-year guarantees and tremendous compensation increases as a result of their timely moves in the marketplace. But in today’s marketplace, law firms are much more sophisticated in their economic analysis of lateral candidates and the components of their practice. Recognizing these foundational components within your own practice can ensure that the process of lateraling is as efficient as possible. In our representation, we also seek to drive efficiency, which largely results in saving you and our clients precious time.  

Please feel free to email us (asia at kinneyrecruiting.com hits our whole Asia team, or you can write to me at robert at kinneyrecruiting.com) or call so we can talk about some other examples of issues that arise in evaluating partners’ practices and, if appropriate, assist you confidentially with your evaluation of a practice (yours or someone else’s). If history shows us the way forward, now is the time to be evaluating your relative position within this quickly changing marketplace.