Highlighting one way the strained legal market is affecting elite law firms, a report released Wednesday by Citi Private Bank and Hildebrandt Consulting cited the battle for lateral hires as an increasingly significant factor to all firms’ success in 2016.
“There was a time when lateral hiring rarely touched firms at the top,” said Brad Hildebrandt, one of the report’s four principle authors, “but that’s no longer true.”
Today, virtually every firm is hiring laterals or risks losing key partners, according to Hildebrant. In a slow-growing market, the need to generate new sources of income has set off a scramble for high-profile lateral hires, and single lawyers, sometimes whole practice groups, are moving much more often, he explained. Increasingly, lateral moves are less about serving clients and more about what Hildebrant called a “need to chase revenue.”
He added, “Today, most moves are made to increase or diversify business, because revenue growth is slow.”
In one example of an elite law firm engaging in lateral activity, Kirkland & Ellis acquired a handful of attorneys in the past year, recruiting from Skadden Arps Slate Meagher & Flom, Weil Gotshal & Manges and Simpson Thacher & Bartlett.
Sidley Austin, too, has hired from up-market firms such as Simpson Thacher and Weil Gotshal.
The survey has been published since the early 2000s, and this year the report is based on data collected by Citi and Thomson Reuters Peer Monitor, as well as conversations with law firm leaders. Hildebrandt has been collaborating with Citi on the report since 2009.
This year’s report also forecast continued volatility, increased inequality between law firms, and modest revenue growth industry-wide.
John Wilmouth, a banker with Citi and another of the report’s authors, said the modest revenue growth only looks bad against the growth experienced in the early 2000’s.
“We’re so used to looking at the industry in comparison to the 2001 to 2007 boom years,” Wilmouth said. “In hindsight, those years were aberrational. In the years running up to 2001, single digit growth has really been the norm.”
“We’ve got a very positive outlook on the industry,” added Gretta Rusanow, Head of Advisory Services for Citi’s Law Firm group. “There’s growth to be had.”
If the report has a theme, it’s adaptability: on the title page, the authors included a quote on Charles Darwin’s Origin of Species.
“Our experience [is] that law firm leaders get it,” Rusanow said. “The boom years were to some degree aberrational. There’s a broader understanding that, in order to remain competitive, law firms have to become better business developers than they have been.”
That evolution also includes re-thinking how to keep key partners out of a lateral market that Hildebrandt said is “hotter than it’s ever been.”
The report advised: “Having a solid culture helps reduce the risk [of losing laterals], but so does communicating with these partners frequently and managing [profit per equity partner] expectations, especially if the firm is experiencing volatility.”