During my firm’s annual review meeting to discuss a tumultuous 2020, luckily, my phone rang. It was a law firm partner curious about the state of the lateral partner market.
Her questions were good:
• What did firms (and recruiters) do in 2020 on the recruiting front?
• Were partners reticent to consider change during the pandemic?
• How have changes in the virtual process affected recruiting?
• Did positive industry results impact recruiting later in the year?
• What should we expect in 2021?
Given that early 2021 still carries many of the world’s 2020 pandemic-related challenges, the timing of the call wasn’t surprising. We’re far from a return to normal, but we did learn, adjust and adapt. And we have some analysis and answers that may help put the lateral market then and now into context.
Partner recruiting in 2020: What happened?
Short answer: Bear market.
Overall, partner moves were down. Media reports indicate an approximate 30% drop in moves nationwide. My home base of Los Angeles was no exception. In preparation for December’s Sandpiper Southern California Market Conference, my firm looked at the previous 12 months of partner moves involving Am Law 200 firms. In 2020, we noted 120 partner moves in LA compared with 176 during the same period in 2019, an approximate 32% decline.
The year started robustly, then came to a standstill in mid-March, akin to a “halt in trading.” There were still deals finishing up, including some big ones (e.g., an 11-partner group from Boies Schiller to King & Spalding in LA), but overall, 2020 was a reduced-volume year.
What did firms say about need for growth?
Short answer: Moving target.
Firms addressed the need for lateral partners in a variety of ways. Some expressed zero interest in laterals unless a firm could bring in an especially lucrative practice without much effort. Others, however, were working with hot practices and were eager to continue growing. Think practices such as tech, life sciences, insurance, finance and restructuring.
Were partners reticent to consider change in 2020?
Short answer: Yes, for the risk-averse.
Changing partnerships is a big decision. When there is industrywide (and geopolitical) stress and uncertainty, partners tend not to move toward more perceived risk. We saw similar patterns during the Great Recession.
Even though the risk of moving is often substantially lower than the career risk of staying at the wrong firm, many partners hunkered down in this storm.
Those who took the plunge were successful partners who chose not to ignore the speed bumps that were slowing down their career trajectories and recognize opportunities can arise unexpectedly in times of tumult.
Have partners and firms adapted to virtual recruiting?
Short answer: For the most part.
The second quarter of 2020 saw a dramatic shift in routines, with lawyers getting comfortable working in a remote environment using technology in ways they previously weren’t accustomed to. The shift was born of necessity, yet it was a pleasant surprise to see how quickly firms adapted to this new virtual workplace.
Our early concern was whether partners would make a move based entirely on video meetings because building sufficient trust had often occurred in prior years through in-person meetings.
This remains a challenge. That said, for highly motivated partners talking with seriously motivated firms, virtual recruiting works extremely well.
This is because scheduling difficult (and confidential) meetings is substantially more efficient, with the out-of-town trips (the toughest to arrange) having vanished altogether.
There was a shortening of the process timeline. This is a positive development since completing necessary interviews can take quite a while, with the “time kills all deals” syndrome often preventing otherwise valuable combinations.
But there is still something acutely personal about partner moves. There are recruiting situations, especially those involving successful but recalcitrant partners, where personal meetings confer a significant recruiting advantage.
For example, in a deal last year, interviews conducted via video were completed, and neither the partner nor the firm was sure enough to make a decision. To give the deal a chance, the firm’s managing partner decided to suggest all safety measures be taken for an in-person meeting involving travel across state lines. The in-person meeting was arranged, and afterward, both sides reached an agreement. According to the managing partner and the moving partner, there would be no deal without that meeting.
Do positive financial outcomes affect firm recruiting outlooks?
Short answer: Absolutely.
According to the 2021 Citi Hildebrandt Client Advisory, law firm revenue and profitability for 2020 are expected to show growth in mid-to-high single digits. The fact that firms were profitable when they initially braced for dramatic losses is prompting an upswing in recruiting. Whether a firm experienced significant success or simply reversed downward trends, most firms are showing confidence going forward.
What does 2021 have in store for partner recruiting?
Short answer: Bull market.
Before looking ahead, it’s useful to look back at 2010-2011 after the Great Recession. Despite dire economic data in 2010, the lateral partner market rebounded in 2011. It’s not an apples-to-apples scenario since 2020 turned out mostly sound, looking solely at law firm financial performance.
But there are similarities: 1) global recession; 2) a change in demand; 3) a cataclysmic event forcing all firms to create aggressive contingency plans; and 4) gradually improving visibility happening faster than anticipated.
Having recruited in 2010-11 and doing it now, we see some of the same pent-up demand to implement strategic growth strategies and pent-up restlessness in the candidate pool. The shift we saw in management’s focus toward recruiting during the final quarter of 2020 seems destined to continue.
This is especially true for hot practice areas: privacy/data breach, commercial litigation, insurance coverage, labor and employment, finance, M&A (in select industries), capital markets, white-collar, bankruptcy/restructuring, along with practices in robust industry verticals like technology and life sciences.
Some practices have declined in activity because of the pandemic but are still of interest to firms that see advantages in growing overlooked areas. Trends are cyclical, and partner hiring, if done right, effectuates longer-term strategies.
Before we get too excited, there are two caveats. First, if there is another surge in COVID-19 cases, a firm’s ability to achieve significant recruiting advantages from in-person meetings could be delayed. Second, despite our observations and data from the previous recession, this pandemic is novel and people often defy predictability.
The two issues that seem most relevant to lateral partner hiring in 2021 will be firm demand (which seems solid) and the impact of virtual processes going forward.
Regarding process, an entirely virtual environment presents some relationship-building challenges while also conferring significant logistical advantages in scheduling. Although optimistic about video recruiting, we believe top firms will further acknowledge the need for creative and safe approaches to supplement virtual interviews.
Regardless of the environmental issues, the fact remains that today’s law firm partners appreciate mobility and manage their careers more proactively than partners did in previous decades. We continue to hear firms tell us that strategic growth through lateral partner hiring has become more imperative than ever before. We expect a significant increase in activity in 2021.