It’s hardly news when law firms merge, dissolve, or announce office openings or closings. So too has it become routine when big-name partners lateral from one large firm to another or take the boutique route. But it is noteworthy when waves of partners exit a firm with a profit-per-partner (PPP) just north of $3.5 million.
That firm is Kirkland & Ellis. And it’s worth questioning whether the defections have broader implications for the traditional partnership model.
What’s Happening at Kirkland & Ellis?
There has been a spate of recent articles chronicling the defections at Kirkland. The usual explanation for lateral movement is money – partners lateral to firms with higher PPP. But that does not appear to be the case with Kirkland. The American Lawyer reported the firm’s revenue increased 6.6 percent and PPP jumped 7.0 percent, inching a Rolex above $3.5 million. That’s no sinking ship.
So why are partners leaving and what is the firm doing to stanch the bleeding?
Let’s start with efforts to control the bleeding. Kirkland is revising its notice requirements for departing partners. Non-equity partners, for whom there had been no requirement (one indication of how the firm valued their service), must now give 30-day notice. Equity partner notice has been upped from 60 to 120 days. Presumably, this affords the firm “spin” time as well as a window to reload with laterals. But is this simply kicking a bigger can of worms down the road?
BigLaw is in a Darwinian struggle where the rich get richer and everybody else gets bigger, disappears, or — maybe soon — both. The AmLaw 200 is no longer a relevant benchmark; there are about 50 or so firms that are head and shoulders above the others financially. And PPP is king in this market. Is it any wonder, then, that PPP continues to rise even if the means to achieve it is undermining longer-term sustainability?
PPP is no longer the same carrot at the end of equity partners’ long stick dangled before young lawyers. It’s a statistical long shot for any lawyer to win the partnership lottery, and its also unlikely that the next generation will wait their turn to achieve it. The partnership model had a long run, but it is no longer built to last.
Which takes us back to Kirkland. What about client optics as well as continuity of matter staffing in light of the departures? Neither issue is especially pressing since equity partners do not become laterals unless they have confidence clients will move with them. The portability of a business book – and conflicts – is central to a lawyer’s election to bolt. Likewise, these factors are central to a transferee firm’s due diligence.
And this brings up another point: When it comes to premium legal work, client selection usually hinges on a lead lawyer possessing requisite expertise and track record. The firm brand is of little moment since client loyalty – and the term is used guardedly – resides with the go-to lawyer, not the firm. There would be no lateral frenzy were this not the case. Doubt this? Consider the case of David Boies leaving Cravath (a brand-differentiated firm) about twenty years ago. Mr. Boies brought a slew of Cravath “firm clients” over to his fledgling boutique.
And the lateral phenomenon is a moveable feast. A recent ten-year study of laterals in the London market by Motive Legal Consulting found that a third of lateral partners had departed their new firms eight years later. This is further evidence that most law firm brands are undifferentiated. And if you doubt this, take a look at the websites of a dozen or so AmLaw 100 firms and explain how they differ.
Law firms are as strong as their ability to retain rainmakers and to attract new ones. As my friend Jeff Carr, former GC of a Fortune 500 legal department told me recently, “Law firms provide infrastructure and space.” Translation: there’s not much behind a firm brand, especially when partners are so peripatetic.
But what should one expect in this free agency era? Law firms now resemble sports franchises whose rosters change regularly. The partnership model’s focus on PPP is a short-term play in part because equity means a share of annual profits. And with no financial incentive to take the long view — especially among older partners — the “take it while you can” philosophy undermines the firm’s future. This is a key reason younger partners who “get it” are leaving large firms as never before to set up boutiques, go in-house, or pursue other options.
This is undoubtedly the last generation for whom the traditional partnership model is the standard.
You Reap What You Sow
Kirkland has prospered in no small measure by emphasizing high-revenue generating laterals. The American Lawyer reported that one such prized Kirkland lateral, Stephen Lucas, was offered $8 million a year to leave Weil. And it turns out that even with Kirkland’s $3.51 million PPP, the Lucas deal was just too much for several Kirkland partners to stomach. But turnabout is fair play, so who knows whether some of the biggest hitters among Kirkland’s disgruntled defectors may themselves command substantial bonuses, multi-year guarantees, and other perks from their new firms. Where does it end?
It’s free agency, all right. And there’s a bit of hubris, too. Lost in this is mention of what’s best for the departing rainmakers’ clients, partners, and colleagues. Is this what BigLaw has become?
If this is beginning to sound like the last days of Rome, it does to me, too.
Most large firms – and there are a few salient exceptions – are hollow brands with interchangeable parts. Yes, they boast well-credentialed and skilled lawyers. But they are, for the most part, a collection of individuals with little institutional loyalty for institutions that, equally, offer them no loyalty.
Top lawyers will always command a premium. But is the additional surcharge for their firm necessary? That will be a rhetorical question when scalable alternatives appear.
This post was originally published on Bloomberg Big Law.