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The American Lawyer: The Goldilocks Solution to Law Firm Growth: Large Group Liftouts Prove ‘Just Right’

Justin Henry, Reporter | June 17, 2024 at 05:00 AM


Group hires are having a moment, as one-off laterals often fail to attract clients while whole-firm acquisitions carry significant risks.


What You Need to Know

  • Since the beginning of the month, at least five Am Law 200 firms have hired significant lateral groups.

  • Recruiters say merging and one-off lateral hires each come with risks and there are many appeals to hiring a group with an existing practice.

  • Group hires, because they tend to be followed by a network of clients, can have a financially destabilizing impact on the departed firm, as seen at Stroock & Stroock & Lavan and Burns & Levinson.


Between lateral partner hiring and whole-firm acquisitions, law firms have limited options for growth. Both levers present downsides: one-off laterals may fail to pull clients out of their previous firm while acquisitions may come with financial baggage and underperforming practices.


The middle ground of group lateral hires have become a normalized feature of the lateral hiring market, according to recruiters and partners actively involved in them.


In a single day this week, Law.com covered three separate group moves consisting of at least 11 lawyers: Latham & Watkins lost 11 restructuring lawyers to Willkie Farr & Gallagher’s new office in Munich, Germany; Burns & Levinson lost 13 IP lawyers to ArentFox Schiff’s Boston office; and Bryan Cave Leighton Paisner lost 12 financial services investigations lawyers to Norton Rose Fulbright.

                                          

Earlier in June, 11 private credit partners relocated from King & Spalding to Paul Hastings, and a five-lawyer group moved from Goodwin Procter to Allen Matkins.


Jennifer Henderson, a partner and founder of California recruiting firm Hatch Henderson Fivel, said the rising tide of group hires is tied to the “dramatic” economic success realized by firms in the transactions-happy environment of 2019 to 2022.


“Firms wanted to acquire high-performing practices and were flush enough to make strategic investments to take advantage of the activity,” Henderson said. “We are still seeing the effects of that.”


While lateral partners inevitably bring the risk of cultural misalignment and failed client transitions, a group can bring an established, stable practice in the eyes of firm leaders. Clients are more likely to follow a partner to a new firm if that partner is bringing a team of familiar junior partners, associates and staff with them.


“If they can tell the client we’re moving together and you’re going to get a better platform and you’re still going to have us as your go-to’s, that can be really powerful from a client perspective,” said California-based partner recruiter Divya Bala, founder of Avance Partner Search. “It ensures the client portability piece…From a client point of view, it’s a no-brainer because this is the same group I’ve always had and I don’t need to look elsewhere.”


For that reason, Jon Truster, a partner at Macrae, said many firms prefer a group move.


“If there’s an entire M&A group out of a firm, the clients are more likely to move with them,” he said. “For the reason that clients are more likely to follow en masse, a lot of firms prefer group lateral moves.”


How Portable Groups Form


The high volume of group hires this year is notable given how many stars must align to make them viable: a portable group has to coalesce, and a firm must have the resources to acquire them. Partners have different career trajectories and in spite the upsides of a lateral group, “truly elite” firms generally continue to prefer single lateral partners, said headhunter Dan Hatch, a Hatch Henderson Fivel partner.


“Partners are not interchangeable and all have unique career variables and inclinations,” he said. Yet “at virtually every meeting we attend, the firm asks for groups over individuals,” Hatch said.


Another factor causing lawyers to coalesce into a portable group are the career opportunities for a junior lawyer when presented with an opportunity to join a mentor at another firm, Bala said.


“Firms have historically been built on mentorship,” she said. “If you’re a more junior person…it’s more likely the people you’re following are mentors and your greatest champions. It’s increasingly hard to become a partner. Associates who can hang on and become business generators, that’s a key piece.”


No wonder then why the most successful group moves are close-knit hierarchies. Hatch said there is often one lead partner in the group who is the primary decision-maker who serves as the group’s primary point of engagement with the firm.


“The more democratic the decision making is among various partners, the harder it is to move forward,” he said.


But not every lateral group that appears in the press is a cohesive unit.

“We didn’t market ourselves as a group,” said Dean Pappas, who left Goodwin Procter with four colleagues and now co-leads Allen Matkins’ real estate joint ventures and equity investments group.


Pappas said he and partner Jennifer Sung sought a major real estate firm with a robust California presence, and their colleagues ended up joining the same firm because of mentor relationships.


“The group who came with me is very tightly knit,” Pappas said, noting he hired Sung out of law school and has mentored her ever since. “People follow people if you spend time with people and you mentor them.”


Pappas continued: “I always tell law school students that the most important thing isn’t the firm you go to but the relationships you form. If you form mentorships naturally, that’s where you should go. I still believe law firms are a mentorship model and you find someone who is willing to invest in you and train you, that’s the best model without a doubt.”


High Stakes in Lateral Hiring


Group exits can have a destabilizing effect on firms. Look no further than the precarious positions Stroock & Stroock & Lavan and, more immediately, Boston’s Burns & Levinson found themselves in following mass departures.


After the latter lost roughly half its attorney headcount this year due to exits to Blank Rome and ArentFox Schiff, managing partner Paul Mastrocola said this week the firm is now exploring merger options.


But recruiters say firm leaders sometimes decide to let go of a group that doesn’t fit into the firm’s overall economics.


“It’s possible that a firm has made a strategic decision that they’re not interested in a certain practice area or they’re concerned about rates,” Truster said. “It’s possible there are conversations between the firm and the group where the firm says, ‘I love you but this isn’t working out anymore.’”


In April, Baker McKenzie gained almost the entire corporate department, 17 lawyers in all, from Los Angeles-based firm Munger Tolles & Olson. While solidifying Munger as a litigation-focused firm, the move exemplified the pressures to meet clients’ expanding needs, according to the laterals the recruiter who brokered the move.


“In the case of Munger, they are a premier litigation shop and they always will be,” Bala said. “It’s a challenging market when you’re competing against these full-service firms from a compensation standpoint where it might not be possible for a midsize firm. The demand for talent is just getting increasingly more difficult.”

Bala said the lateral hiring market is more competitive now than years ago when boutique firms with regional prominence could count on a stable partnership for the long-term.


“Now that firms at the top of the Am Law [ranking] have global, full-service offerings and have compensation scales and strategies sorted out, they have more of a chance of obtaining group talent,” she said.


Read the original article here.

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