Mid Market Report: Pandemic Slows Lateral Hiring as Firms Look for Guaranteed Winners
The COVID-19 crisis has cast a pall over the lateral market, but “unicorn” partners and groups in hot practices are still forcing firms into competition.
By David Thomas
Lateral partner moves between law firms have hit the skids, as most pre-COVID-19 deals have now run their course and both firms and partners are grappling with economic uncertainty and logistical barriers.
Still, opportunistic firms are looking to lure top prospects, and some partners are receptive.
Bringing on a lateral partner is a time-consuming and expensive prospect on its own, but because the pandemic has left a portion of the legal industry scrambling for cash, law firms are currently looking for proven winners—individual lawyers or groups that have high profiles or are known rainmakers, according to several legal recruiters.
“Firms are calling us just like they have previously, but firms have always expressed a preference for groups. Now I’m hearing only groups,” said Lauren Drake, a partner at Mlegal Group. Drake said the number of deals her group is working on is down by a third, but the dollar value of the deals has stayed the same because they’re working on eight group deals involving five or more lawyers.
Groups are preferred, Drake said, because they can generate revenue on their own without a lot of investment from the firm. Some firms might be running low on cash, so they don’t want to make an investment in a lateral partner.
“It doesn’t necessarily signal the firm is in crisis, but they’re dealing with a lot of uncertainty about what their client activity is going to look like,” Drake said.
Some firms have told Keith Wetmore, the managing director of Major, Lindsey & Africa’s San Francisco office, that they’re “out of the lateral partner market until they know what the bottom looks like.” Other firms are slow-walking the process intentionally, he added.
“Other firms put on a good face and say, ‘Oh yeah, we’re definitely in the market.’ And then you submit a candidate they would have drooled over a year ago, four months ago, and they will pass on them,” Wetmore said. “When you scratch the surface, you find out the only thing firms are interested are what I call ‘the COVID unicorn.’”
The COVID unicorn, as Wetmore puts it, is a partner with a practice in either bankruptcy and restructuring or in health care. Law firms are also interested in partners with experience in private equity and data privacy, said Sabina Lippman, a partner and co-founder of Lippman Jungers.
To be sure, lateral partner activity hasn’t utterly halted in any practice area. This week, the co-chair of Williams & Connolly’s patent litigation practice departed for Quinn Emanuel Urquhart & Sullivan, and Sidley Austin poached a 23-year Cooley veteran for its emerging companies practice, among other moves. Recruiters like Dan Scott, the director of the legal practice group at Angott Search Group, said if partners have an attractive practice, “someone is getting off the pot” and hiring them.
“The marginal people, we’re not being told those deals are dead. We’re being told: ‘Wait,’” Scott said.
But lateral partner activity has certainly slowed down during the pandemic. ALM’s Legal Compass, which tracks lateral moves, has shown a sharp drop in moves from Jan. 1 to Memorial Day 2020 when compared to the same time period last year. Alisa Levin, a New York-based recruiter at Greene-Levin-Snyder, said “nothing got started for the first month” when law firms were pivoting toward remote operations.
Meanwhile, publicity surrounding the steps many firms have taken recently to shore up their finances has lateral partners asking a lot more questions about the health of their suitors, Drake and Lippman both noted separately.
“People are paying a lot of attention to what firms are doing in terms of layoffs and pay cuts,” Lippman said. These partners want to know if these measures—such as staff furloughs or reduced partner draws—are temporary, she added.
“Will they change it immediately, or is it a sign of a larger problem?” Lippman said. Drake noted that lateral partners her recruiting firm has placed are going to law firms that have enacted pay cuts and furloughs.
Despite the current environment, a number of recruiters believe the lateral market will improve as the economy improves and law firms have a better understanding of how they’ll perform financially this year. Partners who are reticent about entering the lateral market right now can use this time to shore up their business plan, Wetmore suggested.
Some recruiters, whose livelihoods depend on a robust lateral market, were even more bullish. Levin said interest is already picking up “substantially,” saying the disruption she saw was just a “pause” from firms focusing on moving to virtual operations. Lippman said more of her clients have asked her to resume the lateral partner deals and searches they were pursuing. Scott said he anticipates having a normal year, business-wise.
“When we do go back, the economy is going to roar,” Scott said.
Christine Simmons contributed to this report.
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