There is no question that the current economic landscape is directly affecting how law firms do business. Among other things, the recent turmoil in the economy is causing firms to take a hard look at what they are (and what they want to be), and to make tough decisions about their strategic path and overall platform. Because individual partners within those law firms are equally affected, perhaps more so, many are taking stock and examining whether they are in the right environment for their practice. Indeed, a downturn in the economy usually prompts more partners to consider making a change, because that is exactly when being in the wrong environment becomes even more apparent (and painful). Partners must continuously monitor the situation within their law firm, their practice and the market as a whole to make sure they have the best platform for the growth of their business and can best serve the interests of their clients. This article identifies 13 situations in which partners may find themselves – situations signalling that it may be time to move on.
Partners leave their current law firms for more reasons than you could ever imagine. One partner with a solid book of business continually felt pressure by her firm to increase billing rates, which she knew her clients would not support. When she found a firm with more rate flexibility and gave notice that she planned to leave, she was asked: “Why don’t you just get rid of your current clients and bring in some higher-rate clients?”
The partner in question stood firm, and is now happily situated at her new firm, continuing to represent her longstanding and loyal clients, and feeling a lot more valued (both emotionally and financially). Moreover, she has greater control over her rates and her practice is booming.
This is just one scenario that may make partners rethink a position at their current firm. In spite of the sagging economy, the law firm lateral partner market remains robust, particularly for partners with portable business.
But why would any partner who appears to be successful want to change his or her situation? What is it that pushes – or pulls – a partner to another firm? Almost universally, the answer is to find a better platform to retain existing clients and attract new ones.
As revealed in Major, Lindsey & Africa’s ‘Lateral Partner Satisfaction Survey’1, the most critical factor for partners is the ability to support and expand their practice. As noted in the survey, “platform now outweighs platitudes, as partners feel pressure to keep their clients happy and well served”.
If you are a partner at a law firm, the quest for a better platform can mean a variety of things. The ‘right’ platform depends on you and your practice, and the tools and resources you need to thrive. It also depends on the internal and external factors that are most important in helping you service existing clients, develop new business and keep yourself (and, ideally, others) busy on a long-term basis.
I have observed numerous situations in which partners feel they are not in the ideal environment for their practice. I have also witnessed many examples of partners’ practices thriving (and, in some cases, expanding exponentially) once they gain market perspective, find the right platform, and then make the decision to leave.
Law firms today are fluid, dynamic places, with major changes afoot on an almost daily basis. This is evidenced by, among other things, frequent partner moves from one firm to another. Consolidation in the marketplace and the prevalence of law firm mergers are other important aspects of this trend.
In today’s law firm, developing a stable of successful, loyal clients, who will reward you with repeat business, is the best way for a partner to be truly secure, autonomous, well-paid and – if deciding to change firms – marketable. It is sometimes difficult to predict how your practice might play out at a different law firm given all the complex factors and variables that could have an impact. But it is essential to think critically about these issues on a regular basis.
How do you set about assessing your current environment, determining whether another firm might offer a better platform, and identifying which firms in fact do? No two firms are exactly alike. In fact, they can differ radically in terms of culture; size; structure; geographic footprint; management style; revenues (overall and per lawyer); profitability; compensation systems; billing rates; leverage (ratio of partners to associates); and strategic goals. Because of these differences, the question of ‘platform’ is very much in the eye of the beholder. What works for one partner may spell disaster for another, so the analysis requires a good deal of reflection, honesty, proactive thought and due diligence.
The following are examples of platform-related issues that often lead partner-level candidates to consider making a change:
Conflict between a partner’s practice and the firm’s strategic plan
Many firms have fairly aggressive strategic plans, often forcing them to make tough decisions. For example, a firm might decide to eliminate lower-rate or smaller, niche practices to increase overall profitability. This, in turn, probably means de-equitizing (and/or firing) partners – many of whom are highly skilled and productive – whose practices no longer make strategic sense for the firm. Partners who are paying attention and are able to anticipate this situation can be more proactive in their search, and are generally much better off than partners who receive the figurative ‘pink slip’. Some firms give partners a fair amount of time to find a new home, but being able to control the timing of a move is a huge advantage in landing the right long-term position (not to mention a lot less stressful).
Insufficient practice synergies or cross-selling opportunities
Partners who are able to generate business outside of their practice area (to be handled by other attorneys at the firm), and/or who can bring their expertise to matters for other partners’ clients, have a great platform for cross-selling. Where these opportunities don’t exist (or where the firm’s incentive structure is an impediment), partners may decide to find an environment where they can capitalize on such opportunities. Similarly, the existence or lack of complementary practices can make or break a partner’s practice. A tax partner who specializes in handling the tax aspects of large M&A deals, for example, may suddenly find herself in the wrong platform if the M&A practice leaves the firm without inviting her along. Indeed, there may be no choice but to find a different firm where her expertise is needed.
Misaligned incentive structures
Insufficient synergies or cross-selling opportunities are often tied to a firm’s incentive structure and how credit is (or isn’t) shared. An ‘eat what you kill’ or ‘one touch’ compensation system, which heavily rewards partners for originating new clients or matters, but does not encourage or offer credit for sharing, won’t be as conducive to a practice that needs (or provides) specialized support. In this type of system, partners often have little or no incentive to assist each other or ‘cross-sell’ their services to existing or prospective clients. This type of structure is more likely to create silo practices, where clients are less ‘institutionalized’, and generally more portable because of limited contact with other partners.
On the other hand, firms whose structures reward ‘good citizenship’ in the form of service to other attorneys (including billing time to other attorneys’ matters) and other contributions (management, administrative, recruitment, etc.) are considered fairer to some, but not to others. Firms’ top rainmakers – although generally reliant on the service of other attorneys – often feel they are subsidizing attorneys who are not generating their own business. This platform-related issue is one that can easily cut both ways depending on a variety of issues, including the nature and size of your practice, your clientele, your firm’s compensation structure, the leverage within your practice, and whether you tend to be the ‘giver’ or ‘receiver’ of work.
Lack of sufficient support, resources or ‘voice’ in the firm
One partner reported that she felt like a second-class citizen at her firm because her colleagues did not understand, appreciate or value her practice. As a result, she was unwilling to devote resources to building the practice long term. Although her personal relationships were strong, she felt very limited in terms of what she could accomplish, leading her to explore other firms with a clear commitment to her practice area.
Ongoing pressure to increase billing rates
Some partners, particularly at large firms, are feeling the squeeze, and are losing existing and prospective clients who are unwilling to pay the current firm’s ever-increasing rates. These partners are eager for an environment offering more rate flexibility – and which allows them to retain existing clients, attract new ones, and (ideally) receive referrals from their former colleagues.
Billing rates that are too low
Some partners are underpriced, and hope to use a move as a catalyst to increase rates. As an example, healthcare is a practice where rates can vary widely, depending on the nature of the practice and clientele. A firm upgrade can be one way to adjust a partner’s rates.
Legal, business or strategic conflicts
We have also seen many partners leave their firms due to conflicts (often the result of a merger or large group acquisition). Legal, business and strategic conflicts abound at law firms today and are the driving force behind many lateral partner moves.
As an example, insurance coverage attorneys that represent policyholders generally don’t fare well at firms with a long history of representing insurance companies, or which have not yet drawn a clear line as to which side they prefer to be on. These partners often feel they have no choice but to seek out a new firm that has unequivocally ‘picked a side’. A firm’s representation of brand-name pharmaceuticals (vs generics) is another such conflict that can severely limit a partner’s ability to generate business.
Need for more flexible billing structures
Although traditional hourly billing remains the norm, some partners have practices that are more conducive to contingency, blended or project-based fees. Certain firms are more flexible in this regard than others. Likewise, some firms are more likely to reward partners who take an entrepreneurial, or less conventional, approach to their practice.
Need to be on an ‘approved list’ for certain clients
Many large clients (such as insurance companies) retain a panel, or approved provider list, for hiring outside counsel. This list may contain as few as three or four law firms, so the competition is fierce. When partners in certain practice areas have difficulty getting their current firm on a major prospective client’s shortlist, they can improve their platform by moving to a firm that is already on that ‘approved list’.
On the flip side, partners should think long and hard about moving to a firm that is unlikely to be (or get) on an approved list. The firm a partner moves to is often critical to the portability question, as clients want to feel confident the new firm offers better (or, at the very least, the same) support, resources, work quality and rates.
The current firm’s reputation or image
In certain practice areas, a firm’s reputation, brand name and image can matter quite a bit. If you are a bankruptcy attorney with expertise in representing large corporate debtors in high-end bankruptcy matters, your ability to attract these clients will increase substantially if you are at a firm with a strong reputation in the bankruptcy arena.
Need for an office in another city, domestic or international
Because any partner’s practice is constantly evolving, it may be (or become) necessary to have an office in a particular city to attract new business and/or serve existing clients. Having a strong New York office can enhance the practice of a corporate M&A or bankruptcy attorney, for example. Likewise, partners who handle substantial international or cross-border work can benefit from moving their practice to a firm with offices and/or law firm affiliations overseas.
Desire for lower overhead
Partners with a local, regional, or even national practice often express frustration that they are partially subsidizing offices overseas they don’t personally need. It is enormously expensive to have offices in London, Asia and the Middle East, and this expense can be a huge drain on a firm’s bottom line, and, more specifically, on partner compensation.
Even partners who think they need an international office sometimes conclude it is not crucial to the success of their practice. Indeed, there are many firms with thriving international practices, where the partners simply hire local counsel overseas when they need them. In turn, these partners are often paid handsomely relative to their peers at other firms paying all year round for the luxury of a wider geographic footprint.
The proverbial ‘other’
Partners often move for a variety of other reasons that are largely self-explanatory. For example, partners might feel underpaid or undervalued, or they might feel there is inadequate associate, marketing or other support within the current firm. Many partners have a strong desire to leverage their skills, expertise and contacts to help build something (e.g., to open a new office for a firm coming to town or build a new practice for an existing firm).
In addition, some partners move because they were de-equitized and/or asked to leave, or because they need to make a geographic move (driven in many cases by personal/family reasons, such as the relocation of a spouse). Others are frustrated with their current firm’s lack of diversity or advancement opportunities for their associates, have personality conflicts or internal ‘political’ issues with law firm leadership, or complain of a work-life balance problem.
Any of the above issues can change quickly. A law firm merger or large group acquisition can create problems for your practice that didn’t exist before. You could land a new client that entirely changes the dynamic of your practice and the support and resources you need to service that client. For this reason, you should pay close attention to what is happening in the firm, and stay educated about what is happening in the market generally.
How does one go about doing that? Busy partners don’t typically have the time or objectivity to assess whether they have the best platform for their practice at any given time. Partners who find themselves in one or more of the above situations should consider seeking guidance from a professional career advisor who is knowledgeable about the legal market, understands law firm economics, has strong relationships in the law firm community and, above all, has your best interests at heart. Ideally, this professional can provide a candid assessment of the market; where you fit, how marketable you are, and how you might position yourself to meet your short- and long-term goals. He or she can also help determine whether the current environment might, in fact, be the best place for you.
As counter-intuitive as it may seem, a downturn in the economy usually prompts more partners to consider making a change, because that is exactly when being in the wrong platform becomes more apparent. When practices are booming across the board, revenues and profitability are shooting through the roof, and the overall economy is strong, partners may become too comfortable, or even complacent. They often take an ‘if it ain’t broke, don’t fix it’ attitude. In the face of the current economic, political and global uncertainties, that is a dangerous attitude, and we predict that the number of lateral partner moves will continue to increase. As always, it is best to be prepared.
For more information, e-mail LateralSurvey@mlaglobal.com.