Looking at the Lateral Partner Market in 2010

Looking at the Lateral Partner Market in 2010
The Legal Intelligencer

By Robert B. Nourian

As the business and law firm communities breathe a sigh of relief as the books are closed on 2009, the focus has been turning squarely on the game plan for 2010. Law firm leaders are hopeful that they have the intensive period of crisis management behind them and a period of growth and investment ahead. A significant component of the growth and investment plan for most firms involves targeted lateral partner hiring.

Before looking at the lateral partner market in 2010, however, it's useful to summarize 2009 for context. In 2009, with the large law firm world experiencing a decline in revenues, clients positioning themselves for survival, and major peer firms dissolving, many partners with a significant client base were asking the following questions:

• Is my law firm financially healthy and is it positioned well enough to survive a sustained downturn or a new financial shock to the economy?

• Does it know where it's going? If so, does it have the right strategy, the financial resources and the right management to get it there?

• If it does get there (wherever that is), is that likely to be a place where my practice fits? Or will the firm structure and resources either be too much or too little for the needs of my practice and clients?

Although they were asking questions and having legitimate concerns, many partners were sitting tight in 2009, unwilling to seriously consider making a move. The thresholds for lateral partner movement were higher on both ends: the individual partner's end and the incoming firm's end.

In the 2009 climate of high risk and uncertainty around the country's economic health and, on a micro basis, the stability and health of a partner's primary clients, many partners were reluctant to layer on the added risk (no matter how slight) of making a move to a new firm, despite the benefits it may have provided. On the law firm side, with mandates to rein in overhead and associate costs and trim back unproductive partners, it was politically unfeasible for most firms to take any chances on incoming lateral partners. That meant not making investments that weren't virtual sure things. As a result, only partners with large and highly predictable practices were being seriously considered by firms.

So what changes lay ahead in 2010? Will the lateral market loosen up? If firms are hiring, what will they be looking for in incoming partners?

I think, for one, the market will loosen up, albeit marginally. While the business and legal communities often have short memories, they aren't so short that law firms have forgotten the recent pain of having to quickly cut overhead, lay off lawyers and have very unpleasant conversations with underperforming partners. Recently going through this retrenchment period will certainly temper enthusiasm for any new spending.

And while profits may not look too bad when reviewing 2009 results, those numbers largely derive from having made large cost cuts, not from increased work. The challenge for 2010 is to increase revenue, since there isn't much, if any, excess cost remaining in the system.

As clients are working to limit outside legal expenses, including by resisting rate increases and forcing alternative fee arrangements, law firms need to grow their top line fees. They can do this by organically adding new clients (a day-to-day struggle) or adding revenue by taking on new partners and groups who come with a significant fee base and new client relationships.

So for 2010, most large firms will be actively seeking to add partners with practices that are deemed complementary to the firm's existing practices and clients that can hopefully provide cross marketing opportunities.

Key hot areas for 2010 will include the following:

• Regulatory-focused practices: These include antitrust and competition, health care, and financial services. With regulations continuing to increase and enforcement now on the rise, lawyers with regulatory expertise are increasingly in demand to help keep clients out of trouble.

• White-collar defense: This area will also remain very active, with clients continuing to get in trouble as a result of robust and increasing government enforcement. With the current federal administration, there seems to already be an uptick in investigations and enforcement actions. A high-ranking Department of Justice official recently said that "[c]ombating health care fraud is a top priority of the Department of Justice." They've been backing that up with additional investigations. And with more statements of enforcement intent and clear activity in the foreign corrupt practices area and other areas, it seems very clear that there will be a constant and growing need for highly competent white-collar defense lawyers.

• Commercial litigation: While clients have been keeping a pretty tight lid on "discretionary" litigation, there are some claims and disputes that were deferred over the past 12 to 18 months that clients may revisit in a new, more stable economic climate. Some of these claims may be deemed good investments and worth the cost to pursue. This, along with simmering recession-born disputes, should help drive additional commercial litigation.

While litigation will likely be more active, clients will increasingly be providing input on how large cases should be managed and staffed. For example, there is an increasing trend toward clients requiring, for cost reasons, their outside counsel to use contract attorneys to take the first cut at reviewing the thousands of pages of discovery documents that typically exist in major cases. There is also more emphasis on case budgeting and monitoring. This will put a premium on lateral partner prospects that have experience managing large cases with alternative staffing models. These are the cases that large firms want to attract. Having partners with experience handling these sorts of major cases will help attract similar matters.

• Mergers and acquisitions: Coming off a terrible year, merger and acquisition activity may finally experience a meaningful comeback in 2010. The biggest obstacles to deal making in 2009 were tight credit issues that kept buyers in check and low valuations that kept sellers on the sidelines. As we get further into 2010, credit has finally been easing, and valuations, following the public markets, are starting to creep back up. This should lead to some more M&A activity by both strategic and financial buyers.

There has already been some noticeable increase in strategic transactions, and many M&A partners have been voicing cautious optimism about private equity clients putting some cash to work. In 2010, some firms feel that productive corporate partners, a constant desire of acquisitive firms, may be more willing to consider options while embarking on a comeback year.

• Real Estate: The big overhang on commercial real estate remains weak occupancy rates and high leverage, along with pending loan expirations that need to be refinanced. There are a lot of well-capitalized real estate buyers waiting to pounce in the next 24 months on, what they hope, will be "fire sales" of distressed prime commercial properties. If that happens, there should be some increased real estate deal activity to help pull the law firm commercial real estate departments out of the worst downturn they've experienced since the late 1980s-early '90s real estate bust.

• Intellectual Property/Clean Technology: Finally, with companies and governments getting back to investing for the future, there will be continued interest in intellectual property and clean technology, some hot areas over the past few years that should get back on track.

Partners with significant practices, especially those in some of the substantive areas mentioned above, should be in high demand in 2010. From the partner's perspective, assuming continued economic stability and recovery, partners who were asking questions in 2009, may feel more comfortable seriously exploring options in 2010.

The key criteria from the firm standpoint will be: does the partner have a recent history of generating revenues that both keep him or her fully busy and also provide hours to other attorneys? And is the practice area one that is complementary to the other practices of the firm in terms of substance and rates? Looked at as a whole, assuming the partner is a good cultural fit, will his or her addition be accretive and not dilutive to the profitability of the firm?

Law firms are always in the market for top lawyer talent and clients. Having too much of one without enough of the other is untenable in the long run. By attracting and integrating high quality lawyers with significant client relationships, law firms accomplish both goals. That's the law firm game plan for 2010. •

Robert B. Nourian is managing principal of Coleman Nourian, a legal search and staffing firm founded in 1985. Along with his management responsibilities, he maintains an active search practice focused on partner level search and high-level in-house search. He also works with small law firms seeking appropriate merger opportunities with larger firms. Prior to entering the recruiting profession, Nourian practiced law as a corporate attorney for major New York City and Philadelphia law firms. He can be contacted at rnourian@cnlegalsearch.com.