EVENTS AND ROUNDTABLES > Roundtable > Law Firm Leaders
Law Firm Leaders Roundtable: New York
17th June 2015, New York
In June 2015, The Legal 500 gathered together the law firm leaders of the global elite in Manhattan to discuss some of the issues facing firms today, and in the future. The topics included: 1. The challenges to law firm leadership 2. Profits vs client service – can you have both? 3. Effective lateral recruitment – where it works and where it doesn’t 4. Succession planning 5. Client surprises – how to project manage 6. How technology and alternate service providers change the game
MR. DAVID BURGESS: Good evening and welcome to The Legal 500 Law Firm roundtable in New York. I think it would be interesting to start off on a general basis and each of you say, what do you think the particular challenges are within your firm leadership.
MR. MELTZER: It obviously depends on the size and scope of your firm. So, if you have more than 4,200 lawyers and you have 35 countries where the cultures are vastly different, the regulatory issues are right there, so your risk management is something that you worry about all the time. Even if you were only a firm in the United States, you would be worrying about risk management all the time.
But for us, the possibility of a rogue partner doing something that would be improper and inappropriate, against bar rules, and likely to get press, creates a reputational risk but not necessarily existential damage, which is something that law firms in general can't tolerate. And I think largely because DLA Piper is so new - we're only ten years old in this kind of global setting - some of the processes that were in place for the constituent firms are not necessarily appropriate for a global firm with our aspirations.
MR. JAMES BRANDT: I would also add that the biggest challenges in managing a law firm have to do with its global nature. I would like to focus on two in particular. The first is culture. At Latham, we work very hard and spend an enormous amount of time and effort promoting our culture globally. I think we’re successful, but we work hard at it and apply consistent vigilance.
The other is how to grow globally in a way that is smart and strategic. We have an internal committee which is dedicated to painstakingly analyzing how to expand our practice areas strategically in specific markets, recognizing that market conditions vary by region. Properly evaluating the receptiveness of a particular market to our presence is key to our firm’s success in expanding globally. I think those are the biggest challenges global law firm leadership faces and they both relate to how a law firm succeeds globally.
'I would also add that the biggest challenges in managing a law firm have to do with its global nature'.
JAMES BRANDT, Latham & Watkins
MR. PAT QUINN: I'm going to take this in a little bit different direction. We're also, as I'm sure all our firms are, very focused on making sure that not just the legal staff, but the entire staff understands both the culture and strategy of the firm, and how the two relate. A firm leader has to be really clear about defining what the culture and strategy are, and then really disciplined about making decisions that are consistent with both.
We're all used to the idea that we have to present a strong value proposition to our clients. But I think, with the increased mobility in the legal markets, it's also important to be really clear about what your value proposition is to your partners. It should be clear to everyone why it makes sense for them to practice at your firm as opposed to another firm, what's distinguishing about the culture as well as the strategy, and why their practice makes better sense at your firm than it would at another firm.
MR. BURGESS: Picking up on the strategy point, the managing partner of a particularly large global firm said “the bigger you are, the more you can just do what you like and partners just have to go along with it.” What's your take on this kind of strategy? Do you push it that way or is it a consensus of the partnership?
MR. BARRY WOLF: I think in a law firm like ours that is global as well, you clearly need to build consensus. There is a management committee that runs our firm. And you really need to have the buy-in of those leaders and department heads and office heads buy-in, because as the point was made earlier, there's clearly more mobility today than there ever was and people need to buy into your culture, they need to buy into your vision. So, the idea of just ramming things down people's throats just really wouldn't work, and we would not want it to work either.
On the other hand, when you have 300 or 500 or 1,000 partners, democracy doesn't work either. So, you need to have some balance in between. Different firms achieve that balance differently. But for us it really is about reaching consensus and making sure that we have the pulse of the partners and making sure we understand that. But it's not as if we take votes on things from all 300 partners for every decision made – though we do for those decisions that are significant enough.
MR. JOE SHENKER: The most important focus from my perspective is quality control. Second is making sure people are operating as a team, consulting with each other and exchanging creative ideas across various areas. Finally, it is knowing what new practice areas and geographies to explore – what to leave to others, where to collaborate with others and when to do it ourselves.
MR. BURGESS: How do you keep that consistency, quality and culture at a global firm?
MR. DAVE BEVERIDGE: Through much effort! I think it takes time, spending time with your partners and repeating the message and staying on track because it's very hard to do. And if you ignore it, it will slip away from you. It's not anything tangible that you can put on a table and it will stay there. But I think the most important part of maintaining it is making sure you address the issues that challenge your culture. Reward people that execute in accordance with your culture. And you keep telling people what it is and why it's the right thing for the firm. That's why they want to be there.
'Reward people that execute in accordance with your culture. And you keep telling people what it is and why it's the right thing for the firm'.
DAVE BEVERIDGE, Shearman & Sterling
MR. WOLF: But the other thing that we're facing is stagnant demand, and competition for both talent as well competition for clients is intense and for all practical purposes, it's going to continue to be intense. So, it's not about getting your fair share of a growing market. It really is about obtaining greater market share and then it gets into questions that we talked about – mobility of partners etc. But we're all sort of trying to get that same market share.
MR. BURGESS: Talking of market share, obviously the legal market is only so big. Everybody's trying to grow and grow, both their revenues and their profits. At some point something's got to break. Where do you see the breaking point? Do you see it lower down in the market? Do you see there are going to be more casualties at the top of the chain?
MR. QUINN: I think as firms better define themselves, there may be a realignment of certain practices. Certain practices will migrate from their current firms into other firms that better suit those practices in terms of the balance between quality and cost.
So, I think it just puts more of a premium, again, on knowing what your strategy is and what types of practices you're going to feature. And as Joe said, just being careful about knowing what types of services you're not going to offer, that don't make sense for you, and that you can't offer efficiently.
MR. SHENKER: There are also alternative service providers entering the market. Whether it’s accounting firms, particularly in Europe; non-legal firms that are doing document review and consulting; or offshore legal providers that are doing work at different price points. All those are new entrants in the market.
MR. BURGESS: How much are they affecting your firms? Obviously they're affecting what we term the mid-market, as they really can take away a lot of the basic work or the commoditized work. But it has a ripple, everything always has a ripple effect. And why is it you think that more clients haven't built an in-house legal team? Because it seems to be something that's a little bit odd that the majority of companies haven't ramped up their in-house teams. Is it purely because they can't do it well enough?
MR. BRANDT: I would say it's two factors. The first factor is peak load, as it relates to large-scale complex litigation. A case lifecycle is characterized by peaks and valleys, where a period of intense activity that requires extensive manpower is followed by slower intervals. This ebb and flow in workflow makes it extremely difficult to build an in-house team because in the interim, during the slower times, there would not be enough work to be distributed among the lawyers and the department would be overstaffed.
Secondly, because law firms of our size and scale manage these large scale litigations on a daily basis, we have the ability to work more efficiently and leverage significantly more experience doing these types of matters. An in-house department, on the other hand, works on a wide-variety of legal matters and brings really valuable experience focused on their business model and goals.
MR. BURGESS: And is it also a pay gap issue as well, that they can't attract the top talent?
MR. ANDY LEVANDER: I think it's more the peak load issue, the filling of the gaps issue. It's just not efficient even for a big in-house team unless, for example, if a big entity knew that it had a certain amount of small litigation that's regular, they could have one or two or three or four that did that. But if they would need to have 20, 30, 40 people in a litigation group, that's just not going to work because then there's going to be periods of time where 30 or 40 people don’t have enough to do.
'There's all kinds of ways of working with people and if you have a client, you have a budget and something happens, something that was unpredicted by both sides'.
ANDREW LEVANDER, Dechert
MR. WOLF: And in addition, if you look at it on the corporate side, even if they build an in-house legal team that can do acquisitions, when they do a big acquisition, they're going to want somebody with a lot of experience and market knowledge of what's going on in the marketplace. So, if they do one big acquisition every three years, they can't possibly have – no matter how talented the in-house lawyer is – they won't have the market experience and the market knowledge to know what's going on.
So, I think for that kind of premier work I don't see it as a threat. I see it somewhat of a threat for some of the more commoditized type work, which I think, in some of our cases we would be happy not to do. But again, that causes some of this market to be smaller because some of that work is not being given out to the private law firms. It's being done internally.
MR. SHENKER: And obviously corporations that specialize in particular areas may build area-specific departments. Banks may build collection and foreclosure departments; companies that depend on intellectual property, or patent aggregators, may have a large number of patent lawyers; energy firms may have lawyers who are expert in preparing their contracts and handling some of their litigations. But for the areas that aren’t recurring, it makes less sense to “build a firm” for the once every three year transaction or litigation.
MR. BURGESS: When I was discussing this with some GCs last night, talking about the fact that I was going to be doing this and they said, "can we ask some questions?" Commoditized services came up a little bit and much like you, other firms have told me that they are quite happy for that to go away. But, of course, some of the commoditized work that has been done has allowed the firm to structure itself and so now they have more associates than they need.
How is that going to reflect the in the bigger firms because that's quite an issue, especially as now there seems to be an associate war going on in terms of the amount of money that you are paying associates. How are you going to monetize that if you're not getting some of that commoditized work?
MR. QUINN: I think the larger sophisticated transactions and the large sophisticated litigation still require large teams of lawyers that have people at all levels, what’s considered the traditional pyramid. And so, firms like ours will still be required to field teams of very high quality associates at each level.
The commoditized work, if you think of routine contract work or maybe routine litigation, that's sort of repeater and the kind of work that I think can be handled efficiently by teams of in-house lawyers. And there are opportunities for firms like ours to help with the process that companies use to help ensure consistency and quality control. For instance, there are ways to help financial institutions ensure consistency and currency of routine documents such as contracts and perhaps even elements of routine litigations.
But I think there will still always be a need for a generous supply of very talented young lawyers. I don't think that's going to go away.
MR. SHENKER: We haven't really begun to see the use of technology being maximized effectively in law firm practice. Within the relatively short term, I would expect to see, for example, certain first drafts of contracts being prepared by machines.
MR. BURGESS: Are your firms looking at AI as to how you're going to deal with it going forward? Because I know there are a number of firms that are talking to IBM about Watson, especially the insurance industry, where they see it as a big threat.
MR. QUINN: We've actually developed a product that we call Smart Systems. It's a catchy phrase. But it's for just that. It's really aimed at these teams of internal lawyers who are doing relatively routine tasks, whether it's routine document drafting or answering repeat regulatory questions, doing those sorts of analyses. And it works as almost an interview kind of process on a subscription based service. It can allow large teams of lawyers that may have been outsourced to other parts of the world provide service on a lower cost basis and do things that are very consistent in a quality controlled way.
MR. MELTZER: But this isn't the question that you're really asking us. The question that you're really asking us is what's going to happen to the premium work. And how much premium work is there going to be? And what's going to happen to those law firms that can't really have a call on that premium work, either because they don't have the practitioners, they don't have the quality, they don't have the legacy, they don't have the relationship in the C Suite, any of those things.
'The question that you're really asking us is what's going to happen to the premium work'.
ROGER MELTZER, DLA Piper
MR. WOLF: You continue to see stratification in the upper tier market, and actually I think we're already seeing that. And I think you'll see some other firms merge out of existence that can't, as Roger is saying, make it based upon one or more of those factors. You'll see them merge out of existence and then try to compete.
Now look, there are different ways of competing. You can compete based upon scope of your practice, geographical size and breadth. You can compete in a particular practice area on just expertise. And I think people are going to have to define their strategy and really pick where they want to be and try to compete where they can have the real value-add to the client. Because otherwise, the amount of premium work is not increasing and there's going to be a continuous fight for it.
MR. SHENKER: As you said David, there is a ripple effect. You will have firms that are losing the commoditized work trying to reshape themselves, through merger or otherwise, into doing the premium work. For example, when Pittsburgh became too narrow, Reed Smith turned itself into a different firm. Or when Boston bank headquarters disappeared, Bingham did the same. Both firms expanded into different markets and repositioned themselves.
MR. MELTZER: Yes, they turned themselves into Morgan Lewis!
MR. SHENKER: Sometimes it works and sometimes it doesn't.
MR. BURGESS: But as those firms start trying to move themselves into that different market, it's trying to push up to the top end work - that also has an effect on things.
MR. SHENKER: That's the point about the ripple effect.
MR. BURGESS: One thing that clients have said to me is that law firms seem utterly obsessed with growth and their revenue and their PEP. Do you find that you're getting any push back on that from clients? Do they track your numbers? Do they comment on how well you seem to be doing, or they just ignore it and just focus purely on the work?
MR. BEVERIDGE: Well, I think clients focus on the work and depending on what value you're providing, they're willing to pay the fee. But where you see the most pressure is in the commodity work. In the high-end work we don't really see as much depression.
MR. SHENKER: All clients look for the best value for their money, no matter what type of work it is. When they analyze the service, they are going to look at the quality of the work and whether you are sharing the pain when it doesn’t work and sharing the gain when it does work. Clients of quality look for lawyers of quality and expect everyone to make a living, commensurate with what they are producing.
MR. MELTZER: Yes, just taking Joe's point, the level of conversation about sharing risk and risk allocation has risen dramatically. Lawyers never did that - they always held themselves separate. I can remember senior partners at my prior firm saying that if we didn't get paid for every hour that was diarized, somehow somebody was stealing from us. But this whole notion of being shoulder-to-shoulder with a client in a risk way, in a really commercial way, is a really, really important thing to those big financial institutions that we're dealing with. Or even new, big financial institutions that have billions of dollars under management and big platforms that are driving all kinds of work in capital markets and other kind of financial products that none of us even saw 20 years ago. It's a brave new world, I would say.
MR. SHENKER: Yes, all clients are looking to law firms to be more efficient and to deliver the best service at the best price, ensuring they are getting the best value. That doesn't mean you can't earn a decent margin doing it.
MR. BURGESS: And should firms actually be apologetic for it? If some law firms were a listed business, the return they gave to shareholders would be applauded. Whereas, law firms often get criticized because you're making money, but if clients are happy to pay, then perhaps that’s not an issue. Do you think it's going to continue this way, or do you think there's going to be only ten, 15 firms that keep going on that path?
MR. SHENKER: We're all in business to provide a service. Clients have choices, and we will only survive for so long as we're providing value-added services. The "perfect isn't the enemy of the good" in legal services – our clients are looking for perfect work. They are looking for 24/7 responsiveness, and they are looking for a sharing of pain and gain – all of which are perfectly reasonable. And then they are looking for value – everyone is. But clients are not looking at what your net profits are and what your margins are, they are looking at what you are delivering to them.
'Clients are not looking at what your net profits are and what your margins are, they are looking at what you are delivering to them'.
JOE SHENKER, Sullivan & Cromwell
MR. MELTZER: A perfect example is Pfizer. Pfizer has their legal alliance. They established a fixed-fee number. There are a bunch of firms in the Pfizer Alliance, some can make it work, some can't make it work. And Pfizer never asks their law firms what's behind those bills. You send them a monthly bill. And it's up to the leaders of the law firms to manage their firms like a business. As opposed to saying, oh my God, this turned out to be $300,000 more than we thought it was going to be. Not because they necessarily changed the scope of the engagement, but because we weren’t as efficient as we should have been and we weren't taking the responsibility for not being as efficient as we should be. Now what the clients are saying to us is, you guys are going to take that responsibility and we're going to force you to run your law firms like a business, which you never did.
MR. SHENKER: To be predictable in terms of knowing what the costs are going to be and not to have runaway costs without any accountability or explanation. And that's a perfectly fair, intelligent and appropriate request. That's very different than looking and saying, are you as an individual, you as a firm, having too high a profit margin. In fact, people should look for the most successful people to retain to do their work. How it then plays out, in terms of how you run yourself, what practice areas you go into, where you expand, where you spend money and where you waste money, is your problem.
MR. WOLF: Having to think about or focus on managing your business is a big transition for lawyers. And lawyers generally don't like change. To manage lawyers who have been used to doing things the same way for 20, 30 years and get them focused on business as well as their practice, is a challenge for all of us around the table.
MR. BURGESS: Clients often say to us, it's not necessarily about the fees, it's about certainty of fee and the ability to plan and to budget.
MR. WOLF: Yes, they don't like surprises.
MR. BURGESS: It's moved on from the fixed fee discussion to the use technology to work out roughly how much this will cost. And then you can inform your client and they have a degree of certainty around it. Are you finding that's the way more and more of your work is going, as opposed to the traditional routes, including the billable hours?
MR. LEVANDER: It's migrating in various ways, right? Different clients are different. There are some clients that have become impossible in certain ways. And law firms have made decisions not to work with those clients because it gets so difficult and tendentious and you don't feel you can do a proper job and give them the service they want at the price they want to do it. At some point you can throw up your hands and say, look, this is just not working for us.
The good clients, clients that are working with the firms around this table are people who have said, look, I want a certain service for the best price I can get, but I'll work with you. And working with you may mean learning how to budget, learning how to come in with caps, learning all kinds of skills that you don't get taught in law school. But I predict that those kinds of skills will be taught in law school in the next five years or ten years.
It may be that on this deal you have to take a little bit of a bath and the next deal, you know, if you have a relationship you'll do better. And it works out okay. There's all kinds of ways of working with people and if you have a client, you have a budget and something happens, something that was unpredicted by both sides. And you go in and you say, and you tell them early, this is happening. This is what the problem is. Most reasonable clients understand that and work with you. You know, if you wait until four months down the road and you've put in a bazillion extra dollars as some of your partners will want to do, that’s not going to work.
MR. BURGESS: That comes down to project management, which is something that law firms usually have not been very good at. How are you trying to develop your partners to be better project managers?
MR. BRANDT: We have a very substantial internal financial group that keeps track of the type of information that is critical to project management, and we work really closely with our clients to communicate throughout the process so that there are no surprises. There are certainly variations based on the client or the particular legal area in which we’re working but at the end of the day, nobody wants to face an unexpectedly large bill. On both the firm side and the client side, having to account for why a budget had been overshot makes for a very unpleasant set of circumstances. If the client is faced with this uncertainty, it could be the last time they will retain your firm. At the end of the day, it’s all about the same things that make for strong client relationships across all aspects of an engagement: a client-focused approach, open and consistent communications and no surprises.
MR. QUINN: Yes, predicting how much a project is going to cost is not all that difficult as long as everything goes according to plan, which it rarely does. And it depends on the practice area.
'So, it's a little bit of an art to bring along the more junior partners, to push them forward in a relationship'.
PAT QUINN, Cadwalader, Wichersham and Taft
MR. LEVANDER: But there are unpleasant surprises and difficulties in every practice. Litigators say, you guys have it easy on the corporate side because there's a deal and it's just a deal. But deals go astray. Deals go and change. All of a sudden a third party comes in. There's a white knight, there's a different kind of financing. The regulations change, it all becomes very complicated and if you are talking to your client on a regular basis, which I'm sure everyone around this table talks to their partners about doing, then you can maintain a good relationship even when the unexpected occurs, you can talk about it. If you are just are sitting there and don't look at the bills until it's too late, then you're going to have a problem.
MR. SHENKER: You have to have a sound client relationship, so that when you do have a problem there's some give and take. Without a relationship and without talking to people, especially when a problem arises, you are dead in the water if you're not meeting their expectations.
MR. MELTZER: You have to partner with your client. It's as simple as that.
MR. BURGESS: I want to turn onto another subject, lateral hires. Obviously the lateral market has gone a little bit crazy at the moment. Talking to a lot of firms and a lot of clients, there are a many laterals that aren't working, and that haven’t worked. But everyone keeps doing it. When clients tell us it, on the whole, when an individual moves, they don’t go with that individual, because it's the team that they trust. Why do firms continue to hire laterals individually rather than in teams?
MR. WOLF: I think in the fight for market share and in the desire for growth, including new practice areas as well, it's the inability to develop it organically that causes firms to look laterally. If people need to do it quickly, it is difficult. So, people are looking at it and saying there is a practice area that is an adjacent practice area or there is a particular individual who would fit in in our platform where if you brought him or her onboard then that would make sense. And you can obtain market share with that individual or that group, with your platform.
But, the way we look at it is, if one and one doesn't equal three, four or five, we don't do it. So, that is, if a potential lateral comes and says they have a book of business of X, and we look at it and say that all it's going to mean is that book of business – to us it's just never worth it financially. If there are no synergies and abilities to grow, we turn it down. Usually when you price any lateral, the compensation that they're going to be asking for is going to equal the profitability of their business. So, if you don't have the potential for growth from it, it probably doesn't make sense.
And as we all know, there are always cultural risks. There are always those kinds of risks and then depending upon whether your culture would allow you to remove partners that don't work. Some of us don't actually have that ability. In these instances, you have to be particularly prudent with what you do. But hiring in the lateral market is prevalent and it's prevalent because there's a need to grow market share and it might be easier to do that than waiting for your associates and young partners to develop.
MR. LEVANDER: I think there's also multiple types among those laterals. There's are different reasons why sometimes you bring in laterals. Sometimes you have a particular niche that you need an expertise. Maybe it's energy regulation and they've got all sorts of things around it and your senior regulatory partner has left or you never had one and now you realize that to do these deals that your other people are doing, you need specific regulatory expertise. So that's one kind of lateral. And that you don't measure.
MR. WOLF: Those are not the big rainmakers – those are not the ones necessarily making the headlines.
'There are always those kinds of risks and then depending upon whether your culture would allow you to remove partners that don't work'.
BARRY WOLF, Weil, Gotshal & Manges
MR. LEVANDER: Correct, correct, but those are not trivial. The other ones are where you're trying to build business and you know going after a rainmaker and there are all kinds of risks and issues.
MR. BURGESS: You're talking about a book of business, but a book of business rarely travels with an individual. Clients tell us they usually wait 18 months, maybe two years to see how that individual beds down and see what the culture of the new firm is.
But so many firms don't give their laterals enough time. Do you think that's some they can easily fix or is that just a nature of the partnership that they're looking around asking, what is this person providing? If they're coming in, what are they actually doing for us?
MR. MELTZER: Well, as someone who is a lateral at DLA Piper,, which is obviously a firm that is very much focused on a lateral strategy, I can say we do it a bit differently than what Barry is saying or what Andy is saying. We have an investment strategy based on laterals. That strategy was not developed by the iconic founders of the firm. Their view was that we needed to put together these regional firms in order to have major money center expertise.
So we basically have two kinds of laterals. There are those that provide an instant incremental or accretive effect, and then there's the lateral group that adheres to an investment thesis, for which you see what your return on investment is going to be over a period of time.
Now, and Joe knows these guys well, the sports team that we've put together is a great example. Those guys were at a regional firm. They were never going to be able to build a global practice. Now it's a huge practice. They're clearly among the top one, two or three, in part because we were prepared not to do certain things and represent certain people that would have created issues for us to build the practice. In most cases, you can't represent players' associations and teams for example. So some of it is very different for us. Some of it is based on geography. Some of it is based on, what do we need in Miami in order to build a Pan South American practice and strategy that is completely different than a money center strategy? So, for example, we just did this transaction with a firm in Colombia. That firm has 15 lawyers but has the highest level practice in Bogota. So, it's a little bit different depending upon where you are and what your goals are.
MR. BRANDT: I would say a critical point is that there's an awful lot of work to do on the way in to find the right laterals – those share the same vision for client service, whose practices fit well on the firm’s platform and whose experience will benefit the client base. But to be really successful, it's also a lot of work after they come to the firm. You have to have a real integration strategy to make sure that you're blending the lateral partner into the firm. You absolutely need to give them time. You definitely need to plan for there to be a runway. And you need to tell your new partners that there is a runway, that they're going to have time and you're going to support them.
MR. MELTZER: Most of them demand it as a condition.
MR. BRANDT: As well they should. And it also comes back to the point about culture that I made and the teamwork point that Joe made. You want to bring these people in and you want to knit them into the culture and business development of the firm. You want to talk to their clients and help them further support their clients by bringing in other resources from the firm. And you want to introduce the laterals to the firm’s traditional clients to help them build their base and really blend them in to the work of the firm. It takes time and effort. And if you're not going to spend the time and effort supporting a lateral partner as they become established at a firm, you will have wasted valuable time because they will take themselves and their business development potential elsewhere.
MR. MELTZER: Let me just make one other point about it. I have found recently I've changed my point of view about this. In that I can judge success by virtue of the number of lateral acquisitions that we've done and our analytics on people. We can see pretty much whether somebody's going to work out or they're not going to work out after a period of time, after six months or so. Forget the 18 - I think 18 months was the conventional wisdom about this stuff.
In order for it to be effective at a firm like ours, we have to be able to pull the plug on somebody more quickly than other places because otherwise it creates cultural friction with the other partners. You can’t overpay somebody for way too long a period without them producing. So, from my point of view, you have to be a lot tougher and quicker in order for the strategy, for us, to work.
MR. BURGESS: And that sort of leads into the fixed guarantees. Despite the issues that surround fixed guarantees, firms are still doing them. Partners say that it can really upset the balance of a firm, knowing that someone is coming in on a much higher comp package for doing what they see as the same job.
MR. MELTZER: First of all, what is your definition of a guarantee? Is this a guarantee where that person comes in and gets paid that amount of money, whatever it is, whether the firm is down 20% or not?
MR. BURGESS: Yes.
MR. MELTZER: We're not doing it.
MR. LEVANDER: We just don't do it. We don't do anything that anybody would characterize as a guarantee. Because I think partners are partners. They're coming in to be a partner. They're taking the risks as well as the upside. And if they don't want to have that risk for upside, okay.
MR. WOLF: But even putting aside the guarantee, when you're bringing in someone at an expected compensation level, you need to have the buy in of your partners that there is a good business reason to do it. Because often times laterals might very well come in and expect a compensation level that might exceed the compensation of their similarly aged peers. And we've had these discussions where that's happened, where we won't do it unless we have buy in. Because the idea that what happened at other firms where laterals came in with a guarantee and then the home grown people said, “then I want that guarantee as well.” That's, as we know, a recipe for absolute disaster.
'And if you're not going to spend the time and effort supporting a lateral partner as they become established at a firm, you will have wasted valuable time because they will take themselves and their business development potential elsewhere'.
JAMES BRANDT, Latham & Watkins
MR. SHENKER: And so you have transparent compensation.
MR. MELTZER: For better or worse. It makes for a long and tough comp discussion wherever you are in the comp cycle. But the buy in is absolutely right and you have to have a way, if they materially underperform, as a management team to be able to take them down and maybe take them down materially. And if you don't do that, your partners are never going to see you as being credible.
MR. SHENKER: We don’t do much in the way of laterals, but if a person needs a guarantee like that, is so insecure, it kind of makes you wonder if they really will produce what you think they'll produce.
MR. BURGESS: One thing we've seen that firms have often taken some missteps on is their succession planning. Clients are now talking a lot about how important the succession plann is, having that series of people coming through the ranks. Are you hearing that from clients?
MR. QUINN: The reason why it's such a difficult problem is not because the senior partner doesn't want to do the right thing or doesn't understand the need to groom and bring up younger partners. It's because they're convinced that they're indispensable to the relationship, and that they need to be front and center on every deal, every conference call, etc. And then that perception is often fed by clients who expect them to be, because they've been their lawyer for the last ten years. So, it's a little bit of an art to bring along the more junior partners, to push them forward in a relationship. But I think it's important to recognize the contributions that junior partners make and understand that at some point they're not just an execution person but have actually become critical to the relationship. A lot of times the clients will tell you they no longer exclusively call the more senior partner, and the more junior partners are starting to get those calls about new matters or complaints or concerns or billing discussions. And you can see the clients telling you when it's time for a shared kind of relationship for a period of time, and then ultimately, succession. You have to actively manage that transition. You really have to understand what those important client relationships are and who the important lawyers are to those relationships, and just try to make sure that the succession happens, because it doesn't always happen naturally.
MR. SHENKER: I'd be surprised that that's happening at firms like those that are around this table as opposed to smaller, more specialized firms. The large institutional firms, like this group, all do this for a living. And we always are trying to make sure that we are bringing forward a diverse group of people who provide value to the client. So I am surprised that succession planning for large institutional clients at large institutional firms is an issue they raise with you. Is that the case?
MR. BURGESS: It is. It's something they talk about.
MR. WOLF: It's interesting because that's something we need to manage, but we don't hear about it a lot from the clients.
MR. BURGESS: But at law firms, things can often become fragmented, or everyone is dealing with so many things, there are many balls to juggle. But when we're having those conversations with GCs, they said it’s one of the bigger problems. They want to see that range of people.
MR. WOLF: It's surprising only because, again, they're the consumer of the legal service. All they would have to do is say – “I want a younger partner on the team.” And you can rest assured that by tomorrow morning that younger partner would be involved.
'At law firms, things can often become fragmented, or everyone is dealing with so many things, there are many balls to juggle'.
DAVID BURGESS, THE LEGAL 500
MR. BEVERIDGE: And what we find is if we cover clients as a team, that issue is rarely raised because you've got a number of people, they're sharing the relationship and so when we do hear about it, someone's trying to monopolize the relationship and hasn't got the team ethic - that becomes a management issue.
MR. BURGESS: And what we hear a lot more is that in the past it used to be much more of a relationship with one individual. They're now looking for more team approaches. Yet, a number of people who have been around for a while, who are used to dealing with that individual relationship, find it harder to let it go.
MR. MELTZER: Well there are clearly clients who want a throat to choke. And they want that throat to choke because they don't necessarily want to deal with our internal process for building a team. There's no question about it. But I can think of one client in particular where we had a pretty large team and a general counsel called me up and said, we need one person who we can go to because it's just too complicated for us. And we've made changes based on that.
It's not necessarily bringing along a younger partner because they're seeing all the younger partners given the magnitude of the work that they're doing. But it's really who is their primary business relationship? Who do they go to when they have a real problem? They don't necessarily in every instance want to go the chair of the firm. They want to be able to try to deal with it on the ground.
MR. BURGESS: This is a good time to wrap things up, but I suspect we'll be doing more of these in the next 12 months. There are obviously a lot of questions that we didn't get around to, but I'm sure we can cover those again at another time. I'd like to thank everyone for taking part in the discussion.
17 June 2015
Location: New York
- David Burgess The Legal 500
- Pat Quinn Managing Partner, Cadwalader, Wickersham and Taft
- Andrew Levander Chair, Dechert
- Roger Meltzer Global Co-Chairman, DLA Piper
- James Brandt Former Managing Partner of the New York office, Latham & Watkins
- Dave Beveridge Global Managing Partner, Shearman & Sterling
- Joe Shenker Chair, Sullivan & Cromwell
- Barry Wolf Executive Partner, Weil, Gotshal & Manges