For many ambitious law firms the holy grail of partner recruitment is the team hire. Legal Business asks if hiring en masse is all it’s cracked up to be.
A little over a decade ago structured finance partner Jonathan Walsh had reached the moment of truth after months of discussions. Walsh told his firm, Norton Rose, he was resigning along with fellow partners Vincent Keaveny, Bruce Somer and Simon Porter for Baker & McKenzie, taking a sizeable chunk of the firm’s City securitisation practice with it.
It did not go down well. There were attempts to convince the group to stay while Walsh suspected some in the partnership were bad-mouthing him externally. When it became clear the team would not be swayed, the group were placed on 12 months’ notice and restricted from working with clients.
Frustrated at the difficulty of extracting himself and his team, Walsh made it known that he would consider standing against the firm’s chief, Peter Martyr, in its upcoming 2005 election. Days later, the team was informed it could leave halfway through its notice period. So acrimonious was the move, Walsh jokes he heard a new provision in Norton Rose’s partnership agreement restricting multiple senior departures was named after him.
Co-publishing feature:
Team moves – Alec Harvey and Richard Nicolle discuss the risks – Alec Harvey, JLegal & Richard Nicolle, Stewarts Law
Partner recruitment is never straightforward, given the personal bonds that tie an individual to a law firm. But when you multiply variables in the case of a sizeable team of partners, raising the stakes and complexity for parties, the split is far more fraught and loaded with contentious issues over covenants, notice periods and tricky discussions regarding clients.
Looking back at his experience, Walsh sees the move – one of the largest at the time, taking 14 months to complete – as a success. ‘It’s seared into my memory. Moving lock, stock and barrel was quite an undertaking. But I could see there was real benefit in moving to a truly international practice with a global platform. And I didn’t want to do it by myself – it was “been there, done that, bought the t-shirt”, so I wasn’t keen on starting from scratch again. I liked the people I worked with and had hired most of them. [Bakers’ then chairman] John Conroy took a personal interest and I was enormously grateful to him for doing so. If you look at where we were then and now… the firm would say we delivered.’
As difficult as it is to pull off a major team hire, there is little doubt that such deals remain the most popular means for ambitious law firms to grow their business and secure a competitive edge in what remains a turbulent legal services market. The logic is simple: while individual partner recruitment is bedevilled by integration problems and the issue of getting clients to move, and full mergers rarely deliver on their promise, the team hire is the porridge that’s just hot enough.
Melinda Wallman, head of the partner practice group EMEA at Major, Lindsey & Africa, says: ‘If you are cross-practising together and collegiate, it makes the client much stickier. From the client portability perspective it’s much less risky.’
Back in vogue
In the City, the team hire remains – at least until recently – largely an exception. While the original emergence of the lateral recruitment market in the late 1980s and 1990s unleashed a scramble among competing law firms jostling for position and included a number of audacious team hires, during the 2000s sizeable team moves were uncommon.
What is still the benchmark group hire occurred in 2004 when DLA hired an 11-partner technology, media and IP team from Denton Wilde Sapte led by Simon Levine in a deal that moved £12m of annual billings. Two years previously, Allen & Overy (A&O) sent a jolt through the market with the recruitment of four acquisition finance partners from Norton Rose: Tim Polglase, Andrew Bamber, Robin Harvey and Clive Wells.
Though on a smaller scale, the 2006 hire by Weil, Gotshal & Manges of a three-lawyer team from Lovells, led by private equity rainmaker Marco Compagnoni, was also influential in raising the appetite for more aggressive recruitment, as was Kirkland & Ellis’ dual partner hire that year of Linklaters partners Graham White and Raymond McKeeve.
While the 2008 banking crisis largely put such deals on hold for several years, there is no doubt that recent years have seen ambitious US advisers more attuned to team hires. In 2010, Latham & Watkins hired a 12-partner finance team in Europe and the Middle East from White & Case, while Greenberg Traurig launched in London in 2009 with a team led by Paul Maher from Mayer Brown, and Texan firm Locke Lord in 2012 shipped in a seven-partner group from Salans for its City launch.
Weil Gotshal, meanwhile, hit the headlines in 2011 when it hired a four-partner City funds team from Clifford Chance led by Ed Gander. That same year, Simmons & Simmons secured a five-partner property finance team from Berwin Leighton Paisner (BLP).
The last 12 months has also seen two of the largest UK team hires ever pulled off in the City by US duo Akin Gump Strauss Hauer & Feld and Cooley, respectively taking teams from Bingham McCutchen and Edwards Wildman Palmer with annual billings in the region of $50m and $40m.
More recently in April, King & Wood Mallesons announced the hire of Eversheds real estate partners Simon Burson and Jeremy Brooks, alongside principal associate George Burrha who joined as a partner, three months after persuading Eversheds’ former senior partner Cornelius Medvei and heavyweight duo William Naunton and Clive Jones to join the firm and drop plans to launch their own boutique. The firm is understood to still be in negotiations with other potential laterals at Eversheds’ real estate practice so the deal is ongoing.
This flurry of team hires comes amid an active international market. This has been notable in the US when the collapses in recent years of Dewey & LeBoeuf, Howrey and Bingham McCutchen saw large teams recruited by opportunistic US rivals.
This year saw Winston & Strawn in March secure the hire of 15 lawyers, including 11 partners, from US firm Pillsbury Winthrop Shaw Pittman, including Abu Dhabi managing partner Stephen Jurgenson, London-based co-head of energy, infrastructure and projects James Simpson and New York-based structured products chief Jeffrey Stern. That same month in Asia, BLP launched an arbitration practice in Hong Kong with the hire of a nine-strong team from local boutique Haley & Co, in a bid to establish an international arbitration and real estate offering in the region. And in April Dentons expanded its CEE presence after taking on White & Case’s entire Budapest office, including partners István Réczicza, Rob Irving and Edward Keller, who joined alongside 50 local partners, associates and other legal professionals.
In November 2014 Latham demonstrated its aggressive hiring strategy with a six-partner team from O’Melveny & Myers, including the firm’s entertainment, sports and media group head Joseph Calabrese and high-profile London-based partner Libby Savill.
‘My heart always sinks’
That law firms don’t often pull off major team recruitment at the upper reaches of the legal market speaks to the huge challenge of getting deals over the line. Most law firms are conservative recruiters who find it difficult to swallow the commitment to a large team, while the egos and ambitions of a large group of partners is likewise complex to manage.
Edwards Gibson co-founder Scott Gibson comments: ‘With a team hire, as a recruiter, my heart always sinks. What excites one partner – if they have a slightly different practice – will not excite another. Recruitment has to have some element of excitement and keeping five people excited is a different gig to one lateral. Sometimes the driver is if the lead partner moves and others are considered service partners they may feel they have no choice, which makes the deal less likely to work out. I always say, for each time you add an extra partner, you reduce your chances by about 20%.’
There is also the problem for recruiters that being tied up in time-consuming discussions over a team move means having an awful lot of eggs in one basket. Another deterrent is cost, as team moves typically command a large volume discount on recruiter fees.
For a leading partner, the recruiter may command around 25%-30% of their year-one earnings and for every service partner following that around 15% to 20%. Associates usually run for a market rate of 10% and a post-Lehman environment means firms may outright refuse to pay a fee for paralegals and secretaries.
But running on top of this is often a cap on total earnings. According to several recruiters this puts an effective ceiling on what a consultant would earn on even large team hires of between £500,000 and £600,000.
‘You take a sensible, open-minded approach to negotiating this,’ says Macrae Roxburgh Appleby’s Gill Appleby, who advised Cooley with colleague Joe Macrae on its dramatic UK launch alongside a team at Shilton Sharpe Quarry and Fox Rodney Search director Siobhán Lewington.
‘As was the case with Cooley, management agrees with you what they think is fair for the whole team and for what we’ve put in,’ Appleby says. ‘With Cooley, I spent a week in serviced offices organising interviews, which was time-consuming. But the top international firms have a cap and if not, they’re crazy. Most will negotiate and say “you’re having a laugh”. You want to keep a good relationship with them’.
JLegal senior consultant Alec Harvey says: ‘The potential rewards on offer for team hires are substantial – even with most firms implementing fee caps and discounts for team members aside from the key individual, the sums involved will significantly eclipse those earned for an individual senior hire. That said, such processes are usually lengthy and labour-intensive with no guarantee of success, and significantly reduce the headhunter’s ability to conduct separate mandates in tandem. Consequently there is a risk versus reward debate and even with a retainer fee there is a genuine risk of ending up in an unprofitable scenario.’
Other challenges when moving en masse often include contractual restrictions on clients and personnel, such as soliciting another member of staff to leave with you and therefore having to drip feed laterals over to avoid disputes. This goes beyond the mere letter of the partnership deed towards motivation. While a firm will be unlikely to take an aggressive line in enforcing all its terms with one partner, with a large team there are far more likely to be charged discussions over terms and client contact. While once there was a belief that the UK would move to a free agency model comparable to the US with few restrictions on partner movement, in reality covenants and their enforceability have remained very much a feature of the UK market.
‘Legal issues are what you must watch out for,’ says Fox Rodney’s Lewington. ‘You have to keep it clean. Both sides should be mindful of restrictions, obligations, and the economics behind the entire deal – does it work financially for the firm?’
Definitive Consulting’s EMEA managing partner Craig Hoyland adds: ‘You wouldn’t believe how many partners are unaware of their own contractual restrictions and only begin to look at them toward the end of an interview process. This will lead to tension between the new firm and the team if they are unable to deliver revenue as promised.’
Diversity in recruitment – lip service?
It may have become commonplace for the legal profession to profess its commitment to diversity but the consensus from recruitment specialists remains deeply sceptical. Most of the consultants interviewed for this article felt law firms’ supposed support for diversity remained superficial and rarely translates into senior recruitment decisions.
Scott Gibson, a director at Edwards Gibson, says: ‘Recruiters can’t help that. The play is all about people’s portable business and diversity is never raised as an issue at this level. I’m sure if some recruiters could place a blob of jelly in a firm and make a fee out of it, they would. Law firms may pay lip service to diversity but there’s probably no need, recruiters will place anyone anywhere… they’re motivated to make a placement. They are blind to race, sexual preferences, and ageism.’
Issues are particularly sensitive around gender diversity as many claim the lateral recruitment market reinforces the already heavy male domination of partnership ranks. For example, research by Edwards Gibson tracked 134 London lateral hires that had gone public between 1 January and 15 May 2015. Of this group, only 21 were female – just 15.7%.
This compares poorly to Legal Business research conducted last year on gender diversity in partnership at major City law firms, which found that the proportion of female partners at top 25 UK law firms ranged between 13% and 34%, with many firms hovering around the 18% to 25% range.
Definitive Consulting managing partner for EMEA Craig Hoyland comments: ‘We have had exercises where firms have asked us to target female partners on their behalf. That doesn’t sit well with recruiters – it’s the whole positive discrimination thing. It has to be about who is the best person for the job because unfortunately when you do a shortlist, there’s often a shortage of female partner talent in the market.’
Gill Appleby, co-founder of Macrae Roxburgh Appleby in London, says: ‘Recruiters basically want to find partners to fill slots and whether that’s man or woman, they’re not going to get too tied down on that. Women are more conservative about moving but can do very well by using attributes that men don’t have. But women are often the worst supporters of other women than men – including when it comes to supporting youngsters.’
The male-domination of senior recruitment contrasts to law firms’ recent record on internal promotions, with the 2015 round showing firms including Mishcon de Reya, Herbert Smith Freehills, Ashurst, Allen & Overy, Irwin Mitchell and Olswang all boasting a high ratio of new female partners. The recent improvement comes after several years in which many firms have gone public over aspirational targets to improve their female partner ranks.
Hoyland, however, says there is often little room for recruiters to create momentum on the issue: ‘There is little we can do to influence this directly as the talent pool we’re selecting from isn’t as diverse as any of us would like it to be. Improvements can be made by firms with our help, not least of which is encouraging them to adopt flexible working hours and practices if possible for mothers who can be lost to the profession if they’re expected to bill 2,000-plus hours straight away when they return to work. And clearly in order for our clients to meet their desired diversity goals, more effort is needed from day one to invest in a balanced trainee and associate intake.’
But while firms rightly bear responsibility in levelling the playing field, many highlight a different gender mindset as a major factor in explaining the relative lack of big-name female laterals.
DLA Piper partner and chief operating officer Andrew Darwin comments: ‘Recruiters are sceptical and rightly so about firm diversity. For the relatively few senior female partners out there, you’re fishing in a smaller pond – they’re more conservative. The way men will answer is to say they’re overqualified, while women will say “I have to think about that”… translate this into a highly charged headhunt where you’re required to be a little disloyal to your firm and you may be the main breadwinner in your family… women take those things much more seriously than men.’
An equally pressing issue to interviewees but one that often receives less attention is ageism; considered to be rampant in UK law firms but less likely to reach management agendas compared to gender diversity.
Gibson says: ‘Ageism is absolutely there – it’s demonstrated when you have a lead partner in their 40s being paid X with a following of X getting a lot of interest, as opposed to a lead partner in their 60s with exactly the same metrics [who] won’t even be looked at.’
There is less agreement on the role of recruiters in boosting ethnic minority representation. Because black and ethnic minority lawyers are typically joining major law firms at junior level, there is only a marginal role for recruiters in the area at present. With retention of ethnic minority lawyers the biggest block to diversity, it is unclear whether there will emerge a demand for consultants to help law firms improve their current poor showing with targeted mid-level recruitment.
As yet evidence for such a commitment, and for diversity in general, is largely absent.
Not buying wholesale
Recruitment specialists have a number of tips for firms considering an ambitious team hire. Perhaps above all, a hiring law firm needs to have a very clear sense of its priorities and how a potential team move will slot in.
By consensus, team moves also tend to work when there is a clear leading individual running the talks for the group and when the team would fill a clear gap in the hiring firm’s practice or have an obvious complementary benefit. DLA Piper co-chief executive Simon Levine highlights this in his move to DLA, noting that there was no ‘tissue rejection’ as the team he led had relatively little cross-over with DLA’s practice in the area.
Caulfield Search founder Andrew Caulfield, who handled the move of SJ Berwin real estate star David Ryland to Paul Hastings in 2013 with a team of associates, argues hiring firms should have a set of core criteria in place. ‘It works if they’re properly cohesive at their current firm, if the team is not too big and unwieldy, and there is an obvious lead partner. Also, firms all want rainmakers who are self-sufficient but aren’t so egotistical that culturally they can’t fit in. It sounds straightforward but there are many different characters in the legal market.’
Simon Janion, founder of EJ Legal, says: ‘Team moves start with an individual coming to me saying: “I’m not happy.” If there’s a fundamental problem with the direction of the firm or the focus of the individual partner, that can lead to conversations with others at the firm. It’s more that than a group of people meeting by the coffee machine and plotting a move.’
For Bakers – which at the time it was discussing with the Norton Rose quartet was also simultaneously negotiating the hire of 70 partners from the disbanding international firm Coudert Brothers – the priority was ensuring cultural integration.
There is agreement that team moves tend to work when the transferring group has a genuine chemistry and commitment to working together, as it makes the team more stable and clients more willing to transfer.
But even if you have all these points ticked off, there remains the tricky issue of integration. Almost by definition, the self-containment and social glue of a productive team can easily exist as a firm-within-a-firm without a proactive and sustained effort to embed the team.
Part of the success of DLA Piper’s integration of the Dentons team was put down to the efforts made by DLA chief operating officer Andrew Darwin. He and DLA head Nigel Knowles had initially met Levine planning for an individual hire but rapidly shifted focus when it became apparent the team was interested in a group move (the process was complicated by DLA at the time also gearing up for its ground-breaking dual US merger).
Recalls Darwin: ‘It quickly became apparent that there was not only Simon who had concerns in Denton Wilde Sapte, so Stephen Rodney [of Fox Rodney] approached the other partners on our behalf. A key lesson I learned was treating everybody as an individual – you don’t want them thinking you’re buying wholesale. I met each partner individually. It was about making sure everyone felt treated with respect on various issues.’
Having put together the City’s largest-ever lateral hire at breakneck speed, Darwin worked assiduously with Levine to ensure the transferring partners felt a part of the new firm. That included the pair separately taking every partner to dinner, spending 11 consecutive weeks dining at Paternoster Chop House, located just a skip away from St Paul’s Cathedral.
Darwin says: ‘We joke about it now, but our respective wives were convinced there was something going on between Simon and me – we went to that restaurant every week trying to integrate people.’
Paying attention to what happens in the initial few weeks is, undoubtedly, crucial, setting the tone before management’s attention can easily drift off to other matters.
‘Simple as’
Despite the many challenges in securing that dream hire, there is little doubt that when those rare opportunities come along, they can work wonders.
The biggest benefit is obvious: with sizeable teams the ability to move clients shifts dramatically. Definitive Consulting’s Hoyland, says: ‘The most obvious upside of a team move from the new firm’s perspective is the increased likelihood of client portability and therefore immediate and guaranteed fee income.’
‘If you take out a whole team, clients are more likely to go. Simple as,’ agrees Appleby.
There is also some evidence that large team hires show better retention than individual recruitment, as transferring partners are less likely to feel like hired guns having moved along with trusted colleagues and it is logistically harder to move again.
More than a decade on, only four of the 11 transferring partners have left DLA Piper, Neville Cordell moved to Allen & Overy, Simon Gough and Askandar Samad to Reed Smith, and Mark Gay to Burges Salmon. The TMT team grew its billings from £12m to £20m and Levine, of course, went on to this year to take on the co-chief executive role from Nigel Knowles.
All of Walsh’s team, with the exception of Bruce Somer who left in 2013, remain with Bakers.
There are exceptions – two of the Norton Rose finance partners who joined A&O subsequently decamped. Five of the 12 partners Latham hired in 2010 have departed, despite Latham’s usually strong record on retaining partner recruits. And no amount of critical mass can compensate for an indifferent team or one moving to a law firm with major internal problems or a team hire that is fundamentally misconceived in its aims.
Some firms are also wary of hiring teams for fear that they will leave en masse – there is some evidence for such a trend in the case of dual-partner hires, though larger teams haven’t generally shown much appetite to move a second time as a group.
But for firms that can navigate those issues, the dividend looks too good to dismiss. The team hire looks to be back in favour as the old hierarchies in the UK legal industry break down, offering opportunities for ambitious firms willing to seize them.
Darwin concludes: ‘You’ve got more chance of success when there’s mutual support and clients can feel more comfortable. You have the danger of a firm within a firm but by and large you increase your chances of success because there’s less chance of rejection setting in early. Simon says it was a great career move for him and the firm. You look back in life and say that was great timing, fantastic judgement and a bit of luck – we happened to have the conversation in the right way at the right moment.’ LB
sarah.downey@legalease.co.uk