Given that it has been so well telegraphed that the $10m lateral was coming to the Square Mile, the shock among City peers at the hire of Freshfields Bruckhaus Deringer private equity veteran David Higgins (pictured) has been, well, shocking. ‘Outrageous’, ‘obscene’ and ‘mildly appalling’ are among the reactions from peers. One hopeful partner at a US firm notes: ‘The clients won’t be impressed with that number splashed all over the news.’
But such sentiments are a naive reading of how the industry is evolving. Yes, if you think of a lateral as wrangling an immediate book of business, such a package suggests needing to preside over $30m within three years to be called a success on a conventional yardstick. That would certainly be a stretch – though not impossible given what some of the strongest City laterals have managed – but that is not the benchmark. Kirkland & Ellis has been stuffed with leveraged finance talent for years while lacking an unquestioned corporate A-lister. The hyper-productive Matthew Elliott delivered that when he joined from Linklaters in 2016, but his practice has a very precise real estate slant.
Higgins is one of the City’s leading private equity hands and he has been brought in to build for the long term at what is already a large City operation. And rivals who insist on talking down Kirkland should consider how meteoric its rise has been over the last 15 years. The firm that back in the day launched an English law practice with a low-profile hire from DLA now routinely takes partners out of top firms in London and Manhattan. A lot of feathers were ruffled on Wall Street with Kirkland’s 2012 recruitment of Cravath, Swaine & Moore’s Sarkis Jebejian – last month the Chicago-bred giant went one better to hire one of New York’s leading M&A lawyers, Cravath’s Eric Schiele. After another robust year, Kirkland is one of the world’s largest, most profitable and potent law firms, and still gaining momentum.
Some point to Higgins’ move as jarring, coming after the recent vote to shake up Freshfields’ compensation, but that neglects that the package should have gone through more than two years ago, and as it stands will not deliver much for top performers for over a year, and only then if forecasts of profit-per-point are met.
That is not to overplay the immediate impact on Freshfields’ buyout team. The team is stuffed with quality – not least in loyalist Adrian Maguire, a universally-respected operator in a field packed with Marmite men. The tight-knit team has plenty of young talent – most strikingly in the case of rising star Charles Hayes, but also Victoria Sigeti, with Alex Watt ably covering the buzzing real estate sponsor clients.
There is also a formidable European network and Rolls-Royce coverage in tax, regulatory and antitrust, and a finance team that has been increasingly fashioned around buyouts (though not enough to stop tensions with Higgins).
Without further losses, Freshfields can head off much of the damage. Indeed, Kirkland’s own analysis is that the top of Europe’s buyout market will consolidate around three firms: itself, Freshfields and Latham & Watkins. But even if no other significant hands quit Fleet Street – a pretty big if – others will heed the call.
Such laterals tend to go one of two ways: they are a watershed for the hiring firm and leave the abandoned institution still diminished years later or they ultimately amount to very little. Even if this move proves to be the latter – and that looks doubtful – there will be more from the City elite. And some will deliver to devastating effect.
This is the competitive reality facing London law firms. Yet too many of their older partners brush it off, even as more of their best senior associates and young partners gaze wistfully at US rivals. If such firms cannot learn to reconcile the interests of their next generation with their elder statesmen, they are setting themselves up for more shocks. And sooner than many think.
For more on Freshfields’ partner remuneration, read ‘Comment: Ditching lockstep – better too late than never?’