From the Kirkland & Ellis site, under the topic Laterals Overview (I quote in full, emphasis supplied): ‘At Kirkland, the quality and experience of our lawyers are among our greatest strengths. We are committed to making a substantial investment in our lateral hires by fostering an environment in which they are seamlessly integrated into our Firm culture.’
File this in ‘Dep’t of Understatement.’
I allude of course to Kirkland’s hiring James Hurst from Winston & Strawn for a reported $9m/year, guaranteed for four years. This not two weeks after they took Stephen Lucas from Weil Gotshal for about $8m/year, guaranteed for three years. While these numbers are new news, and justly deserving of the ‘eye-popping’ label they’ve received, this pattern of hiring by Kirkland is by no means new. I first began hearing of Kirkland engaging in high-profile hires, wielding its daunting checkbook, about two or three years ago from some managing partners here in New York.
But it’s now eminently safe to conclude it’s not a series of one-off’s by happenstance, but an established and exceedingly purposeful strategy. Here’s a partial rundown of recent Kirkland lateral recruits from The American Lawyer, prompted by the Hurst transplant:
‘For its part, Kirkland has been aggressively recruiting star laterals from other firms, often paying top dollar to bring them on board. In May, the firm bagged Weil, Gotshal & Manges banking head Stephen Lucas in London, reportedly doling out almost $8 million along with a three-year guarantee, according to two sources. Last summer, Kirkland nabbed Robert Khuzami, former head of enforcement at the Securities and Exchange Commission, as a partner in the firm’s government, regulatory and internal investigations practice in New York and Washington, D.C. with the promise of $5 million per year for the next two years, as first reported in The New York Times DealBook.
In November 2013, the Windy City-based firm recruited Simpson Thacher & Barlett’s Sean Rodgers to join its partnership ranks. Simpson Thacher partner Andrew Calder, Weil, Gotshal & Manges partner Douglas Ryder and Skadden, Arps, Slate, Meagher & Flom partner Richard Aftanas also joined Kirkland earlier this year. The Am Law Daily reported that Ryder was offered a substantial increase on the $1.4 million in annual compensation he was receiving at Weil.
Other recent hires include Ropes & Gray private equity partner Gary Li in Hong Kong in October, as well as Skadden partner Ian John in New York, Davis Polk associate Bate Yu as a partner in Hong Kong and Sidley Austin associate Lucas Spivey as a partner in Houston in November. The firm also added a trio of Covington & Burling litigators last month in Washington, D.C., all of whom did Deepwater Horizon-related litigation work alongside Kirkland attorneys. Right before Thanksgiving, the firm brought on McDermott private equity partner Ryan Harris and just last week, Kirkland also brought on Debevoise & Plimpton associate Matthew Dickman in London as a partner in San Francisco.
The American Lawyer reported last year on Kirkland’s large spread between the highest-paid equity partners and lowest “nonshare” or nonequity partners, which has allowed the firm to lure laterals with hefty bonus packages.’
Requisite caveat alert: Obviously, Kirkland isn’t the only firm that’s ever spent lavishly on laterals, with or without guarantees, of short or long duration, but they’re justifiably in the news lately and the scale and sums involved are, shall we say, noteworthy.
And sure, these moves, and their associated strings of zeroes, draw oohs and aahs from the audience, but that’s not why we’d talk about them on Adam Smith, Esq. What I want to explore is whether Kirkland’s tactics represent a new and powerful technique to build a firm for the long run, or whether they’re going to amount to splashy but short-lived experiments?
The only honest answer, of course, is that it’s too soon to tell.
Shall we tot up the pro’s and con’s?
• Clients hire lawyers, not law firms
• These folks are go-to lawyers in their fields
• (Even if clients hire firms, it’s marquee-name partners that burnish a firm’s reputation)
• The knock-on effects of prestigious names will more than recoup, for Kirkland, the outsized compensation
• As the industry moves towards a model of increasing dispersion in performance, Kirkland is staking out an impregnable position at the high end
• What on earth are incumbent partners without guarantees to think? Does this strategy strengthen centripetal forces within the firm?
• The industry’s track record with laterals is less than admirable; they often leave when or shortly after the guarantee expires
• How much inequality among partners, from highest to lowest in terms of pay, is too much?
• Ultimately, how sustainable is this?
• Is this any way to build a law firm?
We actually have at least a modicum of learning from elsewhere in the economy about the dynamics of superstar industries, notably entertainment and sports. Indeed, almost 20 years ago Robert Frank published The Winner Take All Society, which explained, while decrying, the market forces that push some superstars’ compensation into orbit while attracting a host of aspirants, most of whom, inevitably, are doomed to fall short. Presciently, the book talks of the dynamic invading law, business and academia. (Have you read about the historic raids Stanford Law made on Harvard, Yale, and Columbia faculties decades ago?)
In the meantime, what’s a managing partner to do?
One answer arose in a conversation we had this very week: ‘Just say no.’ That is, if you want to make a ton more money than you’re making, our firm isn’t the place for you. The door is to your right; be my guest…. This has the twin virtues of clarity and of drawing a line. We will not be held up for ransom.
Another answer is that we don’t compete in that league, for starters, so who are you kidding? This is probably the de facto answer for the vast majority of firms and their partners. Sure it’s fun to read about these moves and these numbers, but that’s a different world, a different industry. True enough.
The toughest spot is for firms (see the AmLaw recounting above) that rightly consider themselves peers of Kirkland. What are they to do? Counter-offer, generously? Match? Say ‘So long?’
For now—I told you the only honest answer to how Kirkland’s plan will work out is that it’s too soon to tell—my money is on ‘So long.’
This surely comes with risk: Kirkland’s model could be right after all, and you could have just shot your legs out from under yourself.
So my longer answer is: What is your firm all about? What does it stand for? If you know the answer and have the courage to say ‘so long,’ knowing your firm will be strengthened and not weakened, then preserve your firm’s soul. Some things have no price.
If you don’t know the answer for sure, go find your checkbook.
Bruce MacEwen is the president of Adam Smith, Esq. You can read his blog here.