Posted Feb 05, 2014 01:05 pm CST
BigLaw firms continue to snap up lateral partners, but all that hiring may dilute the partner profit pool, according to an analysis by two professors.
Baker & McKenzie hired 68 lateral partners last year, making it the top firm for lateral acquisitions, according to an American Lawyer (sub. req.) survey. America’s top 200 law firms made 2,522, lateral partner hires last year, lightly below 2,691 hires in 2012. The New York Times and the Wall Street Journal Law Blog covered the findings, summarized in this press release.
After Baker & McKenzie, the firms that made the most lateral partner hires were Jones Day with 65, Husch Blackwell with 52, K&L Gates with 48 and Reed Smith with 40. Hogan Lovells lost the most partners at 43, followed by K&L Gates at 39, DLA Piper at 37, Dentons at 36 and Norton Rose Fulbright at 35.
Is all that lateral hiring worth it? In a separate American Lawyer (sub. req.) article, Indiana University law professor William Henderson and Pennsylvania State University political science professor Christopher Zorn argue that the hiring boosts revenue, but it can dilute profits. The problem, Henderson told the Times, is that law firms can lose money on lateral hires when their billings don’t match projections. The laterals are generally guaranteed about 18 months of pay, no matter the actual revenues.
“We don’t have evidence that such hiring is doing a lick of good,” Henderson said.
In their article, Henderson and Zorn say the hiring strategy is akin to mating “on the basis of the peacock’s large, colorful tail.”
The incoming partners, Henderson and Zorn write, “provide evidence that the firm is still vital and attractive. Indeed, one managing partner of an Am Law 100 firm confided in us that pressure to hire lateral partners springs largely from the partnership, not management. ‘Just like sorority and fraternity rush at college,’ the MP told us, ‘being selected by a lateral candidate provides a sense validation that we are desirable. Unfortunately, too many lawyers never outgrow the insecurities of youth.’ ”
Coverage of last year’s findings:
ABAJournal.com: Does lateral hiring produce higher partner profits? Not according to the statistics