Home » Lateral partners—the modern-day Paladin (173)
Lateral partners—the modern-day Paladin (173)
By Tom Sharbaugh on July 2, 2020
Posted in BigLaw
Source: This Day in Quotes
Are we really all in this together?
For many years, the lateral market in Big Law has reminded me of the old cowboy television series "Have Gun — Will Travel." Richard Boone, pictured above, played the protagonist, "Paladin." The refrain of the show's theme song, which would probably only be familiar to readers at least in their 60s, was "Paladin, Paladin, where do you roam?"
As a former managing partner of an AmLaw 25 firm, I often joked with my brother, also a veteran partner of a global megafirm, that the lateral-partner candidates whom I regularly recruited were much like Paladin in that they were often "hired guns" traveling from firm to firm, in the same way that Paladin traveled from town to town. Indeed, Paladin's business card was embossed with his chess knight logo and his promise, "Have Gun – Will Travel."
I left Big-Law life several years ago in order to start a late-life teaching career at a law school. I still follow the Big-Law news daily. More recently, however, the frequent calming statements from law-firm managers in the face of the COVID crisis caused me to recall the challenge during the years following the Great Recession of trying to promote a strong firm culture while engaging in active lateral recruiting. Many law-firm managers are now saying that the partners are cutting their draw payments and that it is appropriate that the owners take a serious hit in order to preserve as many jobs as possible. However, the dirty little secret is that many lateral partners will not be taking that hit.
When a firm recruits a successful partner from another firm, it is customary to give the new partner a guaranteed fixed amount of compensation rather than issuing to the new partner points, shares or units of profit participation for which the ultimate total income will not be determined until the current year has ended. This makes sense for a moving partner because the lawyer does not want to find out at the end of the year that he or she has made less money at the new firm.
Yet, these negotiations are also influenced by market forces for lateral talent. Thus, a savvy candidate will negotiate for upside but no downside risk — i.e. the lawyer's comp at the new firm would increase in accordance with any growth in the value of the firm's units of participation, but the lawyer's comp would be at least equal to the guaranteed "floor" amount. At my former firm, we tried to limit these guaranteed arrangements to one year but we were often competing with firms giving guarantees for as much as three years, with no performance milestones.
After a firm actively recruited lateral partners in 2006 through 2008, it was awkward in 2008, 2009 and possibly later years, when partners at that firm made less than they had made in the years leading up to 2008, while the most recently hired lateral partners received their guaranteed payments based on a robust pre-2008 economy. In my discussions with other law-firm managers, I did not hear of any then-recent lateral partners who volunteered to take the recessionary hit along with the other partners; after all, "a deal is a deal."
The Paladin lifestyle will also come into play later this year as marketable partners see this recession as an opportunity to jump to another firm to get a guaranteed level of income for the next few years. Although long-term partners at a particular firm will not move in order to maintain or perhaps increase their income levels, short-term partners often have a different focus—reminding me more of Jerry Maguire than Paladin: "Show me the money."
The active lateral market makes it difficult for law firms to retain talent, much in the same way that our hometown team struggles to retains our stars in the face of much bigger salaries and endorsement deals in New York or L.A. The trend towards having multiple-office firms makes it even harder because the new expansion offices usually comprise only recent lateral partners, in most cases from multiple firms ("let me introduce you to your new best friends"—really?). Firm managers often find themselves in the ironic situation of limiting the compensation for strong performers in stable offices in order to pay the ransom demanded by recent recruits to a weak office. It would be much easier to build new offices if Big Law had an expansion draft like pro sports leagues.
All firms routinely cite their strong cultures, but for firms engaged in the high-profits horserace, it is much easier said than done. When partners are coming and going on a recurring basis, firms are kidding themselves when they suggest that the new arrivals are somehow instantly bonded to the other lawyers and staff at their new firm. I remember the often-cited principle that if a firm's only bond is money, there better be a lot of it. If someone were to suggest that recent arrivals should reduce their income in order to protect the jobs of others at their new firms, they would be more likely to take a hit for the lawyers or staff at one or more of their previous firms where they may still have stronger bonds.
Although many firms in internal letters to the troops often refer to themselves as a "family" and state that "we are all in this together," those types of bonds require time together, as observed by organizational psychologists who have studied military units, fraternity pledge classes and other groups. When a particular firm has a high lateral-partner quotient, the bonds among partners will inevitably be weaker.
Based on my experience with the last big recession, I predict, first, that the many recently hired lateral partners in Big Law will not be "taking one for the team" along with their fellow partners this year. And second, I predict that there will be an uptick in lateral movement as recently hired partners with expiring guaranteed contracts decide to test the waters at other firms rather than suffer reductions in their incomes along with their now-current partners.
The desire to earn a good living can chafe against the personal value of organizational loyalty. Unfortunately, the outcome ends up partially defining our profession.
Tags: Big Law, lateral partners
Tom Sharbaugh is currently a Professor of Practice at Penn State Law and the Director of the law school's Entrepreneur Assistance Clinic. He was a partner of a global law firm for many years, serving as firm-wide managing partner for his most recent…
Tom Sharbaugh is currently a Professor of Practice at Penn State Law and the Director of the law school's Entrepreneur Assistance Clinic. He was a partner of a global law firm for many years, serving as firm-wide managing partner for his most recent 15 years with that firm.
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