The reality is that there has always been a steady flow of partners moving from firm to firm. The economic crisis of 2008 has increased that flow, and over the past year there has been a spike, with partners looking to move to higher performing firms, Mr. Bongard says.
At the same time, firms have become more transparent about where they want to focus their core practice areas. When that happens, it sometimes puts peripheral practice areas on the fringe, leaving certain people behind or less cared for, he says. “People think, ‘I don’t want to be a pension lawyer at a mining firm. I’d rather be with a firm that is more committed to my practice area.’”
They’d also rather be at a firm that’s thriving and where they have control over their practice. “Flat out, those are the two reasons senior partners with books of business upwards of $4-million move,” says Adam Lepofsky, president and founder of legal recruitment firm RainMaker Group. “Money and control over practice. That’s it.”
With the economy being so unpredictable, and the legal profession mirroring that uncertainty, moving becomes a little trickier, he says. “People’s practice areas are going up and down in terms of revenue. It’s similar to what free agent athletes face. Do you have leverage or not? A senior partner moving to a new firm is like a mini-merger. You have to consider all the variables: the other partners, the nature of the practice and its portability, the firm’s philosophy. It’s just like courting a merger with the same due diligence on both sides.”
That courting can take place in a couple of ways. The more conventional route starts with a partner talking to a friend at another firm over lunch, revealing he or she is unhappy and the friend in effect opening the door. “That’s what we call a direct recruit,” Mr. Bongard says. The other way is through a recruiter. “The latter has become a lot more commonplace, for a few reasons: as an agency we can provide multiple options. As well, we have a good sense of the marketplace, so we are able to share what firms are up to, which have growth on their minds, which have contraction on their minds, where there might be synergies — that’s the most important piece. If a lawyer comes to see me and says, ‘I have this private equity practice and I want to move it,’ we talk about the issues with their own firm so we can address it and identify appropriate firms to consider.”
In all placements, the hiring firm pays the recruiter’s fees, which are based on a percentage of the new hire’s compensation.
The mechanics of making a move at the senior partner level typically begin with determining whether there is a mutual like and synergies between the partner and the firm. “The premise here is if a partner is moving firms, he or she is likely to bring a portable book of business and so if that’s the case, you have to make sure there is a culture fit in terms of the personality of the partner and synergies with the practice area and the new firm,” Mr. Bongard says.
The next stage is to look at business conflicts. You don’t want a situation where a new lawyer represents Coke while the firm represents Pepsi. If everything seems to be aligned, then the idea has to be socialized. “If someone is coming in with a large book of business, how will others at the firm feel? Is it going to cannibalize the department? I’ve seen it before where a law firm wants to bring in an individual with a large book of business, and the individuals in that practice group feel threatened. You have to overcome that. And you do that by socializing the idea with the right department,” Mr. Bongard says.
Then it comes down to dollars and cents and the financial model that reflects a meeting of the minds. This is often the most challenging aspect of a move as every law firm compensates partners differently. The big issue at this stage is whether to admit a new senior partner as an equity partner or as a non-equity partner, Mr. Bongard says. “50% of the time, people join as full equity partners and the other half they join as counsel or non-equity partner with the view that within two years of joining they will become equity partners. In effect, it’s dating to make sure the fit is right. Fit is key because if two years in you realize this person isn’t really what you thought they were, it’s much harder to get rid of them as an equity partner.”
That said, every law firm has a partnership agreement that addresses the exit issue but there is no one fast rule as to how it works. Typically the senior partner invests $250,000 (some agreements require more, others less) that is paid back to the partner when he or she leaves. The repayment is usually spread out over a period of three to five years in order to give the firm a little more control over the process.
No rule prevents senior partners from taking clients because you can’t control a client’s choice — and in fact, senior partners are recruited because the expectation is that their clients will follow. What you can control is how you do it. “You can’t say, ‘I’m moving. Here is a transfer notice.’ Rather, the new firm will send a note to clients saying, ‘We’ve just hired X, we understand you’ve worked together,’ and invite them to move with the partner,” Mr. Bongard says. “The language is very specific.”
Client ownership is perhaps the grayest of gray areas when it comes to a senior partner move, Mr. Lepofsky says. “Who owns the book? Is it yours? The firm’s? Both? How do you split it up? For that reason, no prudent and honest senior partner will make any guarantee when it comes to revenues. They can certainly reveal what they’ve done in recent years and over their tenure and what they’ve done to produce those numbers. It’s up to the new shop to evaluate the partner’s potential based on reputation, expertise and prior years’ numbers to make that business decision.”