Rivals rush in to grab high‐profile talent from flopped firms.
By LEE Monday
The phone calls started coming in January. At first it was just a handful a week, but by March, attorney John Schreiber was getting rung up by recruiters and other law firms five to 10 times a day.
They had heard that his employer, Dewey & LeBoeuf LLP, was in financial trouble and they were hoping to recruit him away from its downtown L.A. office. Some recruiters called on behalf of specific firms, others without naming leads. Yet more calls came from lawyers he knew at other firms. Tactics were aggressive: One other Dewey partner discovered that a recruiter had been calling law firms on that partner’s behalf without permission.
Indeed, the last several months have seen a frenzy of activity in the L.A. legal market as competitors sought to scoop up talent at Dewey, a swooning New York-based firm that closed its L.A. office this month. It followed similar but smaller rushes surrounding the dissolution of two smaller local firms in the last six months, Silver & Freedman LLP and Rutters Hobbs & Davidoff LLP.
“It was sort of like a pack of hyenas gorging on the carcass of a fallen animal,” said Sandy Lechtick, president of legal search firm Esquire Inc. in Woodland Hills. “As soon as the word hit the street, every headhunter in town was going after everyone there.” Though struggling firms have always been targeted by competitors, industry insiders said that competition for top talent is more heated than ever as law firms face flat demand for services and more pressure to increase revenue. Many firms are also racing to expand into new markets through lateral hiring.
The emphasis on hiring partners who can bring in business is also part of a shift away from investing big sums in lower-level associates, who don’t immediately add to bottom lines and are more likely than ever to leave firms even before they make partner.
A collapsing firm offers a rare opportunity to pick up attorneys who have cultivated a book of business, especially in Los Angeles, which is seen as a tough legal market to crack.
“It’s hard to recruit out of the successful indigenous firms in Los Angeles, so the recruiting has become more intense, more aggressive,” said Peter Zeughauser, a legal consultant in Newport Beach. “Revenue growth is an imperative, and increasingly difficult to do through rate increases and additional demand, so you’ve got to add partners.” Talent hunt Of the three recentfirmcollapses affecting the L.A. area,Dewey, a global player withmore than 1,000 attorneys in 26 offices, offered themosttop talent. A handful of attorneysleftthe L.A. office in February, and over the next three months, the line out the door grew as the firm’s struggles to pay off debts became public.
Dewey internally encouraged attorneys to leave at the end of April, closed its L.A. office this month and reportedly is considering filing for bankruptcy.
One of the biggest catches in the roughly 30-attorney local office was Bruce Bennett, a prominent bankruptcy attorney who was still working on the Los Angeles Dodgers’ bankruptcy when a number of firms and recruiters started angling to land him. Once he decided to jump, things got so competitive that at one point a recruiter called the law firm Jones Day LLP, claiming to represent Bennett in an apparent attempt to facilitate a deal. Bennett said he never approved any recruiters, and that unbeknown to the recruiter, he was already in direct talks with Jones Day partners including Joe Sims.
“I don’t think Joe is the only person who received phone calls from headhunters purporting to represent me,” Bennett said.
Sims added, “I think everybody’s pretty aggressive and that’s part of the problem that these firms face when it starts to look like there are issues.” Schreiber, a partner in the litigation department who splits his time between New York and Los Angeles, said he began ignoring calls.
“You get to the point where unless you recognize the number, you didn’t answer,” he said.
He ended up moving to Winston & Strawn LLP along with a group of more than 60 litigation attorneys.
Firms looking to open in the L.A. market also tried to get a piece of the action. Former Dewey partner Gary Apfel was hired to launch a downtown L.A. office for Philadelphia’s Pepper Hamilton LLP. He said he entertained several offers and connected with the firm through a mutual contact.
“There’s talent there that a lot of law firms would covet,” said Pepper Hamilton Chief Executive Scott Green.
“I don’t think, had Dewey not been in the condition they were, that we would have had this opportunity.” Downtown L.A. firm Rutter Hobbs & Davidoff voted to dissolve after a $10 million malpractice verdict stemming from the actions of a former partner. The firm closed its doors in January.
Name partner Brian Davidoff orchestrated a move in December in which most of the 30 attorneys agreed to jump as a group to Century City firm Greenberg Glusker Fields Claman & Machtinger LLP. But he said it was a massive undertaking to stop competitors from poaching attorneys and splitting up the group. He personally got calls from about a dozen recruiters and law firms.
“It was astonishing to me,” he said. “I personally had thought we would engage one consulting firm and that would just be the way it goes, but no. The level of interest from opportunistic people was not easy to manage.” And when 25-attorney firm Beverly Hills firm Silver & Freedman voted in November to dissolve, it didn’t take long for real estate partner Kenneth S. Fields to start getting pitches.
“We had our meeting to discuss folding down, word got out within three hours and I was receiving phone calls even before we made a public announcement,” he said.
He said he heard from about 15 firms, negotiating with some directly and using a recruiter to set up meetings with others. He moved to Greenberg Glusker in March, but like most partners, that hasn’t brought a stop to the recruiter calls.
“I get two to five or more calls a month even in the normal course of things,” he said. “Most of the phone calls are from out-of-state firms looking to create offices in the Los Angeles market.” Industry pressures Indeed, the rush to pick off attorneys atstruggling firms, while not a new phenomenon, hasintensified due to the recession and other factors specific to the legal industry. Profits-per-partner and revenue-per-lawyer figures are increasingly important metrics even as clients clamor for lower billing rates. Firms view lateral recruiting as the most effective way to keep billings up in the face of such pressures.
As a result, partners who bring in large amounts of business have become a high-demand commodity. They switch firms with more frequency and are commanding higher compensation, widening the gap between highest- and lowest-paid partners at a firm.
Some, such as downtown L.A. firms Latham & Watkins LLP and Gibson Dunn & Crutcher LLP, are known to offer significant retirement policies in order to hold on to top talent. Some firms also offer large compensation guarantees untied to performance. At the same time, firms have cut down on the number of lower-level associates, who were hired in large numbers before the downturn.
“The concept of bringing someone out of law school, training them, making them a productive lawyer and eventually bringing that person in as partner is a much longer-term process, and the chances are few and far between,” Davidoff said.
Another factor driving aggressive recruiting is that a number of firms, such as Green’s Pepper Hamilton, are in expansion mode as they try to transform themselves into national and international players. Many are looking to establish a presence in the L.A. market.
“I know a lot of partners rue that fact, but it is a fact that the days of singular city firms with broad practices, it’s really not a defensible position anymore,” Green said. “You need to be part of a platform to compete effectively.” In the case of the three recent closures, especially Dewey, firms that landed attorneys such as Winston, Jones Day and Chicago-based Sidley Austin LLP were in a position to offer competitive compensation and strong support. Such firms will continue to have an advantage, said recruiter Lechtick.
“The stronger firms are getting stronger at the expense of the weaker firms,” he said. “There are more law firms that are competing in some cases for the same work and it brings home that it really is survival of the fittest.”