Elite law firms based in New York are taking a more aggressive approach to signing high-priced partners, a trend often observed in their city’s baseball teams. This strategic shift comes within the backdrop of a highly active lateral market and competitive changes in compensation models. Previously complacent in their strategic posture, these changes have come about due to the long-standing “Wall Street firm” brand no longer guaranteeing sustained influxes of work and talent.
Upstart competitors such as Kirkland & Ellis, Latham & Watkins among others have managed to lure partners from these premiere Manhattan law firms. These defections have significantly impacted important markets such as public company M&A and capital markets work. Adjusting to this new reality, Wall Street firms are readying themselves to compete head on by going to greater lengths to match the high salaries certain partners command on the open market – salaries upwards of $20 million in recent years.
David Walden, co-chief executive officer of legal search firm E.P. Dine states, “They didn’t feel they needed to be the most entrepreneurial with clients or the most acquisitive of natural talent. But they got that wake-up call and each firm has had to decide what they need to do to compete.” The push now is for these top-tier, established firms to adapt or face diminishing returns.
As an example, Davis Polk & Wardwell has made owning the competition for high-priced partners central to its long-term strategy by adjusting its compensation structure. This strategic play ensures that the firm remains competitive as it leans into the lateral market, according to its managing partner Neil Barr. Similarly, major player Paul, Weiss, Wharton, Rifkind & Garrison has made drastic changes, including adopting a two-tiered partnership and a black box compensation system.
Despite recent alterations in strategic stance, it is worth noting that consensus is yet to be reached among New York’s Wall Street firms on the best strategy. Any break from long-standing tradition poses distinct challenges for management – risks of culture shock owing to hiring new partners and paying them more money than homegrown lawyers, or unsettling the ranks by cherry-picking winners from formerly similarly paid partners.
As David Walden puts it, “The story is still being written about the upper echelon of the law firm industry. Agree or disagree with the magnitude of what’s occurring, it’s fascinating in part because of how quickly it’s happening.”