Time for Lawyers to Agent Up - Attorneys as Unrestricted Free Agents

Financial Planning, Attorneys
In lateral hiring situations, the acquiring firm is playing a repeated game, whereas the partner is playing a single-shot game.

Attorneys as Unrestricted Free Agents

The most interesting phenomenon in the world of professions is attorneys as unrestricted free agents, able to sign with whatever firm they want and, in some instances, getting 8-digit signing bonuses and salaries.[1]

Indeed, AmLaw 100 firm partners are making more than professional athletes.For example, the average NFL player salary number that gets quoted is typically over $2M per year, but this is misleading because of a few outsized contracts for quarterbacks and defensive ends.[2] The more relevant number is the median salary, which is $860,000.[3] (Medians are unskewed by outliers.)The NFL league minimum is $435,000.[4]

This pattern is true in all major professional sports leagues.

If we use the AmLaw 100 Profits Per Partner (“PPP”) as a proxy for partner income, we can see the number one firm by PPP is Wachtell at $5.7M and number 100 is Littler at $461,000.[5]

Chart One: Top AmLaw 100 2017 Profits Per Partner

attorneys as unrestricted free agents

Thus, elite lawyers are making more money than elite athletes with the bonus of being able to do the work for 30+ years and no risk of CTE.

Agent Support

Just like the professional athletes they have come to resemble, attorneys testing the lateral hire waters need an agent to help them evaluate and analyze their risks and opportunities.Otherwise, they may have a fool for a client.

Given the risks involved with making a lateral move, attorneys need support in evaluating deal terms, structure, evaluating the business strategy and plans of the acquiring firm, and comparing the offers to staying or starting their own firm.While in many ways brilliant, most attorneys are not numbers people.  However, if they are negotiating a lateral move to another firm, they will be up against that firm's CFO (even if they never meet the CFO, that person will be running the numbers behind the scenes), who is a numbers lifer.

Furthermore, in lateral hire situations, the acquiring firm (and its CFO) is playing a repeated game, whereas the partner is playing a single-shot game.  This changes the dynamic and provides an asymmetric bargaining advantage to the firm.

While some firms have famously overpaid for talent with guaranteed contracts, that is a risk to the partner.  For instance, lateral partners who joined Dewey & LeBoeuf (and received large guarantees under contract) may only have received a few of those guaranteed payments before the firm’s bankruptcy.[6] Furthermore, they lost their firm equity, had to go through another firm search (this time in a weak bargaining position), and likely had to fight a rearguard action against creditors trying to claw back what payments they did receive.

On a purely financial basis, most Dewey lateral hires would have been better off staying at their previous firm.  On an all-in basis, those moves were a disaster.

Making it Work

It is widely known that many lateral moves do not meet expectations.[7] My belief is this is due to two factors.

First, there are unrealistic expectations on both sides as to the percentage of clients and revenue that can be ported to the new firm and how fast the revenue can ramp.

Second, there is deficient strategic planning and execution to make the move a success. These moves must be planned with military precision and every action planned down to the minute over the first few days, to the hour over the first week, and daily over the first month. There also needs to be weekly and monthly milestones for both the partner and firm and diligent management, execution, and accountability.

The process requires an enormous amount of planning, focus, and execution on the part of the moving partner and the acquiring firm's management.

Bantam Agent Services

We offer agent services for partners contemplating lateral moves, including:

Financial Modeling of:

  • Guarantees;
  • Bonuses;
  • Clawbacks;
  • Forgivable loans;
  • Tax implications, and;
  • Optionality assessment.

Risk Quantification

  • Partnership withdrawal economics, including: equity, bonus, and pension;
  • Quantifying the costs of post-hire failure;
  • Portability assessment and expected value by client, and;
  • Risk-weighted breakaway v. stay comparison.

Acquiring Firm Business Evaluation

  • Business plan evaluation;
  • Institutional focus on partner book, on-boarding, business development, and strategy, and;
  • Analysis of previous lateral hire integrations.

Negotiation Services

  • In-person and real-time support.

Book Porting Support

  • Timeline development;
  • Dependency and critical path analysis, and;
  • Plan execution support.

Bantam CEO Jack Duval has been a part of hundreds of negotiations in settling securities litigation claims.  Please call 845.605.1007 or email to discuss your situation and how we could help you evaluate your risks and opportunities.For more information, see our Services for Attorneys.

NOTE: Nothing in this blog post should be considered individual investment advice. If you need investment advice, please email Jack Duval at jack@bant.am or call 845.605.1007.

[1] James B. Stewart; The New York Times; $11 Million a Year for a Law Partner?  Bidding War Grows at Top-Tier Firms; April 26, 2018.  Available at: https://www.nytimes.com/2018/04/26/business/cravath-kirkland-ellis-partner-poaching.html; Accessed July 17, 2018.

[2] Chron; How Much Money NFL Players Make; Available at: http://work.chron.com/much-money-nfl-player-make-year-2377.html; Accessed July 17, 2018.

[3] Id.

[4] Id.

[5] The American Lawyer; The 2018 AmLaw 100 Ranked by: Profits Per Equity Partner; Available at: https://www.law.com/americanlawyer/2018/04/24/the-2018-am-law-100-ranked-by-profits-per-equity-partner/; Accessed July 18, 2018.

[6] Peter Lattman; The New York Times; Dewey & LeBoeuf Files for Bankruptcy;  Available at: https://dealbook.nytimes.com/2012/05/28/dewey-leboeuf-files-for-bankruptcy/; Accessed July 18, 2018.

[7] Steven J. Harper; The Belly of the Beast; The Latest Big Law Firm Strategy: Perfecting Error.  Available at: https://thelawyerbubble.com/2016/03/30/the-latest-big-law-firm-strategy-perfecting-error/; Accessed July 17, 2018.

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