With the new year upon us, law firms have just been through the typical year-end crush of collections, budgeting, compensation decisions and more. We recently took a look at 2017′s hottest trends, and explored what we could expect from them in 2018.
The industry, like much of the country, began 2017 with questions about how a new administration would affect everything from deal flow to health care legislation and tax reform. Those questions still loom in many respects. Closer to home, law firm mergers, lawsuits over gender discrimination, legal technology innovation and the business operations of firms promise to continue to dominate industry discussions.
From Hollywood to Big Law, Gender Discrimination Suits Abound
As a steady stream of sexual harassment claims emerged this year in Hollywood and the tech world, Big Law had its own set of gender equality issues thrust into the spotlight, thanks to several lawsuits claiming that women lawyers have faced discrimination.
At the end of 2017, several of those gender bias suits — brought against Chadbourne & Parke (now part of Norton Rose Fulbright), Proskauer Rose, Steptoe & Johnson LLP and Winston & Strawn — are just picking up steam. Judges, for instance, could soon answer at least one key question: whether the female equity partners involved in the Chadbourne and Proskauer suits qualify for employment protections under federal law, or if their financial stake and level of authority within their firms excludes them as business owners.
The lasting impact of the suits remains uncertain for an industry that has clear, statistically demonstrated disparities between the number of men and women lawyers who make it to the highest level of partnership and in pay between men and women.
“It’s a gap that widens as authority levels grow,” says Lauren Rikleen, president of the Rikleen Institute for Strategic Leadership and a visiting scholar at Boston College’s Center for Work and Family. “We still are dealing with equity partner numbers that are inexplicable.” Rikleen adds that the lawsuits have shone a light onto some of the diversity and gender gap issues. And, in her view, as long as the gap persists, it’s likely that more women lawyers will step forward with legal claims.
But whether the handful of lawsuits out there now turns into a flood is a separate question, says Caren Ulrich Stacy, CEO of the Diversity Lab. Concerns about suffering retribution or a reputational hit have kept many women lawyers from stepping out into the light with claims of pay disparity or sexual harassment, according to Stacy. And she thinks it might stay that way until a woman lawyer has a substantial — and public — victory in court.
“Until a plaintiff wins, I don’t think there’s going to be a lot of law firms jumping to address the issue,” Stacy says. “I think there are a lot of women out there who think that, if they lose, bringing the suit is potentially a career killer.”
Another question is whether the raft of sexual harassment claims leveled against the likes of Harvey Weinstein and others will have a spillover effect on Big Law. Both Rikleen and Stacy say they believe the same types of claims are hiding under the surface in the legal world. But they suspect it will take time to see a stream of those claims bubble up into the public sphere.
“Our profession is not at all immune,” says Rikleen. “Unfortunately, it continues to be under the radar.”
Urge to Merge
Big Law consultants across the United States will be celebrating a bumper year. By early November, there had been no fewer than 85 mergers and acquisitions involving U.S. law firms in 2017, according to Altman Weil data — just six shy of the all-time record, set in 2015.
The year was punctuated by a series of high-profile transatlantic combinations, including those between Norton Rose Fulbright and Chadbourne & Parke; Sutherland Asbill & Brennan and Eversheds; and Winston-Salem, North Carolina-based Womble Carlyle and its UK ally, Bond Dickinson. Another, involving Bryan Cave and London-based Berwin Leighton Paisner, is currently at an advanced stage and may be complete by the time you read this article.
But while those large-scale tie-ups hit the headlines, the overwhelming majority of deals in 2017 were extremely small: Over 90% involved at least one firm of under 100 lawyers, while more than two-thirds were acquisitions of firms with 10 lawyers or fewer.
Elsewhere, Dentons continued its mission to single-handedly consolidate the entire global legal market with another seven law firm deals, including with 200-lawyer Scottish “Big Four” firm Maclay Murray & Spens. The Sino-global giant has now completed a staggering 16 combinations in the past three years.
And for 2018? Speak to five different consultants or law firm managers and get five different pictures. The widespread uncertainty that is currently plaguing the market means that the next 12 weeks are hard enough to predict, let alone the next 12 months.
But most expect to see significant activity in 2018, as firms seek combinations that deliver scale and international reach, which is likely to drive further transatlantic deals in particular. The real question is the extent to which this involves the elite U.S. and UK firms. The Magic Circle have long been rumored to be chasing mergers that would land them a major presence in New York, but may have to look beyond Wall Street if they are to secure a deal. That said, one consultant, speaking on the condition of anonymity, suggests that the stance of a once famously merger-averse Wall Street firm may finally be beginning to soften.
But such deals still seem some way off. Instead, look to continued consolidation of the regional U.S. markets and the under-pressure UK midmarket, which has been shaken up by last year’s record-breaking three-way tie-up between CMS, Nabarro and Olswang. Dentons will probably also gobble up a few dozen more businesses, but that’s about as safe a bet as you can make in the current environment.
Large Lateral Groups Will Be the Target in 2018
Of course, with the change of presidential administrations, there was a predictable exodus of lawyers from government, but overall lateral hiring activity was muted at first in 2017.
“I think no one on either side expected Trump to win, and it injected some uncertainty into the marketplace,” says Jeffrey Lowe, global practice leader for law firm practice at Major, Lindsey & Africa. It took about the first half of the year for that uncertainty to wane and for the lateral market to heat up again, Lowe says.
By the last few months of 2017, several high-profile lateral moves were shaking up Big Law. New York-based Paul, Weiss, Rifkind, Wharton & Garrison nabbed Paul Basta to co-chair its bankruptcy and corporate reorganization practice from Kirkland & Ellis, while, in a rare move within firm leadership, DLA Piper global co-chair Juan Picon left the firm to join Latham & Watkins in Madrid.
“Now that everyone really understands the [Trump] administration is going to be around, they’ve factored that into their plans and I think you’re going to see more of the same,” Lowe says. “The top firms are continuing to acquire and poach top talent from the weaker firms, and the firms in the middle are trying to figure out who they are and what they’re going to be.”
The returnees from government positions included Securities and Exchange Commission (SEC) chair Mary Jo White, heading back to Debevoise & Plimpton as senior chair of the firm; and Bill Baer, former chief of the Antitrust Division of the Department of Justice (DOJ), now back at his former firm Arnold & Porter Kaye Scholer. Others like Samir Jain, the senior director for cybersecurity policy at the National Security Council and the Obama administration’s top cybersecurity official, found new homes. Jain joined Jones Day’s offices in Washington, DC, along with Benjamin Mizer, former head of the DOJ’s Civil Division.
Last year also saw a large number of lateral moves that involved practice groups within targeted geographic markets. “I think there’s more and more pressure to grow breadth and depth, and laterals and groups are a big part of that for many or most firms,” says Kent Zimmermann, a consultant at The Zeughauser Group.
In New York, Paul Hastings built out its corporate offerings when it acquired most of Boies Schiller Flexner’s corporate practice in a five-partner move earlier in 2017. In Houston, a five-partner capital markets and M&A group that included David Buck, Jon Daly and George Vlahakos decamped from Andrews Kurth Kenyon to join Sidley Austin, building out the latter’s strength in capital markets and the energy sector in the state. Winston & Strawn made large group hires in Dallas, New York, Washington and Chicago.
Look for more mass moves in 2018. “Generally speaking, law firms are having better success rates with groups of laterals rather than one-offs which have a higher failure rate,” says Brad Hildebrandt, chairman of Hildebrandt Consulting. “So I think there will be more focus in 2018 on trying to find groups in whatever area that the firm is looking.”
Law Firms Partner Up with Tech Vendors to Meet Client Efficiency Demands
In 2017, law firms continued adopting legal project management techniques to get a better grip on what matters actually cost. That was most visible through deals announced between firms and legal tech vendors such as Prosperoware. Winston & Strawn announced it would use the firm’s Umbria platform in February. Barnes & Thornburg, which began using that same software in 2016 to track budgets tied to specific matters, won a Legal Marketing Association (LMA) award for its program in October.
Some firms even further along that spectrum have developed their own software and begun selling their expertise in the area to make their clients’ legal departments more efficient. Those firms include Bryan Cave; Seyfarth Shaw; Baker, Donelson, Bearman, Caldwell & Berkowitz; and Davis Wright Tremaine.
What’s ahead for 2018? More firms will adopt better pricing tools; legal operations staff will gain power inside legal departments; and the traditional competition for Big Law work will be upended. That won’t happen everywhere all at once next year. But better technology will make the change begin to gather speed.
The use of legal project management software is expected to increase 13% over the next two years, says a survey by e-discovery vendor Exterro. That will replace the use of spreadsheets and email to manage legal projects; a workflow expected to decrease 16% over the next two years, the Exterro survey says.
Consider upstart data analytics firm Bodhala, which was launched about three years ago by two Harvard Law School grads. The company started to help legal departments pull their spending and matter data together into one software platform to be analyzed so general counsels can make hiring decisions based on real-life data. Bodhala is not alone in that pursuit. Thomson Reuters’ Legal Tracker, for instance, performs a similar function. But Bodhala’s co-founders, Raj Goyle and Ketan Jhaveri, say they’re now getting more work from law firms that want to better understand their costs. The reason: Clients are demanding more certain fees.
“The law is getting run like a business, and we are now moving into a world of value pricing where there are actually market forces at play,” says Goyle. “The law firm has to understand its data and its business in a way that it never has before.”
Legal tech firms will be keen to make that easier and easier. Toward that end, Prosperoware is announcing a product for 2018 that makes it easier for law firms to enter the time related to specific “procedures” in a legal matter. The idea is to make legal budgets more granular by breaking down a “deposition” into the actual things a lawyer does to prepare for and finish a deposition. The more often the software is used and connected to a billing system, the better the firm will know the true “unit cost” for tasks such as depositions.
“The entire industry is stuck on the billable hour because it doesn’t understand its unit costs,” says Prosperoware President Keith Lipman. “If we get to the point of managing unit cost, law firms can actually get away from the billable hour. So the faster you collect data to understand that is critical.”
No JD Needed
In the past year, law firms have continued to expand the roles of nonlawyers in the business aspects of the firm, taking a cue from their corporate clients — although still lagging more than a few years behind. While some roles, like chief operating officers and chief marketing officers, have become mainstays at large and midsize law firms alike, other C-suite positions are still in the experimental stages at law firms.
Sedgwick (which was closing at year’s end) created a strategy-focused C-suite position in 2017, as did Burr & Forman, a 300-lawyer regional firm based in Birmingham, AL. Morgan, Lewis & Bockius, Seyfarth Shaw and Arnold & Porter Kaye Scholer have also implemented similar roles in recent years.
Winston & Strawn implemented a role that’s commonly found in the corporate world, but appears to be unique in the U.S. legal community, when it made Julie Goodman its first chief corporate social responsibility officer. Going beyond the traditional job of a pro bono director or partner, Goodman also coordinates the firm’s volunteer efforts and charitable giving.
When new roles focused on managing a law firm’s business functions, like finance or marketing, pop up at large firms, it’s hard to tell whether they will take hold and become more common in the legal industry, says Jim Wilber of Altman Weil, who conducts executive searches. Some roles, like chief marketing officer or chief operating officer, have become common. The staying power of new nonlawyer positions depends on whether the firm just borrows the title from the corporate world, or embraces the entire role as a key part of the firm’s strategy.
“To some extent I think these things are a little bit cyclical as firms … perceive a need to do something new,” Wilber says. For instance, he says, a wave of chief strategy officer roles hit the industry about a decade ago, then died out. “If the market turns down or the economy turns down, these are the type of things … that are going to be on the cutting board earlier than almost anything else,” he says.
One nonlawyer professional role that appears to be growing in number and importance is pricing officer or director, Wilber says. Most firms with more than 300 lawyers have such a role at this point, he says, and the teams of professionals working on pricing are only expected to grow.
“Predictably, like the other positions that come from the corporate world … you saw law firms struggle with trying to get this right, but I think they’re getting more sophisticated,” Wilber says
The White-Collar Bar’s Best Friends
In the first year of Donald Trump’s presidency, Special Counsel Robert Mueller’s investigation of ties between Trump’s campaign and Russians prompted a slew of employment opportunities for white-collar criminal defense lawyers.
On the president’s team, Marc Kasowitz of New York’s Kasowitz Benson Torres first emerged as lead counsel. Then Trump added John Dowd, a retired Akin Gump Strauss Hauer & Feld partner, and Ty Cobb of Hogan Lovells. Meanwhile, other witnesses and targets of Mueller’s probe have hired lawyers from across the country. William Burck, co-managing partner of the Washington, DC, office of Quinn Emanuel Urquhart & Sullivan, has two clients in the investigation: White House Counsel Don McGahn and former chief of staff Reince Priebus.
Jared Kushner, the president’s son-in-law and adviser, first tapped Wilmer Cutler Pickering Hale and Dorr partner Jamie Gorelick, but then added Chadbourne & Parke’s Abbe Lowell for Mueller-probe-related questions. No surprise there, since Mueller came from Gorelick’s firm and the former FBI director had tapped additional lawyers from Wilmer. Former Trump campaign chairman Paul Manafort, prior to his indictment in late October, also shifted from Wilmer and turned to Kevin Downing, who left Miller & Chevalier before taking the assignment.
Although most people may only guess where Mueller’s investigation will lead next, his team’s full-court press tactics on targets — an approach led by Andrew Weissmann, former Federal Bureau of Investigation general counsel, who earned a reputation as aggressive while prosecuting Enron-related crimes — means that defense lawyers will have their hands full.
But that arduous labor won’t necessarily translate into big fees. In the indictment against Manafort and Rick Gates, who was also involved in the Trump campaign, Mueller included a forfeiture allegation, asking the court to collect the proceeds of assets involved in money laundering if the two men are convicted of that allegation.
“I don’t see how Manafort can raise any money to pay his lawyers, unless he has money hidden somewhere else,” says former prosecutor Cynthia Kouril of the Kouril Law Firm. But another defense lawyer predicts that Downing will stick by his client, no matter the compensation — or lack thereof — just based on principles. “Kevin is deeply offended by this investigation,” the lawyer says.
***** The authors are all reporters for The American Lawyer, an ALM sibling publication of this newsletter in which this article also appeared.
The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.