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The Lateral Partner Market In 2014

Ed. note: This is the latest installment in a series of posts on lateral partner moves from Lateral Link’s team of expert contributors. Today’s post is written by Michael Allen, the Managing Principal of Lateral Link, who focuses exclusively on partner placements with Am Law 200 clients.

What can we expect for the first quarter of 2014 in terms of the lateral partner market? As I have detailed before, the market is generally volatile and the rate of change of each month and quarter from year to year is difficult to predict. In our calculations, the number of lateral movements in December accounts for less than 20% of the variation in lateral movements in January. However, on average there are 2.4 times as many moves in January as there are in the previous December (but this ratio is subject to much volatility).

Let’s look at some data:

Furthermore, the rate of change of lateral movements in January from the prior year to the current (ΔJanuary) is a poor predictor of the growth of lateral movement for the rest of the year respective to the rate of change from the prior fiscal year to the current (ΔFiscalYear). So essentially while an increase in lateral movements from the first month of the current year to the January of the last year is a good omen, it is hardly a good predictor of the overall growth or decay of the lateral market for the rest of the year. Nonetheless, the market does conform to some predictable ebbs and flows; the lateral moves of the first few months should be enough to let us accurately forecast the remainder of the year.

As the seasons go round, the cycle of lateral movements follows an eerily repetitious precision. Winter, spring, summer and fall, concepts largely unknown to Los Angeles inhabitants like myself, largely correlate with varying levels of partner movement within the Am Law 200. Maybe it is the frigid winters — another foreign concept — that make most lateral partners wait to move until the first month of the year.

A better explanation would be that partners wait to collect their year-end bonuses before moving. As of last week, 13 partners have lateraled as we begin the month of December, and we are predicting about 39 more to make a transition as the year closes. Based on our data, that means we are anticipating approximately 200 more attorneys to lateral in January 2014. Firms that have benefited from an influx of laterals include DLA Piper, K&L Gates, and Jones Day. In 2013 alone, 32 partners joined DLA Piper’s various offices worldwide, and in January 2012, 14 laterals joined DLA Piper, mainly from Hogan Lovells and Reed Smith. Also in 2013, K&L Gates had had 56 partners lateral in and Jones Day had 57.

So what else can cause this lateral onslaught in the first months of the year? Typically, associates are promoted in December or January of a given year. These two months account for 52.6% of all partner promotions in an average year. Partner promotions are largely handled internally, but firms and associates may also look externally for lateral and promotional opportunities. This is the consequence of varying factors. First, firms may feel that their associates within a particular practice area are not senior enough or capable enough to fill a vacant junior partner slot, so they will look at associates outside their firm to fill these slots. This allows them to fill a lower-leveraged position at substantially lower cost than bringing a more senior partner over laterally. Now these associates may or may not be on track for partner promotion in the future, but most are informed at the end of the year whether or not they will make partner. These two mutualistic factors partly account for why generally 54% of partner-elect associates move in January.

Now this is not just random conjecture; the data also supports this notion. For our data, I removed outliers caused by law firm collapses — such as Dewey and Howrey. Typically the ratio between the first half and second half of a fiscal year for lateral movements is 1.57. The correlation between the two halves for multiple years and the number of lateral moves is -.77, denoting a strong negative correlation between lateral movement from the first half to the second half — and that this event is not random. Furthermore, in a test of each month through the last five years, we see that there is a -.67 correlation between each individual month and lateral movement — a very strong correlation.

There were palpable concerns in the middle of the year that the 2013 lateral market would shape up to be an even worse year than 2012 (as I noted in a previous article that dealt with the entire lateral market). However, with a strong third quarter showing — up 84.7% from last year — 2013 will finish ahead of 2012 but behind 2011 in terms of lateral partner vitality. Overall the lateral partner market is down 15% from 2011 and 31.3% from 2007 — the last pre-recession year — but there is room for cautious optimism as the ripples from the recession subside.

Disclosure: This series is sponsored by Lateral Link, which is an ATL advertiser.

Lateral Link LLP is one of the largest legal recruiting agencies in the world, with 13 offices in the United States and Asia. Lateral Link has been recognized by the Wall Street Journal, The American Lawyer, the ABA Journal, the Daily Journal, and the National Law Journal for its innovative approach to legal placement. Lateral Link recruiters are former practicing attorneys who have consistently succeeded in placing partners, associates, general and corporate counsel into some of the most reputable law firms and organizations in the world.