A Lateral-Partner Mess Down In Texas
Has this game of musical chairs left one partner without a seat at the table?
Here is a pretty crazy sequence of events that just went down in the Houston legal market.
Earlier this month, corporate partners Douglas McWilliams and Jeff Malonson announced they’d be leaving Vinson & Elkins for Simpson Thacher & Bartlett. Over the years, V&E has seen a few partners leave for national and international firms invading Texas — e.g., Adam Larson to Kirkland & Ellis.
After returning from a ski trip in Utah and seeing his office being packed up, McWilliams got cold feet and asked to stay at V&E, where he has been for more than twenty years. As he told FuelFix, “Simpson Thacher is a great law firm that offered a national brand and a national practice that was extremely enticing. But I had not gotten a single good night’s sleep since I decided to leave. I underestimated the personal relationships I have here at V&E.”
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Vinson & Elkins was happy to oblige. “He asked if he could stay,” V&E chair Mark Kelly said. “Of course. Doug is a fine lawyer.” (This type of abrupt turnaround by a lateral partner is unusual but not unheard of, as noted by Am Law.)
So where does this all leave Jeff Malonson? This is where things get… messy.
One source tells us that Malonson asked for his job back but, well, wasn’t offered quite the same warm “welcome back” as McWilliams. So then he told Simpson he was coming by himself, but STB said it was interested only in a package deal — in essence, “We want both of you or neither.” This basically left Malonson in the lurch — a beached whale, an orphaned child, pick your metaphor — and he wasn’t happy about it (and wasn’t shy about sharing that with McWilliams, or so we hear).
We reached out to McWilliams and to Malonson yesterday. Neither got back to us, but sometime between last night and this morning, Malonson changed his LinkedIn profile to remove Simpson Thacher as his employer. (We’ve posted the pre-revision version, which lists STB as his employer, on the next page.)
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We reached out to Vinson & Elkins and Simpson Thacher as well. STB didn’t respond. V&E issued a short statement denying that Malonson asked for his job back:
Jeff Malonson did not request to be readmitted to the V&E partnership. Mr. Malonson’s resignation from the V&E partnership was made effective as of February 12. He advised us that he was being admitted to the STB partnership on that same date.
That hasn’t happened yet, at least judging from the Simpson website. But one can’t rule out Malonson going to Simpson just yet; FuelFix previously reported that he’d be joining in March (although query why neither Malonson nor Simpson responded to our inquiry to confirm his joining the firm).
It’s also possible that Malonson might find a new professional home at a third firm. While he wasn’t as well-loved at Vinson & Elkins as Doug McWilliams, Malonson does have his own book of business, with clients like New Source Energy Partners and QR Energy.
Ah yes, energy — a troubled industry, with oil still in the low $30 range. This is the backdrop against which the V&E lateral partner drama is playing out. According to one source at the firm, both Malonson and Adam Larson (who moved to Kirkland) were “talented and well-liked partners who represent substantial business.” Furthermore, morale is low among some associates because “capital markets work in the energy industry, V&E’s bread and butter, has ground to a halt, and bonuses were stealthily stingy.” (As you may recall, V&E bonuses this cycle were the subject of intense disagreement.)
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As a result of these issues, some V&E associates are looking around for new opportunities (with varying degrees of voluntariness to their searches). But it’s not the easiest time to be a lateral associate in the Texas market, says one source:
V&E’s capital-markets associates are stuck in a tight spot in the market where there is near-zero activity in energy IPOs and high-yield issuances, and the only firms hiring are out-of-town, PE-focused practices — K&E, STB, Sidley, Willkie. Mid-level and senior associates without private equity or general M&A experience are not competitive lateral candidates, regardless of pedigree.
UPDATE (6:15 p.m.): A different source pushes back on this, reporting that cap markets associates at V&E continue to get expressions of interest from out-of-town firms like K&E (sometimes with generous signing bonuses attached).
Meanwhile, Vinson & Elkins partners will probably earn less this year than last. The key financial metric at V&E is “dividends paid,” which combined with an individual partner’s “sharing ratio” determines how much that partner earns. In 2014, V&E enjoyed its best year ever, with a dividend number around $740,000 740. In 2015, the firm had its second-best year, with the dividend number around $712,000 712. In 2016, the firm is forecasting around $690,000 690, but it’s possible it won’t meet that number if the energy market continues to languish.
UPDATE (11:30 p.m.): The preceding paragraph reflects the following correction: “dividends paid” is just a number, not a dollar figure. The formula for translating “dividends paid” into dollars is: Dividends Paid x $1,200 x Sharing Ratio = Compensation. So this means V&E partners earn a bit more than previously reported (because, for example, 740 dividends paid works out to $888,000, not $740,000).
(McWilliams, by the way, has a “sharing ratio” somewhere above 3.5, placing him near the top of the V&E scale (meaning he enjoys annual comp in excess of $2 million). One tipster passed along a rumor that V&E offered him more money than Simpson to stay — but V&E denied that it made any counteroffer, and a second source with knowledge of the Houston legal market said V&E couldn’t (or wouldn’t) have given McWilliams a richer offer than STB.)
So what kind of shape is V&E in? Let’s not overstate the problems. Yes, some individual V&E associates might be facing tricky situations, and yes, partners would be doing better if the firm weren’t quite so focused on energy. But overall the firm still boasts solid financials, no debt, and a healthy receivables holdback. In addition to Doug McWilliams, certain partners — including Keith Fullenweider, Steve Gill, Kai Liekefett, and Matt Strock — continue to have strong and busy practices.
The real issue for V&E going forward is how it can convert itself from a Texas market leader into a national or even international firm, along the lines of a Kirkland or a Latham & Watkins.
Will Vinson & Elkins succeed in that transformation? How well can V&E weather the current storm? And where in the world will Jeff Malonson wind up?
If you can help us answer these questions, please email us or text us (646-820-8477).
UPDATE (7/21/2016): All’s well that ends well; Jeff Malonson is now at King & Spalding.
(Flip to the next page for Jeff Malonson’s LinkedIn profile, showing Simpson Thacher as his employer.)
