Biglaw

How Global Biglaw Titans Are Demolishing Local Firms... And How To Survive The Onslaught

When global firms step into smaller markets, the old guard face tough times. But the challenges aren't insurmountable.

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While the legal world hangs on every salary announcement, wondering when the windfall will hit them, one of the most significant developments in the industry over the last decade — one that’s largely responsible for the explosion in associate salaries across the country — is the ruthless expansion of global Biglaw firms into smaller domestic markets.

Through acquisitions, mass lateral hires, or simply hanging a multi-million dollar shingle, the Biglaw elite are moving in on local and regional markets that they’ve long overlooked and revolutionizing the practice of law across the country. It’s why firms like Cravath don’t necessarily speak for the Biglaw landscape anymore — the overwhelming bulk of elite firms are galavanting across the globe, discontent to stay at home in New York. It’s a different business model and firms are starting to wake up to that reality.

But when we say, “galavanting across the globe” this downplays Biglaw’s aggressive invasion of domestic markets. In Barbarians at the Gate, a new report from ALM Intelligence, Nicholas Bruch examines the Biglaw assault on local markets since 2001. The NLJ 250 — the Spinal Tap of rankings in that they primarily differentiate themselves from the same company’s Am Law 200 on the strength of the claim “these go to 250” — have opened more than 1400 new offices globally over the past two decades. Since 2001, a whopping 71 percent of new offices have been domestic.

What does all this mean? More lateral partner moves for one. “Eight of the top 10 markets for lateral hires since 2001 are also included in the list of the top 10 markets for law firm market entries over the same period.” It shouldn’t come as a shock that those laterals were mostly exiting established local firms, bringing an influx of local connections to the interloper firm. It’s also driven a more competitive recruiting market, with global firms often shelling out New York salaries to young lawyers in historically cheaper markets.

But mostly, this has meant hard times for the formerly big fish in these little ponds. Bruch’s report zeroes in on the Houston market, arguably the market that’s transformed the most over the last 17 years. Back then, Houston was dominated by local firms:

In 2001, the Houston market was, in many respects, a typical local legal market. Despite being host to a large number of law firms, Houston was largely dominated by eight firms. These firms accounted for 66 percent of Houston’s total lawyer headcount. They were also largely local firms. Vinson & Elkins, for example had 50 percent of its total lawyers in Houston and 80 percent of its lawyers in Texas. Fulbright & Jaworski, Baker Botts, Andrews Kurth, Bracewell, Locke Liddell, Haynes and Boone, and Winstead were also, largely, local firms. Each had a majority of their lawyers in Texas, large Houston offices, and offices in other key Texas business centers….

A trip to Houston today would find a much more crowded landscape, with a 135 percent increase in the number of NLJ 250 firms playing in the Houston market since 2001. It goes without saying that this growth wasn’t driven by a boom among local firms. Global players rolled in and started drinking the proverbial milkshake:

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Altogether, Houston’s eight leading firms have lost 390 partners to lateral departures in Houston since 2001. Even after adjusting those losses to account for lateral hires that these firm engaged in, leading local firms lost a net total of 101 partners in the Houston market since 2001. These departures, combined with slower growth due to the increased competitive pressure, has resulted in significant headcount reductions at all eight leading firms…. Vinson & Elkins’ Houston office lost 155 lawyers, including partners and associates, between 2001 and 2017. Fulbright & Jaworski, which merged with Norton Rose in 2013, is 83 lawyers smaller in Houston. In total, Houston’s leading firms have lost nearly 500 local lawyers since 2001, reducing their share of the Houston market from 66 percent in 2001 to 40 percent in 2017.

Yet the local firms have held on. Battered, bruised, but still holding on. Bruch points out that some of Houston’s old guard may have taken big hits in headcount, but some have managed to actually improve profitability, adjusted for inflation, over this period. He points to a number of strategies, from Baker Botts adopting a “regional plus” strategy to Winstead attacking costs (though that firm is rumored to be in merger talks) to Vinson & Elkins narrowing its practice area focus. Could they provide a blueprint to local firms in other markets staring down the next invasion? Perhaps.

On the other hand, maybe Houston is just unique. Houston’s metro area grew by around 43 percent over the last 17 years. That’s actually a slightly bigger bump than the bump in NLJ 250 firms in town. To borrow from the mythical Westerns that Texans like to pretend they embody, this just might be a case of the town really being big enough for the both of ’em. Rapid growth and an expansion in industry beyond a singular energy focus have meant there’s enough business to go around, even in a more competitive environment. Could Seattle pull that off if Biglaw brings its Galactus act to the Northwest in earnest? Based on analyzing trends in San Francisco, Chicago, and Boston, Bruch doesn’t think Houston is unique in this regard, so the Texas experience may resonate throughout the country. But it’s a tough question that we’ll just have to see play out over the next few years.

Unless the coming recession puts all this on hold next year.

The Invasion of Regional Legal Markets and How Mid-sized Firms Should Respond [ALM Intelligence]

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HeadshotJoe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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