Page 7 - Partnership

Partnership | MONDAY, MARCH 21, 2016 | S7

To Merge or Not to Merge?
represented more than 5 percent of the busi-

ness of the irm for many years. The diversity
of the client base, like that of the originators,
is a key factor in the stability of the irm.
Over 40 percent of the partners at Pryor
Cashman originate more than $1,000,000, and
more than half of the partners originate more BY RONALD H. SHECHTMAN
than $500,000. While those origination num-
bersmaynotmovetheneedleinBigLaw,they The“one-percenters”thatwearehearing
create a business base that allows Pryor Cash- so much about in this year’s primary

man to compete with much of the AmLaw 200 election campaigns also have an analo-
on both revenues and proits per lawyer. The gous place in current law irm economics.
diversity of the base of originators provides The rich are getting richer, and most others
stability, insofar as the irm is not vulnerable are struggling to hold their own.
to the loss of business or departure of a few Thus the law irm surveys tell us that the
key partners.
industry is growing, but that much of the
While mid-size irms typically do not have growth is concentrated at the top, largest irms.
the institutional stability or longevity of many The great majority of the AmLaw 200, we are

of the AmLaw 200 irms, we have learned too told by the surveys, face stagnant or lowering
well that sometimes that stability is illusory demand, increased pressure on rates, and the
(cf., Dewey & Lebeouf; Howrey and Thelen). greatest merger activity than ever before. As of
Management of the mid-size irm, however, last November, Altman Weil reported a record
can maximize its own stability with an ongoing of 79 mergers in 2015, the largest number since
focus on revitalizing the partnership with new they starting keeping track.
partners with upside futures and maintaining There are also the cases of Dewey & Leb-
a broad base of originators and clients. At oeuf, Howrey and Dickstein Shapiro and oth-
Pryor Cashman, one-third of the current part- ers that never really made it to merger. We

ners entered the partnership since 2007 either know that many of those transactions called
by promotion or lateral entry. The effect of “mergers” of law irms actually mask one irm
these new partners is to keep the partner- picking at the carcass of another, sometimes
ship young and to invest in new sources of calling the process a merger, and other times
business with a commitment to the future.
simply taking large groups of one irm, and K
leaving the other lawyers to dissolve their OC
irm or merge into another law irm that will GST
Lateral Recruitment
sharply reduce their ranks in short order.
BI
Legal industry experts often write about A Jan. 19, 2016 New York Law Journal

the perils of lateral partner recruitment. We article reported that “boutiques and midsize irm that he produce leverage of three-to-one About 18 months later he called and asked
hear varying numbers, some saying that bat- irms competing with large irms are under (i.e., three hours of associate time for each if the door was still open here. He said he
ting .300 is the norm or that .500 should be increasing pressure to merge or grow in size.” one of his), as well as his irm’s rate structure, realized that he was in the wrong place to
considered successful. At Pryor Cashman we But the demise of regional, mid-sized irms made the representation impossible.
grow his practice. He described a billing prob-
have batted above .800. Why the difference?
has been greatly exaggerated. The evolution- In fact, when it comes to large irms, one lem with a client involving a small six-igure
In the last six years we have grown from ary theory that cited them as dinosaurs has “expert” consultant told me that the rules of fee. He needed to get an adjustment in the
about 125 to 145 attorneys. While hardly an been challenged by not only the continuity of economy of scale are turned upside down. billing to secure the deal. He sent memos to
explosion, this expansion has been purpose- irms like Pryor Cashman, but also by other As law irms grow and multiply ofices, the the appropriate players, including manage-

ful. We have hand-selected attorneys to join mid-sized irms thriving in the current law attendant costs of increased management and ment in California. It took two weeks to get
our ranks based on practice symmetry, per- irm economic environment where clients are infrastructure to meet the new demands of a response, and the client had moved on. He
sonality and cultural it. Management must be demanding value for their legal fee dollars. more lawyers and ofices overcome the efi- is now the largest originator in our corporate
dedicated to the recruitment of laterals who Pryor Cashman has reached record revenues ciencies. Moreover, to compete in the world of practice group.
can leverage the mid-sized irm platform to and proits since the Great Recession. Why the AmLaw classiied irms, meeting the salary
grow current work and attract new business.
do mid-sized irms have a secure place in the and bonus structures for associates and even The Dynamics of a Mid-Sized Firm
The attractiveness of the firm is in the law irm market?
support staff that seem to be forever escalating
very fact that it is not Big Law. Many of our mandate rate and leverage requirements that While many entrepreneurial lawyers recog-
recruits who have come from AmLaw irms, make the lot of the entrepreneurial lawyer a nize the advantages of the mid-sized platform
The Entrepreneurial Platform
purposefully chose Pryor Cashman for its lack hard one.
for growing business, many are concerned
of bureaucracy, the ability to grow their prac- How does a young entrepreneurial lawyer Thus I am seeing more and better lateral about the stability and security of these irms.
tice and the competitive pricing structure.
develop her practice in BIG law? We have partner candidates than ever before in virtu- Many have failed or opted for mergers into
Recruiters tell me that Big Law generally just learned that the $1,500 line for partners’ ally every practice area. They are eager to Big Law where their cultures have been lost.
sets a threshold of $2,000,000 of business for a rates has been crossed. Even more harrow- get out of their silos, from which they are Generally those failures fall into three cate-
lateral recruit. We usually have no threshold. ing for the lawyer looking to develop her unable to do work that is outside of their gories. First, a irm becomes overly dependent
Instead we focus on the recruit’s history of practice are the rates of junior associates ever increasing super specialization. They on a small client base or a particular indus-
developing business (beyond a handful of billing at $500+ per hour along with senior are unable to get the irm’s support to use try, and the irm suffers deeply when it loses
clients) and try to measure his ability to fulill associates in the $700-800 range. Meanwhile others’ expertise because those others are its major client, or the industry on which it

his potential for business development. While as the biggest law irms are getting BIGGER, engaged in representing the irms’ mainstay is focused experiences a serious downturn.
I would like to take credit for extraordinary that small or medium size transaction has clients, rather than start-ups or mid-sized Second, a irm becomes overly dependent on
perspicacity in this process, I am fortunate actually become a nuisance, incapable of businesses or even individuals whose mat- a small core of originators, and one or more
to have an Executive Committee that par- supporting the leverage and billing that Big ters are not large enough or who cannot afford chooses to leave the irm, maybe changing
ticipates in all lateral partner recruitment. Law economics require.
the tariffs of Big Law.
careers or opting for another platform. Third,
We only act by consensus, and the collec- One Big Law, lateral candidate I met told me A few years ago we recruited a young a irm is led by a small group of 60-something
tive judgment of the seven of us has been that he had to turn down the opportunity to lawyer from a multi-national irm based in year old (usually) men who are growing tired
impressively successful. We have seldom do the leasing for a number of large Manhat- Chicago. He was growing a securities practice, of carrying the irm on their backs. They opt

been disappointed.
tan ofice buildings. The requirement of his
working with small underwriters in inancing for a merger into Big Law that assures them of
But a key element of our recruitment new ventures, including companies in China. a remunerative exit strategy, while much of the
success involves the structure of our deals. After giving us serious consideration, he rest of the irm will wither away in short order.
We do not offer large guarantees or signing RONALD H. SHECHTMAN is Pryor Cashman’s managing decided to join the New York ofice of a Big At Pryor Cashman, the irm’s client base is
bonuses. Nor do we offer equity to start. With partner and chair of the irm’s labor and employ- Law irm based in California. He told us that spread out among a variety of originators in
partners with a signiicant book » Page S11
ment group.
their ofice in China was a decisive factor.
many different practice areas. No client has