Dominic Peacock | Source: The Australian, Wednesday August 2, 2023 | Business Review

The last six months have seen a consolidation of sorts and gradual slowdown in lateral hires by law firms.

The number of partners switching firms or being poached has fallen to 69 in the past half year, from about 76 in the previous six months, The Australian’s Legal Partnership Survey reveals.

Firms are being more targeted, hiring partners to fill specific gaps in practice groups.

That’s not to say they won’t be opportunistic if the conditions are right – for example if a high profile/elite partner with a significant reputation and practice ‘‘comes on the market’’.

Both partners and the firms themselves are also being more deliberate and circumspect about the hiring process.

Reasons for moves generally surround dissatisfaction with management, coupled with financial motivations (the two are often linked).

Partner moves in the past six months show us that the practice areas in demand are M&A/corporate (including private equity), restructuring & insolvency, and energy (particularly transition and renewables). Other areas such as projects and construction continue to hold up.

Broader market trends

When examining broad trends in the lateral market, it is always worth looking at historical cycles.

One recurring theme is that when there is a downturn from an economic perspective, this creates volatility, which in turn creates opportunity.

This means that where times are turbulent, certain firms use this as an opportunity to use their balance sheet to hire partners that they might not have access to in more positive circumstances.

There has certainly been a slowdown in revenue and growth/capture of market share, which has resulted in a reduction of law firm profits.

While this might sound dramatic, the boom time of recent years which gave rise to record profits for firms was always going to be unsustainable.

What this does mean is that there are potentially certain partners that might be ‘‘available’’ where they see the financial position of their firm as concerning in the current climate, with one eye on the short to mid-term outlook.

The downturn in profits has given firms the grounds to reduce partners’ equity or have difficult conversations about certain individuals’ futures at firms, mainly based on poor performance.

Perhaps cynics might argue these firms are not altogether unhappy that the perfect storm of market conditions, slowdown in profits, general uncertainty around the financial markets and pessimistic economic outlook have given them the excuse to carry out this exercise.

There are also a number of firms going through internal restructures and succession planning, which also creates these types of opportunities.

One trend that is not going away is the requirement, and indeed, desire to fulfil diversity quotas, primarily at partner level from a female perspective, which can only be a good thing. However, this is an increasing challenge for those firms that aspire to attain certain levels of female partners above the 40 per cent mark.

This is something that will continue to be a challenge for law firms based on the general demographics of lawyers, and something that continues to keep law firm management awake at night.

While the movement of laterals has been slower than in the previous six months, it appears firms will continue to hire partners with solid profiles and books of business, especially where circumstances give rise to gaps in practice groups, as a result of strategic or succession planning.

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