Dominic Peacock | Source: The Australian, Tuesday, December 13, 2022 | Commentary

While the global financial markets have been turbulent and interest rate rises have eradicated cheap debt – and despite the general mood of uncertainty globally – the number of lateral partner moves has remained steady.

There has been a slowdown in work for law firms across certain areas, but in mergers and acquisitions (M&A), for example, activity levels had reached heights that were probably not sustainable – hence the drop off. Law firms have continued to perform well, so the appetite for growth has not been stymied significantly over the last six months.

However, certain trends have emerged, such as more moves to mid-tier firms than top tier. This is possibly due to the fact that some top tiers hired a number of partners in the first half of the year on the back of a couple of very strong financial years. That success encouraged them to pursue a relatively aggressive hiring strategy, buoyed by healthy balance sheets, and many of them filled gaps in practice areas that needed to be addressed.

However, now firms are being more strategic and targeted. Examples of this include David Moore and Mellissa Lai’s recent move from MinterEllison to Johnson Winter Slattery to join Marcus Clark in setting up a Canberra office to focus on foreign investment, M&A and trade regulation, and assist clients with government, particularly in the defence and technology sectors.

Other significant moves include Zak Kerr from K&L Gates and Simon Rear from Squire Patton Boggs going to Gilbert + Tobin in Melbourne and Perth, respectively, Richard Hoad’s move from Clayton Utz to Jones Day in Melbourne and Belinda Harvey’s move from Norton Rose Fulbright to White & Case’s Australian office in Sydney.

There has been a slight drop in numbers of partner moves, although we are aware of some additional moves that are not yet public. There have also apparently been fewer team moves; however, again, we are aware of a number of teams in the process of moving firms. These moves tend to take longer than individual partner shifts due to the number of people involved.

One trend has been firms hiring special counsels from other firms and making them partners in the process. This is predominantly seen in mid-tiers hiring from top-tier firms; however, Marnie Fels has just been hired by Allen & Overy as a partner from Herbert Smith Freehills. Such hires signify an element of generational change in law firms, with some succession planning being initiated by targeting up and coming partners and future stars.

Mid-tier firms are taking advantage of the stockpiling and bottleneck at senior associate and special counsel level at top tier firms, where partnership opportunities are much more limited because of the intense competition. The mid-tier firms are attracting those top-tier trained lawyers with excellent technical ability by offering them the carrot of partnership. This is a relatively low-risk investment because in some cases these individuals already have a semblance of client following (albeit small), which means they will earn their keep. In addition, the outlay in remuneration required to attract these people is not significant as they will in most cases move across as salaried partners and are attracted by the ‘‘partner’’ title, as opposed to any significant financial uplift.

Also worthy of note is the time of year. Partners who are leaving tend to use the summer holidays for part of their notice period and/or gardening leave or just to have an extended break between finishing at their current firm and commencing a new role with a new firm.

Many firms have already hired to fill specific gaps in their offerings and there is no appetite to continue growth substantially as there is a limited market share in legal services in Australia. That, in conjunction with a perceived slowdown in relation to pipelines of transactional work means firms are not committing to large outlays while uncertainty prevails.

Next year, we will probably see a similar pattern. However, much will depend on how the first quarter of 2023 plays out amid talk of recessions and more interest rate rises.