The Economist - USA (2021-07-17)

58 Business TheEconomistJuly17th 2021

Biglaw

Whiteshoesare

madeforearnin’

A

lawyerinhisearly30spausesoutside

anelegantclothingshopinNewYork’s

Tribecadistrict.Itisthefirsttimehehas

beenoutin 30 days,hesays,turningaway

from the shuttered establishment. Co­

vid­19isonlypartofthereasonforhisiso­

lation.Unlikemanymain­streetbusiness­

esthathavenotsurvivedthelockdowns,

hisemployerhasbeenswampinghimwith

workoflate.Anditisnotalone.America’s

elitelawfirmsarehavinga banneryear.As­

sociates,often toilingfromhome, have

meldedwiththeirlaptops.Seniorpartners,

holed upin their secondhomes inthe

Hamptons,barelyhavetimetoenjoythe

beach. The pandemic has pushed huge

numbersof companies to raise capital,

merge,buyrivalsorbeacquiredbythem.

Nearly16,000dealsinvolvingatleast

oneAmericanpartyhavebeenannounced

inthefirstsixmonthsofthisyear,roughly

halfasmanyagainasinthesameperiods

in2016­20(seechart).Manyinvolvednovel

legal structuressuch asspecial­purpose

acquisitioncompanies(spacs),whichlist

onastockexchangeinordertoreverse­

mergewitha promisingstartup.Ontopof

that,lockdownshaveintroducedfreshle­

galwrinkles(Doesaninfectiousdisease

countasforcemajeure? Howtoconductdue

diligenceona dealbyZoom?).Somelaw

firmsaresobusythattheyaredecliningas­

signments,inviolation ofan unwritten

rulenevertodosowhich,intheindustry,

isasreveredastheconstitution.

AccordingtoAmericanLawyer, anin­

dustryjournal,totalrevenuesatthe 100

biggestfirmsroseby7%lastyear,to$111bn.

Atthesametime,expensessuchastravel

andentertainingclientsallbutvanished.

As a result, average profit margins in­

creased,from40%to43%.Profitsperequ­

itypartnerrosebyover13%,toanall­time

highofnearly$2.2m.Thesewentupatall

butsixofthetop 100 firms.Atthemostlu­

crativeones,suchasDavisPolk,Kirkland&

EllisorSullivan&Cromwell,theyexceed­

ed$5m.EachequitypartneratWachtell,

Lipton,Rosen&Katz,therichestofthelot,

rakedin$7.5m,upfrom$6.3min 2019 (and,

housebound, had to spend lessof itto

maintaina certainsartorialstandard,cap­

turedintheterm“whiteshoe”thatstillre­

ferstoNewYork’selitefirms).

The billable­hour bonanza has left

firmswithmore moneyto lurenewre­

cruits.Thatisjustaswell.Withthesupply

oflegalprofessionalslimitedbyelitelaw

schools’refusaltoadmitmanymorestu­

dents, firmsareengagedina fiercebattle

fortalent.LastmonthMilbank,anotherbig

firm,raiseditsstartingsalariesfornewas­

sociates from the industry standard of

$190,000to $200,000.A daylaterDavis

Polkofferedfreshmanlawyers$202,500.

Partnersatotherfirmssaytheymatched

DavisPolkwithin 24 hours,notwantingto

bethoughtsecond­tier.Mostbigfirmsare

awardingspecialspringbonusestoasso­

ciateswhohavebilledenoughhours(typi­

cally 60 aweekormore)—whichplenty

havedoneinthesefebriletimes.Themon­

ey,saystheheadofonebigfirm,isa reward

forhardwork.Itisalso,heacknowledges,

anefforttostopdesertions.

Poaching is rampant at all levels of

these organisations. McDermott Will &

Emery,a fast­growingfirmfromChicago,

hired six new outside partners in May

alone.Evenfirmsfamousforstaffloyalty,

suchasCravath,Swaine&MooreorWach­

tell,havelostlawyerstorivals.Asenior

partnerata largefirmsayshebeginshis

daybyopeningemailsfromrecruitersin­

quiringabouthisavailability.Hethenpe­

rusescareerannouncementsinlegalper­

iodicals.Forthefirsttimein 20 yearsMa­

jor,Lindsey&Africa,a largelegalrecruit­

ment firm, is looking in Australia and

Canadaforassociateswithdealmakingex­

periencetoplaceatNewYorkfirms.

NotalleliteAmericanfirmshavepros­

peredinthepandemic.Thecurrentcondi­

tionshavefavouredpartnershipswithex­

pertiseincomplextransactions,suchas

WachtellorDavisPolk.Somegeneralists

havedonelesswell.Profitsperpartnerat

Baker McKenzie, a Chicago­based giant,

declinedbynearly10%in2020.Thedeal­

making specialists could suffer if the

merger­and­acquisitionboompetersout.

That is already happening to the spac

craze,whichprovidedlawyerswithoodles

ofworkinlate 2020 andearly2021.Andas

Americareopens,thosecovid­crimpedex­

penseaccountscouldbegintoswellagain,

squeezingmargins.

Managingpartnersarethereforethink­

ingaboutwhatcomesnext.MayerBrown

isexpandingitsrestructuringandbank­

ruptcypractice,perhapsinanticipationof

an end to government stimulus pro­

grammesthathavekeptmanybusinesses

afloat.Manyothersarebeefinguptheir

antitrustandregulatorypracticesasPresi­

dentJoeBidenandhisDemocraticPartyin

Congressthreatentoregulatebigbusiness

andgoafterdominant companies,from

Silicon Valley to Wall Street. The white

shoeswillnotsoonsufferashortageof

well­heeledclients.n

N EWYORK

America’selitelawfirmsarebooming

Crisis of abundance

United States, mergers & acquisitions*

Number of deals, ’000

Source: Bloomberg

*Deals involving a US

acquirer, seller or target

15

10

5

0

2016 17 18 1 20 21

Half-years

Staffingfirms

Work in progress

A

year agoemployers were furloughing

staff. Now many of them are desperate­

ly looking for more. The rapid bounce­back

in  some  bits  of  the  labour  market—not­

withstanding  the  risk  of  a  new  pandemic

flare­up—has been good news for workers

angling for a pay rise. It is also a boon for

staffing agencies, which match firms with

potential  hires.  Beyond  short­term  dis­

locations  to  the  workforce,  the  changing

way in which people want to work should

keep the recruiters busy.

Firms  globally  spend  over  $400bn  on

human­resources  services,  according  to

Royal  Bank  of  Canada.  Much  of  the  lime­

light is hogged by headhunters that poach

chief  executives,  star  bankers  or  legal  ea­

gles (see previous article). In fact the bulk

of the business consists of placing low­lev­

el office hands and blue­collar workers, of­

ten  on  temporary  contracts.  The  industry

is  heavily  fragmented,  but  a  few  global

players  have  emerged,  such  as  Adecco  in

Switzerland,  Manpower  in  America  and

Randstad in the Netherlands. 

Covid­19  dented  revenues  at  staffing

agencies as employers slowed hiring amid

the  recession  and  employees  hesitated  to

jump ship. Now a post­pandemic churn is

gaining steam. Vacancies are up in much of

the  rich  world,  as  companies  seek  staff

while workers still anxious about infection

remain  on  the  sidelines.  The  result  is  a

bump  in  wages,  which  can  be  bigger  for

those ready to defect to a new employer. 

The  fortunes  of  recruiters—and  their

share prices—closely track economic­con­

fidence indicators. But the resurgence has

been especially rapid this time. After the fi­

nancial  crisis  of  2007­09  it  took  Adecco

and Randstad 7­8 years for revenues to re­

turn  to  previous  highs,  says  Kean  Marden

of Jefferies, an investment bank. This time

P ARIS

Matching workers to employers has

become a hot business again