February 19, 2002
THE LOS ANGELES DAILY JOURNAL
By John Ryan
Tough times mean havoc for legal recruiters, who are battling it out over many fewer job orders.
The math is simple – painfully so, if you happen to be a legal search consultant who focuses on placing associates.
Online legal directory Martindale-Hubbell lists approximately 125 legal search firms based in California. Many recruiters estimate that at least 90 percent of those firms work exclusively at the associate level.
But the number of associate openings in the state has been shrinking for more than a year.
Search firms proliferated between 1998 and the start of 2001 as law firms hired massive amounts of associates to meet the demand for corporate transactional work. During that period, Bay Area firms like Brobeck Phleger & Harrison and Cooley Godward almost doubled in size, to nearly 1,000 and 700 attorneys, respectively, while Los Angeles’ Latham & Watkins increased its head count by about 50 percent, to more than 1,200 attorneys.
In the past six months, however, Brobeck Phleger, Cooley Godward and many other high-tech firms have laid off associates by the score. Even more diverse firms are less interested in lateral associates now that the slumping economy has pushed their attrition rates so low. For example, Latham’s revenues and profits continue to rise, but the firm lists just three associate openings in California. With most of the placement activity occurring at the partner level these days, it’s no wonder that many associate-level recruiters are trying to break into the higher market.
But several partner-level recruiters say the newcomers are making a mess of the market since most lack the contacts, industry knowledge and experience to place partners – a process involving complex negotiations that can last several months or longer.
That’s a stark difference from associate recruiting, which, when law firms are hiring rapidly, is a process based on collecting resumes and faxing them to as many law firms as possible.
The trend is frustrating not only established partner-level recruiters but also the partners and law firms who are bumping into inexperienced help in their searches.
The situation offers an important lesson, as well. It suggests that partners should beware the cold-calls from headhunters who may not understand the complexities of high-level searches nor have the partners’ best interests at heart.
Since the associate and partner markets operate so differently, even well-meaning newcomers may lack the skills to effectively place partners.
To place associates, headhunters primarily interact with law firm recruiting administrators. Headhunters who find partners or assist in acquisitions, however, work with managing partners, practice group heads and other top decision-makers. Developing the required contacts takes time, San Francisco recruiter Avis Caravello, who has been in the business for 13 years, says.
“You really have to earn your stripes to be able to get those phone calls returned or to be invited into the firm for a meeting,” she says. Caravello, in fact, is moving into the partner market after spending the boom years placing associates.
Larry Watanabe of San Diego-based search firm Watanabe Nason & Seltzer, whose firm places partners almost exclusively, says that partner-level recruiters also need a wealth of analytical knowledge of the firm and partner involved.
An acquiring firm needs to understand the partner’s practice at a deep level to become convinced of his or her strategic worth and to avoid client conflicts. The partner, in turn, needs to consider a large range of issues about the proposed firm, from economic to compensation to cultural.
Having this knowledge is really the only way a recruiter can add value to the search and make a great match for the parties involved, Watanabe says. “But most recruiters don’t have a clue about any of those issues,” Sandy Lechtick, president of Los Angeles search firm Esquire Inc., says.That’s why, he says, some recruiters are complicating the search process by moving into the partner arena.
If a law firm is looking to find a partner or build out a practice group, it generally will go with a recruiter that it has used before and who is well known within the industry. The firm might even have a “beauty contest” to interview and consider a variety of top recruiters for the job.
In fact, such diligence at the firm level is another reason why breaking into the partner-level market is so difficult. And that’s why most recruiters will try to find partners to represent first, then pitch them to the firms.
“Partners are not always so discerning,” Watanabe says. “It’s still surprising to me that someone who’s been a lawyer for 20 years and has developed a stellar practice will give information over the phone to a recruiter they know little or nothing about.”
Partners are extremely busy and, if they are interested in switching firms, may be inclined to talk to cold-calling recruiters rather than labor over who should conduct their searches.
Also, Watanabe says, if a partner has been at the same firm for 10 or 15 years, he or she may not even know who the top recruiters are.
And the cold-callers often misrepresent their track records and lists of clients to win the partners’ attention.
“Recruiters obviously want the candidate to think they are the best and sexiest,” Lechtick says. “To get the cream of the crop candidates, you have to make them think you’re the best.”
An associate-level recruiter can call one of his regular contacts at a firm, such as a hiring partner or recruiting director, and ask that person what type of partners the firm wants to add to its practice.
If the recruiter finds out the firm wants, say, an intellectual property partner, that’s enough for him to start cold-calling intellectual property partners across the state, Watanabe says.
“They’ll say to the partner they’ve been engaged by the firm to conduct the search, which is not a true statement,” he says.
And, once the recruiter finds an interested partner, the recruiter will go back to the firm and present the partner to the firm as a client.
“It’s flipping back and forth, which is just outright dishonest,” Watanabe says. It also can place the partner’s search for a new home into the hands of someone who lacks the skills and patience needed to navigate through the several-months-long process of a successful partner placement.
“Many partners are finding that recruiters are wasting their time, so they’re reverting back to recruiters they’ve known for years,” Lechtick says. However, once a recruiter makes an introduction between a partner and a firm, he is entitled to the placement fee. Thus, although a partner can hire a more experienced recruiter to take over a search, problems ensue if the recruiter tries to place him at a firm where he already was introduced. In most cases, the firm has to set aside the fee until the two recruiters reach an agreement. The hassle can sour the firm on the process and reflect poorly on the partner. Although they say it seldom happens, a few recruiters recall horror stories in which a firm ceased talks with a partner because it was so frustrated with the partner’s first choice of recruiters.
More commonly, a partner could miss a variety of opportunities because of time wasted by an inexperienced recruiter. Rick Kolodny, president of Los Angeles search firm The Portfolio Group, says an inexperienced recruiter could apply pressure to hard-sell one firm.
“You could miss a number of better strategic options because you’re not aware of them,” Kolodny says.
Some recruiters are even stooping to lower levels by acting without authorization from the partner.
“We’re starting to see instances where partners really do not give permission to a recruiter to make a representation to a firm,” Lechtick says.
Several partner-level recruiters tell recent stories of sending a client’s resume to a firm, only to find out that the firm already has received it from another recruiter. Typically, the unauthorized recruiter will have gotten the resume or “bio” from the Web page of the law firm where the partner works.
In these cases, the partner will have to tell the firm that the first recruiter was not authorized to send the resume and should not be included in the placement process or receive a fee.
Lechtick describes the present abundance of unethical behavior in the partner-level market as “a polluting of the waters.” Watanabe calls it “a lot more noise in the marketplace.”
“I think it’s making some partners more recalcitrant,” Lechtick says. “It makes it harder for recruiters who know what they’re doing.”
Firms share this view of the partner market, as well.
Edwin Feo, managing partner of the Los Angeles office of New York’s Milbank Tweed Hadley & McCloy, says he has received an unusual amount of calls from unknown recruiters trying to pitch partners.
In some cases, he thinks the recruiter has fabricated or overstated the level of interest of the partner in order to win his interest.
“You have the feeling that the other side of the conversation hasn’t happened yet,” he says. “It’s fair to say you’re not seeing the same level of due diligence and pre-marketing that usually goes on before any kind of discussion takes place.”
Leslie Bodner, the manager of shareholder recruitment at San Francisco’s Heller Ehrman White & McAuliffe, also has seen a similar influx of inexperienced recruiters “trying to enter the game.”
Like Milbank Tweed, Heller Ehrman is seeking strategic laterals, and many new recruiters are pitching interested partners to the firm.
“The number of calls from headhunters has gone up dramatically since the early-to-middle part of January,” Bodner says. “Many are from recruiters who, in my mind, seem to have a lot to learn about our firm’s standards, culture and hiring process.”
In fact, Bodner says that associate recruiters aren’t the only ones trying to enter the partner market. The slumping economy has affected many search and consulting professionals in the corporate world, and some are moving into the law firm side of high-level placements, she says.
A few newcomers have done excellent research on Heller Ehrman and shown an ability to ask the right questions, Bodner says.
“But those are clearly the exception to the rule,” he says.
However, the partner recruiters are not too worried because the situation likely is a temporary one resulting from an unusual convergence of factors. First, the 100-plus total of search firms represents more than a doubling of 1998’s total, according to search firm directories compiled by American Lawyer. Second, the boom that led to this proliferation has gone bust, leaving many search firms fighting over a shrinking market.
“The associate market had been steadily declining since early 2001,” John Jameson, head of Los Angeles’ The Jameson Group, says. “Then, after Sept. 11, the market just completely crashed. It’s just a small piece of what the market had been in the past four or five years.”
Jameson’s team was placing up to 60 associates a year during the boom and now is focusing almost exclusively on the partner hunt.
Third, since all firms are concerned about the economy, even those looking for associates may not seek the help of a headhunter.
“Firms are looking more skeptically at associates that carry a headhunter fee,” Kevin Rosen, a hiring partner at Los Angeles’ Gibson Dunn & Crutcher, says. “That fee is now factoring into the whole equation of what economic value the lateral associate can bring to the firm.”
Finally, the beginning of the year is when most partners switch firms and, therefore, is an ideal time to try to break into the partner market. That’s why, Watanabe says, “Incidences have become much more frequent and actions much more abusive in the last 30 days.”
The last 30 days also are unrepresentative of the general situation, the recruiters say, because most of their colleagues, whether at the partner or associate level, are ethical.
They also say that the industry always will need headhunters who supply associates. Even now, some firms are looking for associates in areas like bankruptcy and litigation. Enough work is out there for the good associate recruiters to survive the lean times, but not enough to carry the dozens that came out for the gold-rush of résumé faxing.
“I’m sure a number have already closed up shop,” Jameson says. “We used to hear names of firms all the time that we’re not hearing anymore.”
Watanabe expects the total number of search firms to start dwindling down to 1998’s total by the summer, as the market’s decline has affected even the top associate recruiters.
For example, Palo Alto’s Solutus Legal Search has seen its number of associate placements drop by 50 percent in the past year, according to principal Jon Escher. Solutus is picking up the slack in partner placements, Escher says, but he expects other recruiters to drop out of the business.
“It’s a business that people jump into when the demand is strong and step out when it isn’t,” he says.
Temporary or not, the recruiters say the present situation offers an invaluable lesson to partners: exercise caution with the cold-callers.
It may be the partners’ only defense in an unregulated industry.
The National Association of Legal Search Consultants provides a code of ethics for search firms, but adhering to them is optional. Out of 100-plus search firms in California, only 30 are members of the organization.
Watanabe says that partners should ask for and confirm a cold-caller’s track record and experience before authorizing him or her to work on a placement. Bobbie McMorrow, head of Los Angeles’ Provident Professional Services, advises partners to keep in mind that recruiters, once authorized to conduct a placement, really are representing them to the legal industry.
“That person is on the phone talking to a managing partner about you,” McMorrow, who has worked exclusively at the partner-placement and firm-merger levels for many years, says.
“I’d want somebody who has my best interest at heart, who really understands my business and the business of the firm he or she is talking to,” she says. Kolodny, who also focuses on placing partners, agrees that partners should view the placement process in the attorney-client framework.
“I’d strongly recommend that partners exercise the same level of due diligence and care that they would on behalf of a client when they elect the recruiter with whom they work,” he says.
The advice may be especially timely right now, but it should not be forgotten. Many headhunters believe that long-term trends favor the high-level market. Thus, the lure of breaking into the market will remain high, even if not at today’s frenzied level.
Watanabe says that the high-tech fallout has and will continue to create much partner-level movement. An increasing amount of partners at high-tech firms will be looking for more stable firms, he says.
In fact, because of the law firm bloating that led to massive layoffs in 2001, Watanabe expects firms to hire associates more cautiously even when the economy turns around.
The continued calmness of the associate market will make the potential payoff of partner placements that much more attractive. Recruiters earn 25 percent of a placed attorney’s salary. Associate salaries at most large firms range between $100,000 to $200,000, while partner compensation usually is at least $300,000 and quite often can be up to $1 million or more.
Looking more long-term, Kolodny predicts that, in the next two to five years, consolidations of firms, global expansions and complex acquisitions of practice groups will become increasingly common.
“Firms often see those moves as smarter than one-off moves because they can pick up critical mass and a continuity of clients,” he says.
Jameson also reports that more and more of his law firm clients “are expressing a strong preference for groups.”
McMorrow sees a similar trend that favors recruiters with a deep understanding of the industry.
“The bar continues to be raised for the level of sophistication expected by our clients,” McMorrow says. “They want search firms to think strategically with them.”
In recent years, in fact, McMorrow has added a consulting component to Provident’s search capabilities so that her firm can take a more holistic approach to the long-term needs of law firm clients.
“That’s where the sophisticated end of the business is going, that’s where the future is,” she says.