Lateral Market Expected to Heat up in 2018

Law360, New York (January 1, 2018, 3:04 PM EST) — Recruiters say the lateral market has bounced back from its somewhat quiet start earlier in 2017 and are expecting a robust 2018, fueled primarily by corporate, mergers and acquisitions and private equity work, with a particular emphasis on the technology sector, as well as increasing demand for data privacy and cybersecurity expertise.

The relative slowdown in lateral activity was due in part to the wariness created by a surprising election and uncertainty about where President Donald Trump’s administration would focus its priorities, specifically with regards to shifts in regulation and new legislation, recruiters said.

“After a somewhat slow start to the year, which we attributed to the surprise election results, I think the market’s come to grips with what the world’s going to look like at least for the next three years or so and has factored that in, and it seems it’s really back to business as usual,” said Jeffrey Lowe, global practice leader of Major Lindsey & Africa’s law firm practice group.

For 2018, recruiters forecast increased growth in major metropolitan areas, particularly in California and Texas, and creative new measures by the top-tier BigLaw firms to attract, integrate and retain top talent.

The Trump Factor

After the election, firms sought to grow their ranks in areas where they anticipated increased activity due to the administration’s stated goals, such as project finance and health care. As significant infrastructure initiatives and health care reform failed to materialize, firms and recruiters began to recalibrate their strategy, according to recruiters.

“Firms halfway through the summer were saying, ‘We’re going to stop worrying about what’s going on in the government'” and instead focus on core strengths, according to Gloria Sandrino, global chair of partner and group recruiting at Lateral Link. “We reconfigured ourselves to focus on what specific firms’ needs are and do more targeted searches instead of blanket searches.”

Looking ahead, recruiters note that there are areas that will be in high demand regardless of winds from Washington, and for now that means an uptick in searches in the corporate, M&A and private equity spheres.

“Whatever Trump decides to do, corporations with money will be buying tech companies left and right,” Sandrino said.

Unusually for an inauguration year, which typically sees increased movement between law firms and government positions, the lateral market experienced a slight lull in Washington, D.C., in early 2017, recruiters said.

“You don’t have the same fervor of people at law firms wanting to join a Republican Trump administration,” Lowe noted.

Jones Day and Kirkland & Ellis LLP were among the top firms whose lawyers joined the White House and other federal posts, according to a Law360 analysis.

Hot Spots for Growth

One area that is certain to grow with demand in the coming year is cybersecurity and data privacy, particularly on the heels of several high-profile data breaches at major corporations, such as Target Corp. and Equifax Inc., and law firms themselves, such as Bermuda-based Appleby.

“Anything that’s related to cyber or privacy is as hot as can possibly be right now,” Lowe said. “You’re seeing more and more data breaches, and you’re also seeing the law firms worry about data breaches of their own IT systems and the potential for liability related to that. So that’s easily the hottest thing in the market right now.”

Silicon Valley remains a primary locus for the tech industry, but the emergence of startups in southern California and Texas is also fueling law firm expansion in those regions, recruiters said.

Another hot spot where recruiters are eyeing growth is London, despite uncertainty looming around the British capital as the country prepares to separate from the European Union.

“Among the elite U.S. firms, I don’t see them being entirely satisfied with their offerings in London such that they want to cut back or move or something like that,” said Mark Jungers, co-founder of legal search firm Lippman Jungers LLC. “I see them being even more bullish, maybe even more bullish because of the fact that they see some of the more traditional U.K. firms being harmed a bit by Brexit.”

Changes in the Lateral Market

Recruiters said they were eyeing two trending potential threats to traditional law firms but didn’t expect either to make a sizable impact in lateral recruitment in the coming year. One is corporate legal departments bolstering their ranks to bring more work in-house; the other is the reignited chatter about the Big Four accounting firms expanding into the U.S. legal market, following PricewaterhouseCooper’s launch of a legal services office in D.C. in September.

“From a legal recruiter perspective, it’s probably a good thing for us if we have new players in the market. Anyone stirring up the pot helps the movement game,” Jungers said, discussing the Big Four. “It’s certainly a different type of organization. I don’t see law firm partners en masse being necessarily enamored by going to work for an enormous company, which is what the accounting firms are.”

Robert Kinney, founder and president of Kinney Recruiting, noted that it was the smaller, less expensive firms that were likely to be squeezed out by competition from in-house departments and Big Four firms.

“The top firms are always going to be the choice of sophisticated corporate leadership when there’s a novel or bet-the-company-type situation,” he said.

For its part, BigLaw has responded to an active lateral market by initiating or expanding programs designed to integrate and retain top talent.

The past year saw an “enhancement to how organizations are attracting legal talent,” said Jamy Sullivan, executive director at Robert Half Legal. “I’ve seen them become more competitive in their compensation and more creative in benefits they are offering.”

These benefits include new or enhanced programs aimed at mentorship, ongoing training and cross-selling, creating a firm culture and building a diverse legal team, which is increasingly of importance to both clients and candidates.

Diversity has never been a more integral part of the hiring process, Sandrino said.

“The firms are reacting to the fact that it’s been a banner year for GCs saying, ‘Unless the partner team is diverse, we’re not going to give you our business,'” she said.

Regardless of any uptick in lateral activity, the legal market continues to tighten, and recruiters do not expect a return to the bullish pre-Great Recession level of hiring.

“Firms are very cautious in their hiring right now. Everyone still remembers the pain of layoffs 10 years ago,” said Ken Young, co-founder of legal search and consulting firm Young Mayden LLC. “You don’t hire someone at that kind of money without that need.”

By Sam Reisman

–Additional reporting by Jacqueline Bell and Cristina Violante. Editing by Christine Chun and Katherine Rautenberg.