The market for lateral partners and senior associates during 2010 has been described as anemic, clogged and even paralyzed. The combination of an excess of experienced attorneys still seeking a change and risk-averse firms still smarting from the recent recession means the pace of lateral hires is not likely to reverse course any time soon. Nonetheless, for firms willing to look hard and perform their due diligence, opportunities exist.

This is a buyer’s market for those prepared to be bold and creative.

The Supply Problem
For the legal industry, the era between the late 1990s and 2007 was marked by rising associate salaries, driven by fierce competition among large firms for young talent to staff unprecedented amounts of work, specifically focused on corporate and finance transactional work. A seemingly inexhaustible availability of capital — invested and loaned — fueled a spike in transactional work and a corresponding surge in hiring.

When the liquidity dried up in late 2007 into 2008, so did the need for many of the attorneys handling the work. In-house counsel started tightening their legal budgets, pushing back on associate salaries they believed to be unjustified. Massive layoffs ensued, with many of the cast-offs consisting of higher-salaried partners and senior associates. Thus, the supply pool of attorneys seeking lateral moves became flooded in a relatively short timeframe.

During a tornado, we are instructed to seek stable shelter and stay put until the sun is shining. Attorneys and firms alike appear to be heeding this advice relative to the current industry recession. For still-employed attorneys that previously were considering a move to what they thought were greener pastures, many have reassessed their existing situations. Some find themselves suspending their search until the market improves, for the same reason one holds a stock when its price is at a historic low. Others are happy they are still employed at all.

Regardless of motivation, the supply of potential laterals seems to comprise: those candidates that were let go by their former firms and therefore considered to be less attractive; or those currently employed candidates who are harder to land because their wanderlust has been dampened by the industry climate.

The Demand Problem
For the reasons set forth above, the general consensus among hiring professionals seems to be that there are many candidates for lateral moves, but a scarcity of really attractive ones. Matchmaking is complicated further by the fact that more law firms have fewer openings they need to fill. Reasons for this include fewer attorneys leaving their current firms, receding amounts of work, and more stringent criteria for lateral hiring, with the most glaring being the requirement of some minimum of portable business.

During the boom of the last decade, firms hired rapidly — some would say precipitously — stirred by a “keeping up with the Joneses” approach to dressing the window for clients. This is no longer the case. As a result of increased pressure to improve profits per partner, maintain existing talent and deliver services for fees that watchful GCs will pay, firms have retreated to a more reactive approach to hiring than the anticipatory strategies employed in the past. The increasingly popular use of (and now wide availability of) temporary staffing has added to firms’ ability to defer investing their capital and time in new full-time attorneys.

Moreover, once a firm is stretched to the point of needing to hire, the qualifications a successful candidate must possess are as stringent as ever. Almost every firm asked would respond that it was in the market for good lateral candidates, but the definition of “good lateral candidate” is a loaded one, to be sure. In order to find a seat when the music stops, a candidate needs a critical mass of portable business, a certain practice area expertise that fills an existing void with a firm that is looking, and likely a combination of the two.

As tough as the market is for lateral partners, it is virtually dry for “worker bees” seeking to retain partnership status. Firms and GCs have rediscovered that the heavy lifting can be done more efficiently — and with no drop-off in competency — by senior associates who impose a lighter burden on firms’ and clients’ income statements. Accordingly, demand may seem high on the surface, but it is considerably constricted once filtered by risk-averse firms’ hiring criteria.

Where are the matches?
From a general standpoint, signs are starting to point toward recovery. Big firms are extending offers to summer associates and, more importantly, letting them start work on time. The layoffs appear to have subsided. Though these may not be signs that the lateral market in particular is returning, they are read by many to portend a general recovery in the industry as a whole.

Notwithstanding the supply and demand problem described above, the recent recession has spawned opportunities for qualified candidates and bold firms large and small. In many cases, top producers stuck at firms still reeling from the recession may be experiencing the frustration that naturally develops when one feels they are disproportionately subsidizing the lesser producers.

In other instances, a candidate may feel that his or her practice area is no longer receiving the support it once had from the firm. Candidates at firms that have suffered large layoffs may find their book of business inadequately serviced, thereby forcing the rainmaker into more work and less marketing and client management. Rate structures between the firm and the attorney can diverge. Whatever the reason, firms that can address these perceived shortcomings and offer the needed resources remain well positioned to land a “good lateral candidate.”

Unique Opportunities for Smaller Firms, Boutiques
Regionally, many of the lateral moves have consisted of seasoned partners joining smaller firms and boutiques. Aside from the typical perceptions about smaller regional firms (better work-life balance, less onerous commuting, no city wage tax, etc.), a big firm partner often sees significant benefits in downsizing. Those benefits may include a rate structure better suited to the attorney’s clientele, a less rigid compensation environment more resembling a meritocracy, and more easily coordinated cross marketing opportunities.

Boutique firms may offer a specialist a “plug and play” support system that facilitates a seamless transition from one firm to another with no diminution in the expertise delivered to the client. Because of the varied motives for partners seeking a change, firms large and small can all compete in this lateral market, regardless of how challenging it may be.

Boom times spawn more activity, and activity subsides with industry recession for lateral movement of partners and senior associates. That will not change. Accordingly, the overall performance of firms in our region represents a fairly reliable indicator for future activity by lateral candidates and those seeking to hire them. Based on the data published by the larger firms, it should be expected that 2011 will see a certain measure of continued dormancy.

Nonetheless, although connections between candidates and firms in the lateral market may remain hard to come by, as clarity improves and the dust settles, opportunities exist for bold firms prepared to offer creative and attractive opportunities.