Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Happy New Year! Today, we look at a lockstep firm’s efforts to recruit lawyers in Silicon Valley. Sign up to receive this column in your inbox on Thursday mornings.
Of firms competing for talent in the San Francisco Bay Area, Debevoise & Plimpton is the only one that still adheres to a strict, seniority-based pay structure.
Will that limit its ambitions?
Most firms have abandoned the strict lockstep model, which divides profits evenly among partners based on tenure. They’ve been forced to give themselves flexibility to shell out for top talent.
It’s likely no coincidence that shortly after moving away from lockstep, many firms expanded to Northern California, where some top lawyers command eight-figure salaries. Freshfields, Paul Weiss and Cleary Gottlieb are examples, and they’ve all found success hiring local partners.
Debevoise first announced its Northern California venture in March and opened an office there in September.
The firm imported more than a dozen lawyers from New York to serve an existing roster of big-name clients, including Sequoia Capital, Lightspeed Venture Partners, PayPal Holdings Inc., Robinhood Markets, TPG and Twitter Inc.
Debevoise has yet to make a lateral hire in the new market, though partners say they’re in advanced talks with potential hires and expect to announce something soon.
The effort is at least in part a referendum on how many partners still value the perceived benefits of a lockstep culture. The number of adherents seems to be dwindling, but Debevoise is committed to finding them.
“We’re not in any hurry, but we do want to grow aggressively,” said Michael Diz, co-chair of Debevoise’s mergers and acquisitions practice and co-managing partner of the San Francisco office. “It’s important the lateral talent we bring in is the right cultural fit.”
The recruiting effort has slowed because of the pandemic and the time it takes to explain a culture and pay structure vastly different from other Silicon Valley firms.
The firm’s lockstep model presents a challenge in a market where top mergers and acquisitions lawyers with their own clients are paid top dollar, recruiters and legal industry consultants said.
Partners in Silicon Valley develop relationships with young companies and often stick with them for years. Those relationships drive value on the lateral market. But it’s not a game lockstep firms are used to: They don’t give credit to partners for having their own clients.
“This is an emerging companies market where partners can say, ‘This is my client,’” said Natasha Innocenti, a Northern California-based partner at recruiting firm Macrae. “The premium here is on the M&A or the private equity partner because they do have the relationships. And the other practices are often paid less.”
Debevoise made its Silicon Valley move to deliver services such as M&A, private funds, white collar litigation, data and cybersecurity, and intellectual property litigation to its existing roster of clients on the West Coast. It’s open to recruiting lawyers in any of those practices.
Recruiters say Debevoise has the kind of cache and quality work that attract interest—and the partners are well-paid. The firm’s average profits per partner of $4.5 million in 2020 was the 10th highest among the 100 largest law firms last year, according to AmLaw data.
But firms compensating on merit have flexibility to pay well above average profits. They could cut checks that would go over the top of Debevoise’s pay scales.
So, the firm is adjusting. It’s focusing its recruiting pitch on more than just finances. Debevoise stresses that its lockstep model eliminates bickering over pay and encourages partners to work together on complex matters.
“It’s the way we all want to practice law,” said David Sarratt, co-managing partner of the firm’s San Francisco office. “Many of us could perhaps make more money at another place, but in the long-term, the value proposition we bring to clients and each other is so much stronger when we are all in a true partnership and all our incentives are to help each other and serve our clients’ mission.”
One example of the type of cross-practice, high-value work Debevoise says its lockstep model helps deliver was a big project last year for prominent Silicon Valley venture capital fund Sequoia Capital.
The firm helped Sequoia with the legal strategy behind its decision to remake its investment structure in the U.S. and Europe around a single fund, The Sequoia Fund. The move allows Sequoia to hold more types of securities for longer, and Bloomberg News reported it could have tax benefits.
Andrew Ahern, a Debevoise partner who splits time between New York and San Francisco, and who worked on the Sequoia matter, said the deal represented the type of high-touch, creative work the firm aims to do for top clients. He calls it a different strategy than gobbling up deal flow from a dozen new clients.
“A project like this is drawing on a whole host of different experiences with fund structures,” Ahern said. “And we see the West Coast as a broadening and extension of our team. It’s not a new independent silo. It will give us closer connections with our leading clients.”
The firm conducted an extensive review of its lockstep strategy two years ago, coming away with what Sarratt said was a “full-throated commitment” to the system—and its impact on financial competitiveness and ability to recruit and retain talent.
Diz said the firm has not lost an M&A partner to a competitor in over 20 years and has never seen a group departure.
But Debevoise has not been immune from departures in Big Law’s free agent era. Notably, two leading investment funds partners, Erica Berthou and Jordan Murray, departed for Kirkland & Ellis in 2017, where they’ve gone on to leadership roles.
More recently, banking regulatory partner David Portilla moved in February from Debevoise to Cravath, which modified its lockstep model late last year.
Kent Zimmermann, a principal at law firm consultancy Zeughauser Group, said competitors and clients alike view Debevoise as an elite firm. But he said Debevoise still faces a unique challenge cracking the Northern California lateral market.
“It’s one of the most competitive markets in the world, and all the firms that have moved the needle in the Northern California market, entering over the last decade, have paid based on merit,” Zimmermann said. “Those firms often set the market on compensation.”
Still, Ahern, Diz and Sarratt said Debevoise’s lockstep strategy has become a differentiator. “I don’t see it as a limiter,” Ahern said. “I see it as necessary for us to have that distinction.”
Worth Your Time
On Dentons: Dentons named Sonia Martin as its new U.S. CEO, filling a void created six months ago when the firm abruptly removed Mike McNamara from the role. Martin is a Bay Area litigator who’s been at the firm since 1996, when she joined as a summer associate.
On Google: Sticking with the Bay Area theme, it’s hard to imagine a law firm rivaling the pay package of Alphabet Inc.’s legal chief, J. Kent Walker Jr. He’ll receive stock units valued at $23 million in addition to an annual salary bump to $1 million from $650,000.
On Law Firm Mergers: Law firm mergers remained depressed last year at 41 deals, according to Fairfax Associates, which notes the number is up from 40 a year ago but well below the historical average of 55 mergers per year over the previous decade.
On This Year: I wrote about four practice areas that could power Big Law in 2022. If you want to test how well my predictions did last year, you can find my calls here. I got at least two right, seeing as capital markets and M&A had record-setting performances. Two out of five is not bad (for a baseball player)!
That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.