High-end commercial law has always been competitive, but when it comes to Kirkland & Ellis, a sharp-elbowed, rocket-fueled buyout madhouse, that reaches another level. The way you reach the top tier and become an equity partner at Kirkland is to work incredibly long hours and to keep on getting a good internal score out of five, according to our in-depth analysis.
But there is something else about Kirkland’s model which holds implications for the wider legal industry and could even be held responsible for sparking Shearman & Sterling’s merger talks with Hogan Lovells.
Kirkland’s ranks of nonequity partners working hard to reach the equity tier can be charged out on partner rates despite the fact they earn way less than those in the equity. That funnels more money to the upper tier and boosts average equity partner profits to a level where they can attract many of the biggest names in the market. Lots of firms boost their average equity partner profits figure by having a lot of nonequity partners, but none do it in quite the same way as Kirkland.
This is important because—more than ever before—we are living in what some call a ‘free agent market’. Just like when footballers come to the end of their club contracts they usually decide to join the highest bidder. Footballers have a desire to be at a successful club competing in the best competitions of course, but money is always a huge factor.
It is the same with partners in corporate law, except they can move whenever they want. That all means that firms that want to keep up with Kirkland and Latham & Watkins need large revenues and profits to give them enough scale to compete on hiring.
Being profitable is not enough on its own. When you’re an international full-service firm you need sheer scale that offers the ability to move with the market and hire whatever is required, whether that be a leading capital markets team in Hong Kong, a sports boutique in London or a structured finance heavyweight in New York.
Cue merger talks to address the issue. Shearman & Sterling is a well-regarded corporate law firm with a rich history but if it wants to keep in the hiring market at the very top end it needs to be bigger. Its revenues are around $1 billion, which is dwarfed by Kirkland and Latham, which both bring in around $6 billion.
A combination of Shearman and Hogan Lovells would give the firm more than $3 billion in revenue. In theory, this would allow it to take advantage of efficiencies in real estate and support staff costs, while offering more scope to pay more at both the junior and partner level...