The partnership is the pinnacle of the traditional law firm pyramid, but as lateral hires become more frequent, and millennials show a lack of interest in the partner role, Fernando Peláez-Pier led a discussion that asked whether it's time for a rethink.
Fit for purpose? The discussion was led by Fernando Peláez-Pier
Law firms are racing to be part of new areas of law like technology and anti-corruption, but it's easier said than done. Practice areas are so new and fast-changing that few people in firms know enough about them to train up lawyers, let alone serve clients. There are two options: take the time to build the area internally and accept you may not be first to offer the service unless you have the foresight to start well ahead of the pack, or bring someone in from the outside.
There's a long-running debate over the virtues of lateral hires versus organic growth. Organic growth – the traditional and still preferred route for many Latin American firms – allows a firm to protect its culture, and cultivate its associates into the perfect partners who will slot in harmoniously alongside the existing partnership. It also provides a clear path of career advancement for lawyers, helping to keep them motivated and at the firm.
Pinheiro Neto Advogados is a strong proponent of this route: lawyers must be with the firm for 15 years before joining the partnership. "For good or for bad, we have a very, very strong culture and I think a very peculiar way of distributing profits that is very democratic," says managing partner Alexandre Bertoldi. "Every partner has a vote and that has been from day zero so we really fear contaminating this culture by bringing in blood from the outside. I always joke in partner meetings that I might like or I might hate what I'm going to hear from a partner, but I'm never surprised because I've known them for 15 to 20 years." (It's notable that under this model Pinheiro Neto has built a successful data and technology practice that led to the opening of an office in Silicon Valley in July, which is overseen by the firm's technology and telecoms head, who has been a partner since 1995.) [Editor's note: the firm did make an exception to its no-laterals rule in September, when it hired ex-Google Brazil policy head Marcel Leonardi in its first ever counsel hire.]
Regular promotions feed the firm's growth. They nurture talent and give them something to aspire to: larger firms should be promoting lawyers on a frequent basis. "If you stop making up partners, in 10 years you're going to have a weak partnership," says Mattos Filho's José Eduardo Carneiro Queiroz. "So even if you're not focussed on growth, you need to always have some new oxygen and add more people to the partnership."
Organic growth is so deeply embedded into law firm practices that until recently there was still a gentlemen's agreement in some Latin American markets not to poach from each other. This convention is steadily being eroded: 80% of Latin Lawyer Elite firms say they would consider lateral hires, while Latin Lawyer reported on more than 100 firms making a total of 110 partner hires in 2017, compared with 60 hires in 2014. (Latin Lawyer reported on 136 partner promotions by 55 firms in 2017 – around half the number making laterals.)
In part, it's thanks to the arrival of US and other foreign firms that have no qualms about tapping the talent of rivals. In Brazil, and increasingly elsewhere, it's commonplace to see law firms make a series of strategic hires to build or deepen their service offering. Rafael Gimenes notes that Veirano Advogados sees the right number of lateral hires as "fundamentally beneficial". "We're for it because it's a 'diversity' thing. You bring on board other capacities, ideas, experiences, and you oxygenate the firm," he says. Marval will do it for the right talent, although firm leader Santiago Carregal accepts that lateral hires are a risky business and require significant effort to get right. "You have to devote a lot of time to bring these partners into your culture, but actually the combination of your culture and their culture creates a stronger culture."
The cultural fit is very important in Latin America, far more so than in the United States, where firms are more attracted to the partner's book of business. Héctor Kuri says that Mexican firms have so far resisted following such an approach, despite the inflow of US firms in Mexico City. "We don't even take into account his or her portfolio. If they come with 70 clients or if they come with one, we don't care, as long as they fit into our culture," he says.
Risks of lateral hires are well documented. They risk causing unrest among the existing partnership or the generation below who see their arrival as blocking their own chance of progression. Some move on sooner than planned, reducing them to little more than a public, costly mistake.
Latin Lawyer did a study of lateral hires reported on between 2008 and 2013 in Brazil and Mexico, and found around half of them had moved on by 2016. Although, as Gunter Schwandt of Nader Hayaux & Goebel observes, having a formal process before, during and (most importantly) after the hire will improve the chances of the successful integration of a lateral hire. For example, a post-signing period where the existing partners must commit to work with that lateral hire or take other steps to ensure they are correctly integrated. A transitional phase also works for professionals joining from the government or companies who have different skill sets and are not trained to make money. "It has to be done in a way that protects the culture," says Beccar Varela's Horacio Beccar Varela. "When we expanded our criminal law practice, we hired someone we knew who had a very senior position in the judiciary. We brought him in as a special counsel for a transition period."
The curve ball
While firms weigh up the pros and cons of lateral hires and organic growth, they must also contend with a phenomenon that threatens to topple the law firm pyramid: millennial lawyers who find it preferable to jump from one career to another in quick succession rather than plug away at the same firm for 10 years in order to maybe qualify for a position they don't really want.
Arguably, more lateral hiring could align a firm with the way today's generation of lawyers behave. "Taking into account the changes in the standard behavior of millennials, in the future we might see more lateral hirings of partners," says Amir Bocayuva Cunha of BMA – Barbosa, Müssnich, Aragão. "Law firms are unique, or have been unique, in that partners are built from the inside, whereas in other companies the experience you have in a number of companies may be seen as an asset."
If associates continue to see the benefit of moving between firms, when senior partners sit down to think about who to add to their partnership, they may find themselves in a position where they are forced to look outside of their firm.
Fernando Peláez-Pier of F Peláez Consulting asks whether promotions risk becoming an outdated concept. "We used to promote partners when those professionals complied with a good number of requisites that were imposed by the firm, but nowadays you have all these professionals whose priority is not necessarily to be a partner of the firm but to have a good balance in their life, to have autonomy, to be involved in interesting matters and to earn enough to have a good life," he says.
"We have a career structure where you start being a junior and then you go up the ladder," says Nicolás Piaggio. "We've talked to the junior guys and they are not that concerned about a lifelong career. So we have a career that our junior people do not see as their priority; this is a cultural difference."
There are a lot more career options in today's world, making the legal profession less alluring. On the flip side, the route to partnership is a lot more competitive. "When we were in the second year of our careers we knew: your partners would tell you you are going to be a partner of the firm," says D'Empaire's Fulvio Italiani. "But now the competition is so tough, the likelihood of getting there is so tough, that the best alternative option is safer." The experience of being partner is also different. "When we started we had the enthusiasm of innovation and growing and creating something. Now, our firms are already built. It's not that they don't want to become a partner, but maybe they want to have their own business and create their own firm," says Jaime Carey, leader of Carey. If today's young lawyers do want to become partner, it's according to their own rules and without the long hours that their predecessors did.
Law firms need to find a way of identifying partners of the future and persuading them of the value of such a career choice, or risk kissing goodbye to years of investment. "Talent is a very limited resource in our countries," says Martín Acero. "So you have to think carefully and you have to take advantage of the opportunities that are out there."
This is no easy feat. As Cristina Massa of González Calvillo, SC asks, if the pool you are promoting from is self-selectingly smaller, what does that mean for law firms? How do they attract young talent and convince them to stay?
Law firms are under pressure to demonstrate that they still
offer the best legal training out there and an attractive working environment. They are having to reconsider their structures, their mentoring programmes and career paths. TozziniFreire has found that promoting diversity and innovation encourages talent to stay. "These young people are looking for purpose. Diversity, pro bono, social responsibility, that's what is appealing for the majority of the younger attorneys," says Fernando Serec. "We have to use those tools to keep them motivated. We are trying to move the boundaries of the practice groups. We have one partner who is dedicated to innovation. The young attorneys can go to this partner and say I want to do a specific job with you."
The collapse of the pyramid?
But will a more radical response be required in the long term? Looking some way down the line, Simone Musa speculates that lawyers of the future may not even be employees or work exclusively for one firm; rather, they will be called to join a project or case according to his or her track record and expertise. There is a likelihood that lawyers will operate in networks and will join client teams for specific projects. "They might be all freelancers, and we would choose the guys who are more appropriate for a specific type of matter. Then I think, if that is the future, would there be a partnership? We don't know exactly how it would shape up, but I think that's something we need to consider – whether 10 years from now, we should be prepared to have people working much more remotely and detached from the concept of belonging to one partnership as exists today." Musa also puts forward the considerable challenges associated with that model, not least conflicts of interest, confidentiality, ethics and quality of services.
The legal profession is very conservative, but some of its new competitors are more willing to embrace innovation. The Big Four are encroaching, bringing a very different organisational structure, while there are other service providers entering the market with almost unrecognisable business models. EY's recent purchase of alternative legal services provider Riverview Law is being watched closely. Some law firms are experimenting with new ways of working. For example, Brigard Urrutia has a new online platform under a different brand, where an individual pays a fee to access a network of attorneys who subscribe to the platform.
Firms need to be prepared to adapt eventually, but in the meantime the partnership structure remains in place. Fortunately, there are members of the younger generation who do still see the appeal of being a partner. "I think we will continue to attract great talent," says Peláez-Pier. "People want to work and to work hard, with clear priorities, it's just a different way of working and we need to build the environment for these people to work in the way they like to work."
The more pragmatic law firm leaders believe the millennial issue will fade as those millennials grow up and acquire more personal responsibilities. "It's true that younger generations care less about money and more about other things because they have less responsibility – they have kids later," says Carolina Flores. "But in our experience, money is always a factor as well and they want it fast; they don't want to wait that long to follow a traditional partnership path. Of course, we still try to coach them and try to insert some of the traditional values in the workplace, but I think there are some things that we cannot change. We have to adapt, because you are fighting for talent."