Like Sheep To The Slaughter
Like most other firms of its size in Chicago, Butler Rubin is approached regularly by much larger firms looking to merge (read, swallow). Because my partners are a polite group, we smile, say thank you and then politely decline. You see, most of us are big firm refugees and we would rather not relive those experiences. The conversations we have with our suitors range from brief to short, but there are, occasionally, discussions that while not destined to lead anywhere are nevertheless interesting. I want to relay one such discussion. Of course, I won't identify the highly respected firm or its most distinguished and thoughtful leader. But because the conversation fits so nicely with my prior post, Demand Destruction, I thought it worth a second post on the topic. If you haven't read Demand Destruction, you might want to do so before finishing this post.
During our conversation, the subject of the recent increases in starting associate salaries to $160,000 in major cities came up. The distinguished leader had some very insightful observations. He said that firms like Simpson Thatcher, which started the latest frenzy, derive almost all of their revenue from mega deal, bet-the-company matters where hourly rates or the amount of fees are irrelevant, a footnote if you will. Whether for the stated reason of trying to attract top talent or the more cynical view of trying to increase pressure on wanna-be competitors, a Simpson Thatcher strata firm will increase salaries. Firms in that elite echelon can do so with absolute impunity. The next tier of firms, which derive maybe 15% of their revenue from such mega-bet-the-company matters but hope to increase that number, matches the increase in order to maintain the appearance of playing in the same sandbox with the Simpson Thatchers of the world. Then the next tier of firms, still further down the line, the ones which get 0% of their revenues from mega-bet-the-company matters, but which hope to break into that line of work (can we say "wishful thinking") then suck it up and match the increase, and so on. Of course, for every tier but the Simpson Thatcher elite level (all 6 or 8 of those firms), the increase doesn't much change the percentage of revenue derived from mega-bet-the-company work, but it builds pressure on relationships with the clients whose revenue falls into the other 85% segment. And those are the clients that are going to start shopping the work. The demand is destroyed. (All those who think this is the end game of the Simpson Thatcher move, raise your hands here.)
I asked this very insightful leader what the end-game was. He sighed, and then said he had spent more time thinking about that issue than any other. And then he said, "I don't know where this all ends. We are damned if we do, and damned if we don't." He then sighed again, and while he didn't say so, I could almost see him thinking, "I hope we're not just damned."
Some of the brightest people in the profession do not see an out. Or if they do, I think they fear moving first, the same way countries fear unilateral disarmament. But doesn't it seem that more than ever, we need some bold leaders? Oh wait, what am I saying. Firms like Butler Rubin, which don't obsess about the need to have multi-million dollar profits per equity partner, and which see value in being flexible in the fee arrangements we reach with clients and then are flexible enough to strike the bargain, stand to gain the most.