Latest shortage in Texas: lawyers
Firms find attorneys scarce as mergers, deals pile up
The market for corporate lawyers in Texas has never been this hot or intense – not back in the technology boom of the late 1990s or even during the shale explosion of the past decade.
Texas businesses have so much legal work for lawyers that law firms are stretched thin and fear their attorneys are being overworked and in danger of burnout.
Leaders at more than twodozen corporate law firms interviewed say they need to hire more attorneys — in some cases, a couple dozen — to handle the mergers, acquisitions, capital markets, real estate deals and complex commercial disputes facing their clients, but that they face a major roadblock.
There just aren’t enough lawyers in Texas. Not enough qualified and experienced business attorneys, anyway.
“For the past several months, nearly all our clients have approached us with multiple needs within multiple practice areas,” said Amanda Pickering, a legal recruiter at Amicus Search Group. “There are not enough lawyers to fill the open spots. The talent pool is not growing fast enough.”
That has created a seller’s market for corporate lawyers. Nearly all Texas law firms have increased associate salaries to the point that first-year lawyers straight out of law school and who have no idea even where the courthouse is now make a base salary of $205,000.
To hold onto experienced lawyers, some firms are offering midyear bonuses of up to $75,000 to associates, on top on end of the year bonuses that can reach $125,000. In 2021, associates at the larger corporate law firms who have eight years of experience — year before they are usually come up for – will be taking home about $500,000 this year.
But the war for talent doesn’t end there. Some richer law firms have offered six-digit signing bonuses – some as high as $500,000 — to poach the most experienced associates.
“Everybody is scrambling to find associates to do the work that is coming in,” said Robert Croyle, who is managing partner of the Houston office of legal executive search firm Major, Lindsey & Africa. “The law firms are incredibly busy, and they don’t have the lawyers to do the work.”
Supply and demand
As with all shortages, the cause is a matter of supply not keeping up with demand. Business for corporate law firms has surged with a booming economy, fueled by low-interest rates. cheap money and trillions of dollars in federal spending. Mergers and acquisitions involving Texas businesses are up 31 percent so far 2021 over the past year and deal making in the third quarter of 2021 reached its highest numbers since 2014.
Lawyers say the size and complexities of the transactions also have increased. The value of merger and acquisition deals nearly tripled to $466 billion in the first nine months of the year from $158 million during the same period in 2020.
Law firms such as Houston-based Vinson & Elkins and Porter Hedges report that hours billed to clients have jumped double digits during the past year and some as much as 40 percent. Meanwhile, the number of lawyers working at the 50 largest corporate firms in the state has grown only about 1 percent a year since 2013, according to data collected by the Texas Lawbook. Meanwhile,
“We have hired a dozen lawyers the past few months and we have a dozen new lawyers starting this next week and we need several more right away,” said Kevin Lewis, co-managing partner of the Houston office of Sidley Austin. “Between 1998 and 2000, tech was going crazy keeping us all busy. Now, it is every practice group. I have never seen anything like this.”
“We are injecting a couple trillion dollars into the economy and interest rates remain near to nothing,” Lewis said. “It is a recipe for everyone (staying) busy all the time,” he said.
Travis Wofford, who is vice chair of the global corporate legal practice at crosstown rival Baker Botts, said the Houston headquartered firm saw a 24 percent increase in new clients between January and the end of July.
“There is an economic transition taking place in Texas, and law firms are front and center and are going to have to meet the demand,” Wofford said. “It has been insane. We are doing deals at a near record pace.”
The backlog of cases created when courts shutdown during the pandemic is also adding to the workload of law firms. The avalanche of legal work, much of it complex business matters, means firms need more experienced lawyers, who are short supply.
Reverse musical chairs
The shortages have been exacerbated by the growing number of corporate law firms in Texas as firms from New York, Chicago, Los Angeles and other cities open shop here. The most recent example is O’Melveny & Myers, a New York firm that opened offices in Austin and Dallas in June.
These out-of-state firms, however, have mostly hire lawyers from the existing law firms and seldom bring in attorneys from their non-Texas offices. That has helped make the Texas legal hiring market a game of musical chairs in reverse.
The number of players remain the same, but chairs keep being added. The law firms – which in the game scenario are the chairs – must keep paying the players more to sit in their chairs.
“It is total supply and demand issue,” Croyle said. “Law firms have to get creative.”
Kirkland, the Chicago founded law firm that only opened in Houston in 2014 and now has more than 300 lawyers operating in Texas, has been by far the most aggressive law firm in hiring attorneys away from competitors. Kirkland announced in April that it was opening an office in Austin for one reason: to expand the pool of lawyers from which they can recruit and hire. That includes those practicing law and or in law school at the University of Texas.
Latham, a 3,000-lawyer firm founded in Los Angeles which now has 100 attorneys working in Houston, has since followed Kirkland’s lead, opening offices in Austin.
A handful of law firms have relocated associates and partners from New York and California. Other firms are seeking to hire lawyers from competitor firms in Chicago and Washington.
Coastal flow
Pickering, the legal recruiter, said the more severe Covid-19 workplace restrictions in New York, California and other cities initially ignited interested among some lawyers – especially those who specialize in M&A activity – in relocating to their firm’s offices in Texas, where there were fewer pandemic-related limitations. The absence of a state income tax and lower real estate costs were also attractive.
“As was the case early in the year, the steady flow of interested candidates from the coasts has only increased,” Pickering said.
But Pickering and law firm leaders say law firms in Texas need to get more aggressive in recruiting from competitor firms in smaller cities or expand their hiring efforts among law school graduates because the demand for qualified business lawyers is only going to increase in Texas.