The legal marketplace is slowly recovering from the recession but with strong indications that law firm economics has fundamentally changed, many are asking if the halcyon days will ever return for corporate lawyers?
In the first of a series of interviews on The Future of Law, The Global Legal Post talks to a legal thought leader who has helped shape many of the global law firm partnerships today. Recruitment guru Joe Macrae is one of the world’s most high profile entrepreneurs in law, having created three major recruitment consultancies globally. After successfully setting up and selling  ZMB, one of the UK’s earliest recruitment agencies in 1990, with  Jonathan Brenner (now co-founder of the highly successful Lawyers on Demand (LOD),  he is now based in Palo Alto, California, where he is CEO of California based Mlegal Consulting as well as co-founder of Macrae Roxburgh Appleby  (MRA) in London.

Global Legal Post: You have been hiring partners and teams for law firms for over 25 years. What are the biggest changes you have seen in the market in that time?

I have been lucky enough to work in the legal industry during 25 years of profound and accelerating change in a career which covers both sides of the Atlantic.  When we set up in London very few partners ever moved firm and regulations prohibited UK lawyers being in partnership with US firms. The early 90’s saw a dramatic shift on a number of fronts from greater mobility amongst partners - not just to US firms but within the UK market.  Regional UK firms also started attacking the City of London with DLA leading the charge. And of course we also saw round one of the  growth of the accounting firms in law. But by far the most profound change was the ability of US firms to hire UK partners, taking on the Magic Circle firms and the UK legal establishment.

Global Legal Post: Was it the era of ‘Mad Men’ for law firms then?

Our job was huge fun because, although we did not “headhunt” partners, we were able to run ads that were very high profile and much discussed at the time. Today an advertisement for a job a £1 million pay cheque does not get a second glance but when we ran the first one for Chadbourne & Parke it made the front page of the Daily Telegraph as a news story. Also there was both keen interest in learning about what the US firms were up to, coupled with a complete lack of information – augmented by much disinformation – about what it was “really like” to work for a US firm.

Global Legal Post: What were the main differences between UK and US firms in the nineties?

Conversations with partners generally rebounded around a number of themes.
1) Is it really a partnership if compensation spread is 10:1?
The UK firms were still mainly lock-step with rations of around 3:1 so the idea that someone could be earning ten times as much as you but that you were partners together provoked much analysis
2) Is it really all about “book”?
One of the great sources of frustration early on was the fundamental disconnect between US and UK firms on personal book and institutional clients. Many firms just wanted to buy the partners who owned the relationships with the FTSE 50 and move their teams to a new home. The UK partners would start the conversation with “well yes,  I am the main relationship partner with x but there is zero chance they will come with me” which left our US clients confused and frustrated

Global Legal Post: That was also the era of the US UK merger discussions. How involved were you in those talks?

I had a lot of fun working on US UK merger discussions. The work was almost never directly lucrative because so few of the deals that were explored ever actually closed. I did it because it gave me the chance to sit with firm leaders in New York Chicago and DC and talk about London and then wander around the City introducing them to all the firms they wanted to acquire (sorry “merge with”). After realising that these discussions were going nowhere, Plan B was usually to set up a new office and hire laterals and so we greatly enjoyed doing that work.

Global Legal Post: You grew ZMB to a forty person plus business in the 1990s. What were the drivers for that growth?

We set ZMB up in 1990 and again could not really have been more fortunate with the timing. When we started there were fewer than ten companies in London focused on legal recruitment and most of them were solely doing secretarial and associate. As a result, we were able to learn the partner recruitment market as it developed. Looking back on why ZMB grew as successfully as it did, I do not think it was any one thing. It was a combination of being able to hire great people who were keen to get out of the top City firms and for whom this was a totally new option. We got quite adept at identifying the few lawyers who combined good legal pedigree, great people skills and the ability to sell and then keep them. We had a string of successes in that period – from hiring some of the first English partners for firms including Gibson, Dunn & Crutcher, Orrick, Chadbourne & Parke, Pillsbury and O’Melveny & Myers. The huge surge in law firms hiring associates also benefited as did the growth of the in-house marketplace with clients such as GE Capital, McLaren, MTV and Reuters using us to recruit for their legal departments.When we sold the business and I moved to America in 2001 the core team remained in place for several years after that –evidence I always felt that we had developed a great culture and a cohesive team -  in contrast to the implosion at other companies that sold around that time!

Global Legal Post: What was the driver for setting up your Californian business in 2001?

Having acknowledged that I got lucky on timing with the set-up of ZMB I could not have got it more wrong with the starting time for Mlegal in California. We set the business up in August of 2001 Silicon Valley was reeling from the implosion of the dot com bubble and the US as a whole was dealing with the aftermath of 9/11.As a result the legal recruitment market in the Bay Area was slow if not moribund for our first year. Thereafter it picked up slowly and there was perhaps a slight advantage to not having been there when the streets were paved with gold and legal recruiters were making money hand over fist. There was definitely some kind of “hangover” from the boom and as a young startup we picked up business that we perhaps should not have got. Our business really accelerated when Brobeck went bust in 2003. Suddenly hundreds of quality partners and groups needed homes fast. We worked seven days a week for a month and did some big deals at that time. This gave us the track record we lacked and enabled us to work with some great firms as they opened in Palo Alto including Paul Hastings, Wilmer Hale and Alston & Bird.

Global Legal Post:  Having set up successfully in Silicon Valley, London came calling and you re-established a business there. What was the thinking behind this?

I had a five year non-compete in London which was probably longer than could have been enforced but at the time I was busy building the US company and got distracted for a couple of years trying to build a recruitment business in China.
I then spent two frustrating years trying to find the right team to open in London again. The trouble with knowing the market was that the people I wanted were usually already equity participants in other successful entities and the people who wanted to come were not exciting to me. My clients in the US made it very clear that the relationship there would open doors, but that they would only give us business if they were excited by the quality and energy of the folks on the ground. I was therefore hugely fortunate when a mutual contact put me together with Gill Appleby at a time when she had had enough of being an equity partner at Taylor Root and was looking for a fresh challenge. After many months of discussion I was able to structure a return to London with two great senior practitioners in Gill and her fellow former Taylor Root partner Paul Roxburgh. Paul and Gill combined market reputation with huge established networks in London and Hong Kong (where Paul had spent seven years) and together they drive that business. I am in London every six weeks or so but focus very much on client specific searches and working with partners and teams who, in many cases, I have known for decades. It  seems to be working well as we now have a team of six partner recruiters flat out in London and a great associate practice too. Paul has also launched the company in Hong Kong and that is growing rapidly.

Global Legal Post: Looking over your time in the US, what would you say the most interesting developments in the legal marketplace were? 

In the 13 years since I moved to Silicon Valley its strategic value and interest to US law firms has only increased. Many of the Am Law 100 now have offices in or around Palo Alto. New firms continue to arrive every day.
Much is written and discussed about the nexus between Silicon Valley and the Asian markets. More often than not when we try and drill down on this it is far from clear exactly how much business is really won because any firm has cracked that link.
The whole question of how much money the international law firms can actually make in China is a fascinating one. When I talk to clients off the record I am frequently told that the office is strategically important but either never or very rarely makes money. Of the 150 plus firms working in that market I would be amazed if more than 10 per cent return a profit  to the US or the UK  consistently. The next phase of growth that we are anticipating with interest is Chinese firms building up their practices in the US.  This has started to happen on a small  scale  in Palo Alto. The news that King Wood Mallesons has set up a US committee is  fascinating. One of the other memorable conversations from my two years shuttling hard between the US and China (2006 to 2008) was at a company HQ outside of Shanghai. I spent an hour with the GC of one of the big State Owned Enterprises who was telling me how the market was changing incredibly fast in house there and that one of the biggest shifts was that China would stop just being a spoke to the hub of legal departments based in the US or Europe but it would become the Hub and London and New York will be the spoke. I don’t think we are quite there yet but this has gone from sounding like a story from some futuristic movie to much closer to reality.

Global Legal Post: What other jurisdictions around the world interest you and why?

The Gulf is of great interest. My takeaway on the legal market there is that it is a fascinating tussle between the US and UK firms over regional dominance and also choice of law between English and US. I do not pretend to be an expert but certainly we are keeping an eye on when rather than whether it would make sense to open there, both to serve local and regional business and as a hub for what is developing so fast in Africa.

Global Legal Post:  The Future of Law is a subject which is being much debated amongst the legal fraternity now. What insights did you give students in your recent talk at Harvard Law School?

I was lucky enough to get introduced to Professor David Wilkins at Harvard several years ago. His team studies the legal industry and the challenges it faces as well as  future trends. I have had some wonderful discussions with him over the years and been lucky enough to be invited on three occasions to talk to his students. The talks have covered subjects from the globalisation of law to analysing  the Silicon Valley legal scene and its successes and failures. It is helpful to be able to talk to the students about how they see the world and their motivations for studying law. One of the biggest shocks I got was when I asked how many actually saw themselves as ending up as partners in the “Big Law” firms they were joining.  The answer was dramatically lower than I had expected and highlighted how different the “social contract” has become between star new recruits and law firms. It seems to have moved from  “ come build a career and if you are good enough you are a future partner  “ to something like “ we know only a handful of you will stay and make it but we are a great brand you will learn a lot and having us on your resume, and having our alumni network behind you is no bad thing”

Global Legal Post: What changes do you see coming up in the legal industry, in particular around social networking sites such as LinkedIn and other on-line tools?

I am watching with interest how lawyers are using LinkedIn and other online recruitment tools. The rapid demise of the legal recruitment industry as we know it was predicted back in the late 90’s when the online recruitment companies were first set up. At ZMB we invested a six figure sum in a company we called Zureka.com. The idea centered around aggregating jobs online and encouraging lawyer to register on the site so we could try and make the match with software It had elements of a great idea but ended up just being a massive time sink and a black hole. When Hays bought the business it got shut down pretty fast !! Clearly much of the global recruitment market is moving online at light speed and in law I see a lot of the big tech companies in particular using a combination of web based products coupled with their own in house recruiters to completely bypass outside recruiters. I think the high end of the partner market is less capable of commoditisation. With what we do in London and the US the partners our clients seek are called all the time and whilst they may be on LinkedIn,  they would not dream of applying for a job that way. Also, at least half the people we deal with are not looking to move anyway at the start of the process. With regard to the broader legal market there are many interesting things happening including: 
1) The whole growth of Africa and how the legal market there will take shape over the next ten years. We have seen a huge spike in interest in partners with Africa relationships. This was initially very much restricted to the projects and infrastructure space but is rapidly becoming much broader.
2) International Arbitration. This has been a huge growth business for us in the last three years and with the developments in Dubai, Hong Kong and Singapore, and the enormous increase in the use of arbitration by major companies and governments around the world, we see this as set to continue for years to come. The questions around use of contingency fees and flexible pricing and the flurry of boutiques setting up are all clear evidence of the rate of growth and change in this field
3) Making a success of US-UK mergers. Of course we are in the midst of this each day and see some of the great success stories of globally integrated practice groups pitching together and getting stuff done. We also see an equal number of anecdotes about people from different offices of the same firm pitching the same clients and cannibalizing each other’s business. We also hear of clients who are sold an integrated product then scratch their heads when two bills turn up one from the US and one from the UK clearly revealing the lack of integration on the ground. All  this can only get better but the different rates of change between the firms is one of the many factors that help create a market for laterals where frustration at one firm is solved by a move.