IN 2005-06, the top 100 UK law firms made a total of 1,012 partnership appointments. Of those, 574 were internal promotions and 438 lateral hires. Even when you consider that many of these lateral hires were outside UK firms’ home jurisdiction, the fact remains that most major law firms have embraced external recruiting with huge fervour. Ten years ago, the number of lateral hires would have been a fraction of what it is now, and it is difficult to imagine how the tide can turn.

So which firms are the biggest lateral hirers, and which have the best track record on internal promotions?

Here is some good news for magic circle associates. Linklaters, Clifford Chance, Freshfields Bruckhaus Deringer and Allen & Overy (A&O) are the biggest internal promoters over three years, in that order. Despite frustration on the part of some of its lawyers that equity seems far off, the magic circle does not do too badly in terms of equity prospects. Freshfields is all-equity; A&O has 77 per cent equity partners. At Linklaters‚ partnership is 75 per cent equity, although the figure is much higher in London, with the majority of the non-equity partners overseas. Clifford Chance scores lowest, with only 66 per cent of its partners holding equity – although the concept of an all-equity partnership is back on its agenda.

However, any associate who decides shortly after qualification that they would like to work in the magic circle had better move sooner rather than later. Magic circle firms seldom make lateral hires in London at partner level, but there is plenty of movement into those firms at associate level. “Our tradition of taking a significant number of lateral hire associates and being careful not to over-recruit at a trainee level is a consistent theme,” says Freshfields HR director Tim Cole. “It allows fresh blood in at a junior level.” Similarly, an examination of the magic circle firms’ internal promotions shows that certain areas are inevitably prioritised. IP, commercial, real estate and pensions lawyers stand a very small chance of getting partnership at the big four. It might be good to have a magic circle name on your CV for a bit, but realistically, partnership will never be much more than a pipe dream.

Even in the core areas it has been patchy. Freshfields’ corporate group in London has consistently promoted one or two partners a year, but the UK share of total corporate promotions is diminishing. A&O has had a decreasing number of overall promotions over the past three years, with a big knock-on effect in London: no corporate associates were made up in 2005-06, and in its other major areas only one banking and one capital market associate made the cut.

At Clifford Chance, banking associates in London have historically done well, but corporate has managed no more than one a year, and litigation promotions in London have gone in fits and starts. Linklaters does okay in making up partners in London, although it has grown its banking department almost entirely by laterals in the past few years. However, the corporate and capital markets groups have a strong record of growing their own.

The biggest internal promoter after the magic circle is DLA Piper Rudnick Gray Cary. Surprised? The firm is also the biggest lateral hirer (Promotions Table PDF 21KB), but it has a consistent record of growing its own partners. In 2005 it made up ten to partnership in London alone. Halliwells, which appears to be mimicking DLA Piper in all but its international ambitions, has grown like topsy over three years, adding a total of 72 to its partnership. Of that number, 37 have been internal promotions – by far the best performance of any regional firm. However, the number of internal partners has decreased over three years, from 19 in 2003-04 to 11 in 2004-05 to seven in 2005-06. Indeed, the trend at Halliwells is now towards laterals. In 2003-04 it brought in five, the following year eight, and in 2005-06 it hired no fewer than 22.

“Out strategy is to become a top 25 UK firm sooner rather than later and the way to achieve this is to attract the very best people,” says Halliwells managing partner Ian Austin. “The retention rate among our associates is higher than ever and that’s encouraging as it indicates we’re looking after our homegrown talent and also appealing to external audiences. It’s an important balance to strike.”

Other firms have focused on internal promotions because they have been vulnerable to raids from aggressive competitors seeking laterals. From adversity, Denton Wilde Sapte (DWS) has created a certain amount of opportunity for its associates. It has made up 26 to partner in three years.

One firm quietly promoting away internal candidates is the low-profile Berrymans Lace Mawer. With 27 new homegrown partners over three years, it beats Ashurst and CMS Cameron McKenna in total promotions, although the biggest year was in 2003-04, when it promoted 14. Most of the successful candidates have been in the core areas of insurance and personal injury. “Our clients are looking increasingly at long-term relationships and broader relationships,” says Berrymans managing partner Terry Renouf. “They want us to ensure continuity and they want succession planning – that might explain why we do so well at this.”

The total numbers tell you one thing, but the ratio between promotions and laterals is also revealing. Over the past three years, the following firms have promoted only internal candidates: Barlow Lyde & Gilbert (BLG), Dickson Minto, Russell Jones & Walker, Slaughter and May and Travers Smith. Of these firms, Slaughters and BLG operate a 100 per cent equity partnership (discounting Slaughters’ handful of local partners in Asia), while at Travers it is 86 per cent.

However, Travers managing partner Chris Carroll points out that his firm tends to recruit mid-level associate laterals rather than partners. “They’re not all results of blockages in the magic circle,” he says. “A lot of them leave because they can’t stand it.” He estimates that 30 per cent of Travers’ associates did not train at the firm. Other firms that are more likely to rely on organic growth are Morgan Cole (92 per cent internal promotions into the partnership), Freshfields (89 per cent), Bristows (86 per cent), Camerons (86 per cent), Macfarlanes (86 per cent), Howes Percival (83 per cent), Burges Salmon (82 per cent) and DWF (82 per cent).

When it comes to the biggest lateral hirers, there are not too many surprises. The winner is, of course, is DLA Piper, which has hired no fewer than 141 lateral partners in three years. That is more than the next five firms – Halliwells, Linklaters, Cobbetts, Eversheds and Berwin Leighton Paisner (BLP) – put together. But you have to understand DLA Piper’s growth for that figure to make sense. The vast majority of its laterals have been overseas and some of those figures include effective bolt-ons of teams. In 2005 the firm made 75 lateral hires, of which 51 were outside the UK. And DWS’s technology, media and telecoms (TMT) team made up a large proportion of the 24 UK laterals.

Once you factor in those two elements, the figures are slightly less dramatic. Indeed, apart from DLA Piper’s TMT group, no department made more than one lateral hire in 2005, with the exception of commercial and projects, which made two. “We’ve never been shy about building critical mass and filling skill gaps by laterally hiring,” says DLA Piper managing partner Nigel Knowles. “We’ve even accepted that we’ve occasionally made a mistake.”

Given Cobbetts’ size (138 partners at the end of 2004-05), its number of lateral hires – 31 over three years – is particularly high. The firm’s Manchester associates are statistically more likely to be promoted, while Leeds has grown almost entirely by laterals.
BLP is the sixth-largest lateral hirer in the UK, with 28 in three years. The figures show that 62 per cent of its partnership appointments in three years have been laterals. Given the firm’s tendency to keep the equity small, but also to make trophy hires into equity, then the question is whether BLP’s non-equity partners can be kept onside in the long term. BLP’s line is that high-rolling laterals will create opportunities for associates. It is a good theory, but that has not necessarily been borne out in practice. In real estate it has hired eight laterals and five internals – in 2005-06 that putative growth stopped, with not one partner appointment in that group. Neither have prospects for corporate associates been extensive. In three years, BLP has made up two internal candidates but appointed eight during the same period – four of whom came in the same year of 2005-06.

Meanwhile, Bird & Bird scores high on internal promotions with 27, but that number is pipped by its lateral count of 28 – a figure that sees it tie with Clifford Chance in sheer numbers. For the past two years, laterals have outnumbered internals. “Before 2005-06 we had a predominance of laterals outside the UK – that’s when we had our huge expansion,” says Bird & Bird mananging partner David Kerr. “But there have been quite a few laterals this year. Our policy is to promote organically, but one of the problems is the rate of growth we want. Numerically we’ve not had the numbers, so we’ve had to go and get the lateral hires."

Anyone wanting partnership should check out firms that are expanding aggressively into new markets. So which ones are they? First of all, bear in mind that many of the firms that score highly on the lateral hiring front are making up partners overseas. These include DLA Piper, Linklaters, Bird & Bird and Clifford Chance. But regional firms opening in new centres have been particularly ferocious in lateral hiring. Cobbetts has made 31 laterals, some by bolt-on. Bevan Brittan (16 in three years) and Clarke Willmott (25 in three years) have also been aggressive hirers. The former has launched in Birmingham, while the latter has relocated its headquarters from Taunton to Bristol with a concomitant push on partner numbers. However, one of the proportionally biggest lateral hirers has not been attacking new markets; it has been consolidating its existing position. Over three years, 71 per cent of Olswang’s partnership appointments have been through laterals. The firm has a distinctive strategy of seeking out teams to bolt on to its current resource. These have included the former real estate and media teams of DJ Freeman and the real estate business of Julian Holy. “We’ve acquired three businesses and that’s bound to have a depreciating effect on the percentages,” says Olswang chief executive Jonathan Goldstein. “But it’s also part of a business plan that says we have to grow.”

One of the reasons that some firms can make partnership offers to laterals is because these firms have the flexibility of a non-equity layer. DLA Piper is a classic example: only 31 per cent of its partners are full equity. The DLA Piper model requires equity to be kept tight to maintain competitive profit per equity partner (PEP).DLA Piper’s Knowles argues: “All our partners are equity, but there are several levels, and this allows us to manage the careers of our partners coming through the ranks, as well as allowing us flexibility over the entry of laterals. Within a meritocracy an individual’s contribution can be recognised early, and this makes our structure attractive.” Halliwells operates a similar system, with only 38 per cent of its partners on full equity. Only two laterals came into the equity in 2005- 06, and there were four promotions internally into equity from the fixed-share layer. West End firms seem to follow a pattern – minimal internal promotions and plenty of lateral hiring, coupled with a restricted equity. The UK firm that proportionally relies most on external candidates is Finers Stephens Innocent: 86 per cent of its partner appointments in three years have been lateral. However, equity is held by only 46 per cent of its partners. It is a similar situation at fellow West End firm Howard Kennedy, where 71 per cent of its partnership appointments in three years have been laterals. Its equity is held by a mere 30 per cent of partners.

Meanwhile, at Fladgate Fielder, 63 per cent of its partnership appointments over three years have been lateral. Its equity is open to a mere 32 per cent.

Equity is shrinking across the UK 100. According to The Lawyer UK 100 2005, less than half of the partners at 32 firms hold equity. Another 25 firms offer equity to 60 per cent or less. This means your chances as a partner of being hired straight into equity are not strong. The major exception is Dundas & Wilson, which is an all-equity partnership, but is proportionally the twelfth biggest lateral hirer in the UK. Ditto Gateley Wareing, where 75 per cent of its new partners have been laterals and 89 per cent of its current partnership hold equity. Reynolds Porter Chamberlain, which is an all-equity partnership, is the seventeenth biggest lateral hirer by ratio in the UK 100, with 63 per cent of partner appointments over three years being external.

Going to a US firm pays well, but not many will make you partner. US firms are simply not promoting internally in London. Clearly, some are still in start-up mode and require initial investment with laterals – preferably eye-catching ones. Although Baker & McKenzie and Mayer Brown Rowe & Maw (MBR&M) are classed as international firms because of their Chicago headquarters, both are indigenous UK practices. The same goes for Kirkpatrick & Lockhart Nicholson Graham.

But mergers with US firms have not entirely been helpful to associates at former UK practices such as Gouldens (now Jones Day) and Warner Cranston (now Reed Smith). Jones Day has not made up a partner in London in three years following a long integration process. Jones Day managing partner Russell Carmedy says: “Looking forward to the current year and beyond, I’d expect the London office to resume a similar pattern of making up partners to that which existed prior to 2003. I’d also expect the London office to recruit a greater number of lateral hires than was the case for Gouldens.”

Reed Smith has only just promoted its first two partners in London since its merger. The numbers at other US firms are equally woeful. Shearman & Sterling is one of the most embedded US firms in the City and is a major hirer of associates, but it has made up only four internal partner candidates in the past three years.

The exception is White & Case, which is the biggest internal promoter in London of any US firm: nine over three years as well as a slew of laterals. “We’ve always believed that keeping the best talent in a competitive market means offering the right opportunities,” says White & Case London senior partner Peter Finlay. “If you don’t do this, it’s inevitable that a large proportion of the people you most want to stay will walk out the door.” McDermott Will & Emery is not far behind, with seven, while Cadwalader Wickersham & Taft has made up six in London in three years.

Women accounted for 26 per cent of all partner appointments last year, with a total of 263. But women are more likely to be promoted than hired laterally: in 2005-06, they accounted for 30 per cent of all internal promotions. However, in the same year women accounted for 21 per cent of laterals.

A total of 73 firms promoted women candidates. This year only 39 laterally hired them into partnership. DLA Piper hired the most, recruiting 17 women partners in 2005. Nighon 20 per cent of its women partners hold equity. The next big lateral hirer of women was Clarke Willmott with six, followed by Clifford Chance with five (most of whom were in the US). Only four firms have female partner appointments into double figures this year: DLA Piper (23), Clifford Chance (12), Eversheds (11) and Pinsent Masons (10).

The firm with by far the best track record for women is Pannone & Partners. It is twelfth in the UK in terms of female internal promotions and is the seventh-largest hirer of female laterals on 2005-06 figures. Over three years it has appointed seven women to the partnership – joint sixth in the UK. There is also a high ratio of women within the partnership, with women comprising 39 per cent of the total partnership, and it has the exact same ratio of women within the equity.

The fact that women move less than men raises an interesting question. Those firms that rely on laterals to grow are statistically much less likely to have women (DLA Piper being an honourable exception). In a world where the right diversity profile is becoming fundamental to a firm’s business, the big lateral hirers may have to rethink their growth strategies. If there is one conclusion to be drawn from The Lawyer Career Report, it is this: the firm you join at 23 will probably not be the one you retire from.