What is the single most challenging issue facing large law firms in New York today? There are several contenders for this award. Some would nominate globalisation and potential law firm mergers. Others would say the increasing competition among lawyers resulting from financial institution and other client consolidations. Others would identify penetration into the start-up and high-tech practices, while some would point to the sky-rocketing costs of the technology required to operate a firm efficiently.

All of these issues are at the forefront, but in a unique way they are all trumped by one compelling and quixotic pursuit – the eternal challenge of attracting and retaining talented young lawyers while responding to the aforementioned forces. Indeed, the winner of the most challenging issue award is the age-old problem of talent search and retention, amplified to an unprecedented dimension by the dynamics of the new economy.

Right now, demand for legal services is at an all-time high. The relative mismatch between supply and demand in the New York legal market is probably the greatest it has ever been in history. Law school classes remain the same size. The number of top-notch US law schools remains the same. However, into the mix, the burgeoning economy has inserted competition for legal talent from new and astonishing sources.

Business consultants, accounting firms and investment banks – in some cases the clients of the law firms – have begun scouring law school campuses for top candidates and are in competition with the law firms. But of these keen interlopers, technology start-up companies (and the lure of stock-option-fuelled wealth) this year have introduced greater challenges. Whether it is a dotcom, communications, entertainment, biotech or other promising company, these firms have created a fierce environment for innovation and growth. It translates, for instance, into pressure for an investment bank to hire a knowledgeable, experienced person to help negotiate mergers between those companies. Or it creates the need for dotcoms to hire a bright young corporate counsel. It has shattered the rules of doing business – and for hiring top talent.

Unlike those other professions however, law firms cannot go outside their licensing requirements to recruit their staff. They must hire people who have graduated from law school and are or can be licensed. The conventional sources for New York firms – the traditional law schools and occasional poaching from other New York or US law firms – cannot supply the demand. That is a change for New York in particular, where young lawyers often used to migrate when they wanted to seek a challenging career.

As a result, New York firms are having to innovate their recruitment processes. Global firms in particular have the edge here, capitalising on an international reputation and a worldwide reach.

New York law firms are also soliciting headhunters from new-found corners. For some time, New York firms have been recruiting actively at Canadian law schools and hiring recruiters to identify young lateral talent in Canadian firms. Firms have similarly been scouring the LLM programmes in US law schools for foreign talent who may be interested in converting to New York attorneys. A New York firm might also directly interview and recruit top candidates via video conference from more remote cities such as Sydney, Melbourne, Perth, Cape Town, Bombay and Singapore – virtually anywhere on Earth that shares a common law system. As a result, some large New York firms promise to become more internationally diverse than ever.

At some point the economy will undoubtedly level off. You’ll see a tectonic shift in the landscape for legal resources. Availability will free up somewhat and careers will be redirected. Lawyers will be doing restructurings instead of IPOs. But for the time being, New York firms must address this most serious challenge. Innovative firms will have taken the best from these times and used it to improve both the practice of law and the lawyers who practise it.

Whitney Pidot is managing partner of Shearman & Sterling.