Is there a Talent Drain from the Magic Circle?

With salaries at US law firms dominating the market and an ever-changing cultural landscape, is there a talent drain from the Magic Circle? George Langford, Director of Private Practice here at Interlink Talent Solutions, explores this further.

Setting the Scene

There has been no letup in the continual increase of salaries for Associates at US law firms. In July of this year, the Law Gazette published an article revealing Quinn Emanuel NQ Associates will now be paid over £146,000 – which rivals that of the Mayor of London Sadiq Khan.

In comparison, the Magic Circle salaries haven’t moved that much, meaning the disparity between Magic Circle and US law firm salaries has gone from 20%-30% to what is now approaching 60%, not including the chunkier bonuses on offer by the US firms.  

The US law firms are growing with no letup. Times Law recently published that Kirkland & Ellis boosted its City of London earnings by 174% to £416.4m. We are seeing the most profitable work going to a select crop of firms and, whilst the Magic Circle will always have a seat at the table, increasingly it is the large US law firms who are being instructed on the biggest M&A deals and most profitable disputes matters (often large, international, white-collar investigations where it helps to have the US capability).   

As a result, US firms are attracting the best talent and the best quality work, while also providing the highest pay on the market, which will undoubtedly attract the best candidates.

But the story isn’t that straightforward.

Changing Cultures

One of the main objections to candidates making the move to US law firms is the stigma associated with their relentless culture. However, this seems to be changing too; the culture is diluting and more US firms are becoming “anglicised”. Many Junior Associates no longer have the view that US working life is immeasurably harder, meaning they are increasingly open to exploring their options. If the billable hours target isn’t significantly higher than at a Magic Circle firm then, for a comparatively smaller increase in input, why not reap the rewards that come with being at a US law firm?

Where Haven’t the US Firms Caught Up?  

There are certain areas where we think it’s unlikely US firms will catch up and surpass the Magic Circle, for some time at least. Some of these include:  

1. Training and development
The training process and development plans at Magic Circle firms are tried and tested over many years and take a lot of time to implement and get right. Meanwhile, the learning curve is often said to be steeper at US firms, with the approach of what can be viewed as being thrown in at the deep end. This suits a certain type of Lawyer and personality better.   

2. Support and extra-curricular activities
Incentives, pro-bono and activities outside of work can make for a more fulfilling work environment and, in turn, create greater job satisfaction. There tends to be less emphasis on these within a US firm environment, where the focus is on billables. Nonetheless, some US firms have raised the bar with some of their Associate benefits. These benefits include access to a concierge service, something that is sure to be welcome when trying to manage a busy schedule and life outside of work.

What Can be Done to Keep Magic Circle Talent? 

We don’t have any obvious suggestions here, but a key factor is stemming the loss of the top talent. At the start of 2020, a big move saw David Avery-gee join Weil Gotshal after having spent 20 years with Linklaters. These big hits are becoming increasingly common and they are not always money-motivated. With moves such as this, we often see the top Associates wanting the opportunity to further their career by working alongside the leading Partners.   

So, what can Magic Circle law firms do?

1. Salaries
Is it possible the Magic Circle can bridge the salary gap? Surely, salaries cannot go much higher without being detrimental to clients? To make a move less tempting at the senior and junior levels, the Magic Circle could try and bridge this gap to 20-30% instead of 60%+ but this is likely to have a knock-on effect through the whole market and the existing business models at many firms wouldn’t be able to support these increases.  

2. Partnership

IT's known that it’s incredibly difficult to make Partner at the Magic Circle and US firms, as it should be, but it seems to be the case that exceptional Lawyers can make Partner at a more junior level at some of the US firms, enjoying a much better remuneration for the privilege. Magic Circle firms are changing their lockstep and putting initiatives in place to make partnership offerings more attractive. However, with the majority of US firms posting considerably higher PEP (profit by Equity Partner) figures, this will continue to be a cause for concern. 

A Fight for the Best Talent

There’s a very visible war for talent in the legal sector right now, that much is clear. Since the US firms entered the market, there has been a talent drain from the Magic Circle and other top UK firms. However, as some of the newer entrants gain traction by making significant lateral hires and the more established US firms continue to bolster their ranks by expanding into new practice areas and offering a strong full service to larger corporates, it’s likely this will continue.