Did lawyers always play second fiddle to bankers?
Hey guys,
So in this day and age, we see corporate lawyers essentially play second fiddle to the bankers in the deal process. Banking has become more glorified (that lawyers vs bankers scene in suits is a great example of that perception crossing into mainstream culture) while lawyers have lost their place. Bankers are right after the client in the working group list, while lawyers make less, work longer hours, have fewer exits, and tons of them want to come and do finance. Comparatively, not as many bankers want to go do law school.
But my lawyer friend told me this wasn't ALWAYS the case. He said that in the past, M&A lawyers were the hotshot dealmakers, crafting takeover defenses, and advising sometimes not just on legal issues but also commercial issues. Can someone with more experience or knowledge shed some light on this? I am genuinely interested in the history of M&A advisory.
The truth is it kind of depends. Sellers tend to hire bankers more than buyers - like you see middle market deals where the buyer (strategic or financial) often doesn't have a banker but will always have legal counsel, so the lawyers are the first advisor by default.
Personal anecdote but my firm doesn't really use bankers, but we use legal counsel all the time to help figure out what sorts of strategic actions we can/can't do.
Yeah, lawyers have have to do some rather dull stuff but a good one is still invaluable. They can come up with creative structures that can create substantial value for a deal and can drive the actual execution of an M&A transactions. This is sort of an immature conversation as different roles have different values and however that scene from "Suits" may have gone, legal fees can still be quite substantial and when you bust your balls on a deal just to have it go absolutely nowhere at the last minute, just remember that the lawyers still got paid. They got paid up to $1,000 per hour which is certainly much more than your time is worth. Really glad I chose banking instead of doing document review all night but if we want to speak of "prestige" which your post certainly seems to allude to, law is still the closest thing to a white shoe profession still going.
This may not necessarily hold water. Industry got super competitive and started seeing a lot of contingent fee arrangements.
Partner-track is a lonely climb up a very steep hill. Having options matters. About to transfer my non-traditional ass to PE after this banking stint. Believe that.
The problem with law school prestige now is there are numerous schools pumping out JD grads every year (i.e. Brooklyn, American, Rutgers, Suffolk, S. Texas that have 800+ full-time enrollment). These kids are paying $150-200k in cost of attendance when 3/4 can't find a job at graduation. Even students from law schools in the top 20 are struggling to find jobs (Boston University and UCLA over 40% unemployed at graduation). Also keep in mind the average starting salary for most attorneys is less than a first year analyst (#20 ranked Iowa median public sector starting salary is $50k and private sector is $70k). Top M&A attorneys charge around $2,000 per billable hour, but you're only billing for half the work you actually do and that's also not what you get paid; that's what the firm makes. There are still hotshots, but you have a better chance starting a rock band.
Two words from the 1980s: Hostile Takeover
Yep was gonna say the same. Back in the day when you wanted to do unsolicited bids or even takeover defense, lawyers were in the front seat for that. You don't see a lot of that now - we are in the drivers seat more nowadays and for the foreseeable future.
Great example is the Pac Man Defense which was crafted by lawyers. In fact I think most takeover defenses can be credited to great corporate lawyers back then. A lot of said lawyers went and ran M&A shops into the stars (Wasserstein).
Lawyers (especially at the top level) do not necessarily make less money than bankers. Look at the average profit per partner at any V20 firm - it's mostly north of USD 3MM+ a year with a decent level of job security. They also do not necessarily work longer hours. At junior levels, both make long hours, but analysts and incoming associates have the edge here. The downside is that hours do not significantly improve in law.
I would guess that the reason more lawyers want to move to finance is a combination of taking a more leading role in transactions and a 'grass is always greener' misconception. Both work long hours, have unpredictable schedules, and most hate their jobs.
Using PPP is a misnomer in corporate law due to unequal distribution and the fact that most partners these days are salaried partners and do not directly share in the profit pool.
http://abovethelaw.com/2012/11/new-data-on-non-equity-partner-compensat…
In 2011, at Kirkland and Akin (both very well-regarded firms, equivalent to say a mid-tier BB in banking parlance), the average salaried partner was clearing $450,000. Bankers of equivalent seniority and comparable ability do make more than lawyers, I think this is unambiguous. Agree with you on hours though - could go either way.
In my experience though, a first year law associate is working longer hours than a first year banking associate (which I think is a fair comparison)
This is spot on. Non-equity partners skew PPP. Partners are commonly varied by seniority in addition to whether the firm pays based on their client lists (some do not). Few partners are bringing in 20M while many others are at 450k.
Or you could look at the actual deal charges in every deal you work on and notice that the IB has an extra zero.
It is a result of the times. In the past take over defense was a big deal, now more companies are open to the idea of being acquired by other companies. Therefore defense takes a back seat to making the deal happen. When the winds change and turn against M&A the tide will raise the lawyers camp.
A former lawyer turned banker once told me that something alone the lines of: When you're a lawyer, you tell the client about the risks and all the stuff they're not allowed to legally do - which bores them to death and no one gives a crap about. When you're a banker, you advise on the opportunities, transormative deals, and the future - all the exciting stuff.
Funny you mention this. My mom (who's in her late 60s) told me recently that when she was coming out of school, the lawyers made all the money, not the bankers. All the most ambitious students wanted to be lawyers. Well, things changed, the bull market of the 90's happened, and all the bankers got rich. If she had it to do over again, she would have gone into banking.
Point of her story was that it's impossible to know what career path will be best long term.
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