Why do lawyers do so well in finance?

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I have noticed James Gorman, Lloyd Blankfein, David Rubenstein, and others go into finance and do extraordinarily well. Does anyone understand which skills overlap or why they end up doing so well?

Comments (34)

 
Jul 23, 2020 - 8:29pm

Unless you plan to do restructuring IB, a law degree on Wall Street doesn't really make much more on average than those who choose to go BigLaw to be perfectly honest. BigLaw hours can be insane though.

I do know a lawyer on Wall Street who went to a Tier 1 school and started at 90-100K all-in for about 50-55 hours a week in a middle office role (one of the lower paying banks). Probably will cap around 250-300K but the lifestyle seems better than the BigLaw lawyers I know.

 
Most Helpful
Jul 23, 2020 - 10:29pm

A law degree was viewed much differently in the 70s and 80s. Back in the day, it was more of a generalist degree and the "default" path for bright liberals arts students. Business school was considered that backup for people who couldn't get into law school. These days, business school is just as selective (or even moreso) while law school has become much more akin to a trade school than a general purpose finishing school. Plus, as law firms have gotten bigger and more global, the practice of law has shifted from a general advisor and counselor to a service provider. Meanwhile, prestigious business school grads are much more common. As a result, you'll notice that far fewer people transition from legal to business roles these days.

 
  • Analyst 1 in IB - Gen
Jul 24, 2020 - 12:40pm

You're right that the legal field has changed, but law school is a "trade school" now because it's not as general as business school? Far-fetched. Law school tuition has skyrocketed, and spots at biglaw firms are more competitive than ever. People nowadays don't go to law school as a finishing school because it is expensive and grueling - they're told not to go unless 100% certain.

Array
 
Jul 26, 2020 - 3:35pm

I’ve done both and I feel the opposite is true. As an M&A lawyer the bankers were often telling me things about my own job that I didn’t know. There are no doubt some details that lawyers know better than bankers, but bankers understand the bigger picture much better than lawyers.

Ultimately, success in either field is about your ability to make clients see you as a trusted advisor and the banking skillset is much more valuable for that.

 
Jul 26, 2020 - 11:52pm

I 2nd this. Totally agree. But I do believe lawyers have a great skillset. Legal doc interpretation is a skill. But really any smart kid with a few years of practice can pick it up. You just need a "registered lawyer" to sign off. I find it hilarious if some of you think that lawyers are writing up all these docs.

Array
 
Jul 27, 2020 - 5:28pm

Bankers can "play lawyer" much more easily than a lawyer can "play banker". Lawyers typically can't even document a deal correctly in legal documents (specifically complicated earn outs and promotes are nearly always documented incorrectly in at least one aspect), let alone fully understand the financial levers and how to structure a deal so that it can actually get done and agreed upon. They understand the legal points, less so on the business points (this probably goes without saying). Based on my 10 years anyhow, this has been the case. They are intelligent, but out of their depth when compared to a banker on the finance side.

--$$--
 
  • Associate 2 in PE - Other
Jul 26, 2020 - 12:22pm

I'd think that 3 people for a population that is around .5% of the US at arguably 3 out of the top 5 PE shops in the world is actually indicative. 1 - can be argued as an outlier, 2 maybe also outliers, but 3 you are getting to some sort of outperformance trend.

Note that two of them took similar paths of early years in the US -> run Asia PE -> CXO which may be connected to why they accelerated so quickly.

 
Jul 24, 2020 - 4:14am

I think you see a lot of older folks in successful finance roles because the entire finance hiring process was less structured when these folks transitioned from law to finance, back in the 60s-80s. The financial industry also really exploded during this time, so there was a need for top talent, so it would have made sense for banks/PE funds and so on to hire the lawyers who worked with them on deals.

Now, I don't think it would make sense to pursue a law degree if you want to work in finance. You'd have to spend 3 years in law school plus at least 2-3 years practicing as a lawyer before you could transition, and at that point, why would Wall Street hire you when there's an endless supply of MBAs and undergrads out there? You could just go to business school (or often not even go to business school) and work in finance directly.

I have MANY friends who went to top law schools and worked at big firms, and I don't know any of them who are trying to work in finance--and frankly I think they would have a hard path for themselves to make the transition, with some exceptions (I have a friend that went to Yale law and got an interview at a huge hedge fund, but I think they were looking for a generalist and interviewed him because he was a generica smart guy with a good background, not necessarily because his law experience would be super helpful).

Quantitative finance might be a good analogy. Banks hired lots of physics and CS PhDs back in the day, but it would be silly to take that path to work in quant fin now when you can do a quant fin masters degree or somethibng.

 
  • Associate 2 in PE - Other
Jul 25, 2020 - 11:45am

Lawyer here who now has an investment seat in special sits. I went to law school with the idea I wanted to do consulting or banking after school and thankfully everything worked out but most of my time in law school was focused on getting commercial, non-legal experience.

Alot of my friends from law school want to make the move into IB or PE but run into recruitment issues / are dissuaded by due to how dissimilar the hard skills are at the junior level. I could refer to summer and PT work during law school working in Corp dev, PE and with a family office when in school - if you decide you want to make that switch as a junior lawyer you don't have any of that. The writing is also significantly different (technical writing vs. drafting) and the legal issues that lawyers negotiate are usually non-movers deal-wise, though greatly appreciate the firm who got in language relating to pandemics into agreements late last year.

Most of the transitions I have seen have been at the more senior level where the hard skillsets converge more relating to who you know for sourcing and managing deal teams.

For an extremely small set of the population - law school may make sense to move into finance but you have to be comfortable about being a lawyer if you miss recruiting. I'd only recommend if you have shit grades (below a 3.0) and extremely good test scores (above a 170 LSAT).It's kind of like going to a t25 MBA, there are a few kids who make it into MBB /IBD but it's not the expected outcome vs. going to Booth or something where it is expected. Note that it's also primarily top firms that recruit from law schools (primarily T6 law schools, but open to other candidates) ie; Oliver Wyman, Deloitte S&O, tier consulting firms and non Goldman/MS/Lazard/CS banks don't have law school recruitment channels. This makes it difficult as you have less fallback options.

Lastly alot of the work I did in school, slightly impacted grades and probably made me a flight risk for firms as it was and I underperformed my biglaw recruiting though still ended up with offers at a solid non-NYC firm.

Happy to discuss for lawyers looking to make a transition but it's an uphill battle for most.

 
Jul 26, 2020 - 12:47am

^would be curious to pick your brain further on the transition (I'm a restructuring lawyer trying to move to an investing seat in distressed).

A few additional thoughts from a lawyer who didn't realize specifically what they wanted to do in finance until a year after the bar (read: couldn't access all the traditional recruiting processes while still in school) & constantly scans for "JD" in speaker biographies at conferences, books, etc.:

To the OP's question: don't conflate the law degree with the person. I think about my legal training as just another mental model (hat tip to Charlie Munger, lawyer). If you're naturally inclined or learn to think more laterally, that additional perspective is potentially an advantage you can use relative to your competition. I can't speak for how direct the advantage is in becoming a bank CEO (add Brian Moynihan to the list above), but I think the question posed above is pretty easily addressed in the context of PE (David Bonderman, another lawyer). The whole point of a LBO is to give yourself an asymmetric risk/return profile - if this works out, I make a lot, if this fails, I only lose a relatively small equity check (& maybe that loss is lessened/eliminated by a dividend recap or two along the way). Dividend recaps, operating, management & other fees, even certain contract provisions, are all flavors of risk minimization/return protection, which is a skill you can hone from a legal background. True, because the playbook is now relatively well-worn, you don't need a law degree to 'get it,' you can just memorize the moves, but in the early days (not that I was around then, but) I imagine having that legal lens was helpful when structuring deals. Even though I think legal training is helpful, I agree with the point above, as a general rule don't go to law school if you already know you want to do something in finance.

For those trying to move today, I can echo some of the challenges noted in the prior comment. Two major challenges are that you (i) will likely be judged retrospectively, not prospectively - do you already have the skills that would be required for the role change? are you willing to/do you have the time to develop those skills if not?, and (ii) may not be able to go through structured recruiting / HR channels. Re: (ii), recruiters / HR have a narrow mandate & a number of filtering criteria which are likely to auto-filter you out as an attorney. With a surplus of qualified candidates that meet their filters, will they proactively look outside those filters? In my experience, no. That leaves making personal, substantive connections; if you can't compete on paper, find the hiring manager and/or compete on substance. Building rapport with your current clients may be an option depending on your practice group & goals; I reached the point of sending the occasional trade idea w/ backup work out to a few people in my network & honing my ability to perform in the role I wanted to transition to on nights/weekends (when I wasn't in the office) at the same time that recruiters wouldn't bite & my resume wasn't getting traction through formal channels. I would say the positive side to doing your own self-study in order to facilitate the move is that you'll have a number of natural checkpoints to gauge whether you want to keep going.

A few anecdotal observations on successful biglaw to finance moves: 0-2 years experience as a lawyer: generally, you likely need to have prior tangentially if not directly relevant experience and/or JD/MBA dual degrees; most common move is to IB. In the context of restructuring, I've seen/heard of people moving (i) to banking at the associate level (after 0-3 years as a lawyer) or MD, but not really in between; and (ii) usually after 5+ years, (though there are some exceptions on the shorter side), directly to distressed funds in hybrid legal/investment seats.

 
Jul 28, 2020 - 2:09pm

Hey! Thank you for your insight. I recently graduated and starting at a BB doing special situations. I'm thinking about going to a 'top tier' (hate saying this) law school and possibly returning to finance afterwards. Any way you can shoot me a PM so I can discuss the process / your background?

Array
 
Jul 26, 2020 - 2:15pm

anonymous9191:

Why is a law degree considered a plus for restructuring but a non starter for M&A groups when corporate attorneys often specialize in M&A?

Easier to learn the pieces of an M&A transaction than a restructuring transaction. Restructuring skillset is pretty specialized and general reps is important to know wtf is going on.

 
Jul 26, 2020 - 4:01pm
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