When an especially provocative and ingenious piece is published analyzing a noteworthy aspect of the sea BigLaw swims in, one may feel an obligation to one’s readers to weigh in on the conversation. Particularly when the original piece was published under one’s own auspices.
So it is with Richard Rapp’s Understanding the Lateral Hiring Frenzy, (11 March 2016, Adam Smith, Esq.).
The core of Richard’s thesis is twofold, one from the “firm side” perspective and one from the “lateral side” perspective.
From the firm side, (1) Managing partners should be assumed to be behaving as rational economic actors in hiring laterals, in order to grow their firm, diversify, and even spread the cost of overhead. I would be the first to line up behind granting every actor in a competitive economy the presumption of rationality, assuming no reason to suspect any cause of market failure. (I’ll come back to this anon.) Richard also posits that raw statistics on the impressive lateral partner failure rate could be misleading if the successes are major and the disappointments minor. I take this as a helpful, clarifying, and indisputably sound observation in theory as to which the industry—hardly for the first time, damnit—has woefully inadequate data to either confirm or contradict in practice.
From the lateral side, (2) Richard’s intriguing and, to the best of my knowledge, thoroughly novel contribution is to posit that “the dominant reason why partners change firms” is to perform a sort of personal arbitrage between the value their current firm places on their own skills, career, and client portfolio and the value the recruiting firm would place upon them. I believe, and in a personal conversation Richard instantly confirmed, that the concept of “arbitrage” between two markets offering materially different prices for the same basket of goods and services was the core explanatory concept. (Richard even noted that an earlier draft of his piece used the word “arbitrage” in the title.)
To me, this analysis is ingenious, highly creative, and seems to have explanatory power, especially if you imagine the counterfactual, which Richard invites you to do, that all law firms paid all partners according to one universal formula such that moving from one firm to another would not change your compensation by a nickel. The lateral partner frenzy would be immediately reduced to a trickle.
So what, then, do I think? And would I amend the condemnations I published in 2013 and 2014 about the lateral “arms’ race” and “delusions of crowds?”