Perhaps I don’t write as much as I should about lateral partners.
I mean the economic phenomenon of lateral partner hiring, not gossip that much of the legal press seems to specialize in about specific “gotcha” movements of partners or small groups from Big Loser firm to Big Winner firm—stories whose half-life, in my experience, is measured by how long it takes for Big Winner firm to suffer a “shocking” loss of partners in its turn. Truth be told, much of it seems on the surface to be a revolving door.
Of course it’s not really so simple.
If you stand back and look at the lateral partner migration phenomenon on a macro basis over the past two decades or so, what I think you see is a vast, and economically compelling, sorting-out. It’s a sorting out of partners with high-margin, high-value practices migrating to firms where there are kindred souls and where the value of their practices can be maximized, and, on the other side of the coin (as it were), partners with low-margin, commoditizing, practices moving out of firms less willing to support those practice areas and into firms where they still feel welcome.
If you were to graph this in a conceptual way, I surmise you’d find something along these lines:
- People specializing in white collar crime, corporate governance investigations, tax litigation, high-end M&A (well, at least until last September 15), securities litigation, and other “high end” practices are by and large moving to firms with higher PPP’s and greater prestige.
- Generalists in commercial litigation or corporate transactions are probably churning around a bit but not, on the whole, moving up or down the food chain as a cohort.
- And those in now-disfavored areas such as T&E, employment, or generic real estate are moving down-market to less prestigious firms with lower PPP.
This is a surmise, as I said, but I would like to believe an informed one.
Why, you may be asking, would anyone voluntarily move down-market? They wouldn’t, and they don’t. They have no choice. Firms that have decided they no longer care to be in the business of (say) T&E or employment simply make it clear there is no long-term home for them, and so they find a home where they can. Nobody guaranteed you a rose garden.
What else can we say about lateral partner movement?
The primary, most important, and most amazing thing to say about it is that it’s both something many firms have obsessed about for the past many years (decades?) and that by and large we’re terrible at making it work.
One managing partner recently told me that his firm’s batting average was 1 in 3: One lateral in three succeeds. Another told me that they seem to have equal shares people who hit home runs and those who unceremoniously ground into double-plays–and that no matter how hard they analyze everything, they can’t tell which will be which up front. They continue to be surprised both by who succeeds and who flames out.
Indeed, this mirrors my own experience.
For many firms, for the past many years, a core part of their strategy has simply been “lateral acquisition.” And the primary reason I haven’t written about it much, if at all, here on Adam Smith, Esq., is because I simply don’t know what intelligent observations can be offered on that “strategy” in general. So much depends on the specifics of (a) clients; (b) cultural fit; (c) timing; (d) sexiness or sudden lack thereof of the practice area being sought [remember the firms who paid at the top of the market for private equity folks?–I do]; (e) receptivity or hostility by the incumbent partners; (f) emotional and intellectual flexibility of the incoming lateral; and (g) did I mention culture?
In other words, it’s hard to discuss a “strategy” that is so hyper-dependent on intensely local and personal considerations of chemistry and nuance.
Two last observations before I move on to what I think is actually new and different and fascinating in today’s lateral marketplace.
First, there’s ample evidence from the worlds of celebrity entertainers and sports stars that marquee names tend to capture essentially the entire present discounted value of their economic contribution to the firm (the record label, the movie studio, the Yankees), leaving very little if any “surplus” for the acquiring firm. While the data in law-firm land to examine this question are, systemically, sorely lacking, it’s worth thinking about. (I cite entertainment and sports only because they have a wealth of publicly available data which economists have glommed on to in order to analyze who “captures” the value of the Big Name.)
Second, we have the unfortunate phenomenon of the serial killer mover. You know the type: They’ll move for a 10-15-20% bump in pay (preferably with a guarantee, thank you very much), ply their trade for a few years until their new host gets tired of them or cottons to their game of large promises and underdelivering, and then they’ll move on again. If clients ask me about folks like this, all I can say is that the best predictor of getting divorced is having been divorced.
This brings me to why I wanted to write about lateral partners now.
I detect a new reason for lateral partner movement, which I’ve never seen before.
I characterize it as laterals motivated to move because they’re asking themselves, and implicitly their firms, “What’s the plan here?” And not finding a persuasive answer.
Some context:
- I’m not talking about laterals tempted to move by a 10–15% bump in compensation. If somebody moves for that “reason,” you can bet there’s something else really going on.
- I’m also not talking about extremely senior (in years, that is) laterals who may be about to bump up against their firms’ mandatory retirement age and are looking for an escape hatch; that’s not the type of “what’s the plan?” I mean.
Rather, I’m talking about youngish to middle-aged laterals who can realistically envision another 20 or 30 years of productive laboring in the vineyard, who look at their firm’s reaction to the Great Reset we’re living through and who do not perceive a credible response. Firms, in other words, without “a plan.”
Now, if you’re 55 or so and up, this scarcely matters. Momentum, if nothing else (market shares, and perceptions, lag reality by years), will carry you through safely to retirement.
But what if you’re 35 or 40, or even 50 and are allergic to the concept of “retirement?” Then you have a serious problem if your firm appears to be clueless in responding to the seismic changes afoot.
I see this in laterals’ resumes now coming out of firms they never used to come out of. And it’s not about the money, and it is most assuredly not about the “prestige.” Not that these people are going down-market; that’s the last thing they need to do. They’re simply going “sideways-market,” which in and of itself makes little sense; thus my hypothesis that something else is going on.
The most important conclusion I can draw from this is that strategy matters. It matters if for no other reason than your partners now believe, perhaps for the first time in their careers, that it matters. People didn’t used to shuffle between firms because they feared the ship they were on was rudderless, or captained by intellectually absentee management. This is what’s new.
And here’s my diagnostic suggestion for you: If your firm has recently lost a few people, ask yourself–really ask yourself–why they left. And if your firm is seeing great resumes, particularly resumes of a caliber you didn’t typically used to see, ask those people what’s motivating them. Dollars to doughnuts it’s not the money. I bet it’s the strategy.
