Within the past 48 hours:
- Managing Partner #1 (an AmLaw 50 firm) said to me, “I just don’t understand this lateral hiring frenzy. I just don’t get it. Do you?”
- Managing Partner #2 (an AmLaw 50, and one whose strategy has been so widely articulated and publicized, through word and deed, for a dozen years, that I’m surprised it hasn’t appeared on bumper stickers) said to me, “So we met this afternoon with [Major Big League Heavy Duty Recruiting Firm] and as soon as we sat down they said, ‘It would be very helpful if we understood your strategy.'”
- Office Managing Partner #3 (a Global 25 firm) said to me, “I get these calls from headhunters and I can’t help but envision them sitting in their dining room with their feet up on the table, wearing fuzzy socks.”
- Office Managing Partner #4 (an AmLaw 50) said, “In nine years as head of our office, I’ve recruited 48 laterals. One delivered the book he promised.”
Altman Weil’s annual survey of law firm leaders reports that 98% of managing partners rank “recruiting laterals” as high on their list of “strategic priorities.” When all but 2% of the population agree a certain activitiy is “strategic”—and the 2% must be Cravath and Wachtell, I assume—you are deluding yourself to think it has the remotest prayer of providing a systematic competitive advantage.
Finally, although hard data is tough to come by, I have heard consistently for years now that maybe one-third of lateral partner recruits work out.
Spoiler alert: If you’re a legal recruiter and you want to continue reading from here, proceed at your own peril. You may not find it an enjoyable experience.
And yet we continue to indulge in this dysfunctional pursuit. Indeed, we seem to be doubling down on it. From The American Lawyer‘s March 2013 “Lateral Report:”
[Dewey’s demise] helped drive the total number of Am Law 200 lateral partner moves to its highest point in three years. The American Lawyer‘s latest lateral survey found that 2,691 partners left or joined Am Law 200 firms during the 12-month period. That was a 9.7 percent increase from the previous year, when 2,454 partners switched firms, and a 33.6 percent increase from 2010 (emphasis mine).
Small consolation, but over on the other side of the pond, they don’t seem to be faring much better. Beware the drizzle makers, from The Lawyer, does, as they say, “the maths,” and makes a convincing case that the economics of laterals are even worse than they probably appear on the surface. And yes, that author as I, is baffled at why firms continue pursue this benighted tactic:
Some poker experts maintain the difference between a good player and a poor one is that the good player knows when to fold a hand the poor player thinks is a winner.
“Law firms don’t know when to fold when trying to hire lateral partners,” says one experienced hirer at a leading global firm. “So they hang on to partners in the recruitment process for far too long and end up going with a pair of sixes when they really need a full house or, at the very least, three of a kind.”
A managing partner at another Top 50 global firm calls the resulting hires “drizzlemakers”, lawyers whose client followings are enough to make the ground wet, but not sufficient to properly irrigate the crops. When the chief operating officer at one leading UK practice analysed his firm’s lateral hires he found that 80 per cent of them failed to meet the figures stated in their initial business plans. My experience suggests this is not uncommon. […]
Indeed, my research into nearly 3,000 lateral hires in the London market featured in the 18 March issue of The Lawyer shows that lateral hiring seems not to work out an awful lot of the time; in fact, UK and US law firms in London can expect around half their hires to leave within five years.
What do firms do wrong in recruiting laterals—and in accounting for their performance after they arrive?
Having been a lateral (twice), and having been an interviewer of laterals at firms large and small, I offer a couple of thoughts on why some firms pursue laterals, on what reasons make sense, and what reasons don’t.
1. Firm has a practice group in one area and wants to extend its reach to existing clients by offering a closely related area. For example, a firm that represents real estate developers in transactional and financing work recruits a land use and zoning attorney to join the group, who can work on the land use parts of the same transactions. This makes sense.
2. Firm has a practice group led by rainmakers who are bringing in not just more work than the group can handle (hire associates), but more work at a higher level than the group can handle. The solution is to recruit an experienced lawyer in the same field to join the group. This makes sense.
3. Firm has a cadre of underperforming (or overpaid, depending on your point of view) partners whom management doesn’t want to cut, confront, or re-compensate, and thinks that if it can recruit some high performers, the problem of the underperformers will get diluted down to where the other partners stop complaining. This does not make sense. Problems don’t go away just because the firm has larger offices.
4. Firm wants to make it back onto a top ten (or 50, or 100) list on size rather than merit, and hires lawyers simply for bulk. This is expensive advertising.
Of these the one that most mystifies me, and the one I’ve seen most often, is no. 3, where a firm recruits more lawyers because it doesn’t have the nerve to face up to the problems it is having with the lawyers who are already there.
lateral hiring is a disaster. It’s another effort to add revenue by essentially looking at a lawyer as a generator of revenue. they are primarily not. the answer for BigLaw on revenue is to adopt sophisticated, outbound new business sales divisions. No firms, anywhere, fully have this. But they should. Until the profession understands the value of these divisions (which are the way succesful real world companies generate new revenue) – then this debate is basically pointless. Sure, laterals are a disaster. I agree. By why not focus on the alternatives? the argument’s been won. Law firms are failing because they refuse to learn and implement real world solutions. BigLaw is going to continue to bump along, losing market share. A long, slow decline. And sadly no spirit or interest in finding real solutions that exist. Tragic.
Here’s my question about the “maths.” Why are you evaluating this on the theory that the new lawyer needs to add to profit the first year? Why isn’t the investment in a new lawyer evaluated like an investment in a piece of equipment?
You don’t necessarily expect the new computer system to pay for itself in the first year. Isn’t it rational to look at that first-year shortfall you identified as an investment, not an expense, so that you can make it up over time? Happy to be corrected . . . .
Bob:
Thanks for contributing.
Believe me, I do not think laterals need to bring in big revenue (and we can only cross our fingers, given the sorry state of what passes for “business intelligence” in law firms, profits) in year one or even years one through five inclusive. Firms make strategic investments with no short-term ROI all the time, and God bless those that do.
I was only trying to address the terms of the lateral arms’ race on its own ground, if you will, because managing partners will always tell you it’s how they plan to grow revenue (and crossing their fingers, profits).
In fact, changing the subject altogether from buying (or more realistically, renting) revenue to placing knowing strategic bets on the firm’s future would be immensely welcome.
Bruce