Now that I have published a column (“Our Arms Race“) which took a stand against lateral partner hiring almost across the board, let me acknowledge the obvious and state for the record that no matter what anyone says or the track record shows, lateral partner hiring is here to stay. So if you’re determined to do it, you might as well try to do it relatively well. Consider this a primer on that topic.

 

I. Hire to fill capability gaps, not to bolt on revenue

As I’ve written, pursuing revenue for revenue’s sake is irrational. Pursuing laterals for revenue’s sake is, I believe, quadruply irrational, because:

  • You’re sure to pay handsomely for the revenue you’re attempting to bring in, making its true net present value far less than meets the eye;
  • The odds are as dead certain as “the house always wins in the long run” that laterals will deliver less revenue than projected during the flirting, seduction, and capitulation phase of the dance;
  • The track record (facts can be disagreeable little things; sorry about that) is that the half-life of laterals in their new firm is far shorter than that of home-grown talent, so projections of revenue into the indefinite future are likely to disappoint;
  • And finally and most importantly, remember that revenue is not the name of the game; profit is the name of the game.

So if the single-minded pursuit of revenue is worshiping at the feet of a false god, what should you be looking for?

Consistently, across firms all up and down and across the various spectra of size, prestige, geographic dispersion and practice area focus, the answer you get is: Pursue capability. Fill gaps in your firm’s repertoire that clients are eager to have you fill.

But in doing so, don’t delude yourself. Filling gaps in capability is not by any means to be confused with building capability where none really exists. To think you can add on an entirely—or essentially—new practice area through force of will and an ample checkbook will assure you untold expense, no lasting benefit, much agita and stress, and ample distraction from other things that would be far more productive and beneficial for you to pursue.

 

II. Don’t imagine you can build a new “greenfield” practice through laterals

No matter how much you might wish to have (say) a strong IP or private equity or project finance group, don’t try to build it through ones and twos here and there.

  • Lacking an existing group with critical mass and credible market recognition (this is what by hypothesis you don’t have, remember), the new recruits will find it daunting even to take many of their key clients with them, much less attract new ones.
  • Your firm won’t be geared to supporting the nascent practice group, either internally (your partners won’t have the new arrivals, or their presumed capability, top of mind when talking to clients) or externally—clients won’t put your firm in the consideration set for XYZ practice.
  • Given the internal and external impediments, attrition among the new recruits is all but certain to nearly equal your rate of intake. You will have created an extremely costly revolving door—whose beneficiaries are the short-term laterals—and never achieve a market reputation and perception for excellence in the new area.

I heard a story recently from a long-time managing partner of a very well-known and widely admired firm that was testament to this. For years he had been trying to develop a valuable practice area essentially from scratch. Year after year he would discuss the desirability of building the new practice area—which other less prestigious and smaller firms with fewer resources had, and which was not inherently exotic or arcane—only to find that essentially every lateral he and his senior team hired in pursuit of that quest underperformed expectations, didn’t seem to be effective at trading (importing or exporting) work and clients with the rest of the firm, and end up leaving, all at tremendous expense both financially and in terms of wasted managerial time and attention.

Then the firm merged. It was actually as close as I know to the mythical “merger of equals,” two similarly sized firms with comparable financials and highly complementary geographic footprints and practice compositions. And time has proven it a successful deal.

But here’s what happened to my friend’s fruitless quest for laterals in the XYZ practice area: All of a sudden, because Firm #2 was very well known in that area, laterals started to stick, work seamlessly with their colleagues, build thriving practices, and stay indefinitely. Problem solved.

Now, anecdotes are not data, but as I reflected on my friend’s story I found myself hard-pressed to come up with counterexamples, while like examples popped into my mind at will.

And you have to admit it makes sense, no matter how unwelcome the message if you’re frantically pursuing practice XYZ.

 

III. Take the time to do your homework

Everyone knows about “deal momentum,” that irrational affliction that clients suffer, and we often have to counsel them prudently against, when the growing seductive force of an imagined combination or acquisition takes on a life of its own, hesitation falls by the wayside, and skeptics are mildly resented and get odd looks.

So it is with potential laterals.

Partners who are sponsoring or advocating for a lateral are especially susceptible, but it can happen to others who begin the conversation with complete dispassion. The grounding assumption from which analysis and decision-making seem to flow switches from the simple and inarguable “This person is not at our firm” to the charged and assumptive “this person really would be terrific at our firm.” On your guard, especially because it happens almost unconsciously and subliminally.

Yes, recruiters have been known to claim that someone’s availability has an expiration date measured in days or weeks, but the aphorism that you will have time to repent at leisure from decisions made in haste is not only applicable to young people’s Facebook postings and politicians’ extramarital misadventures: We are all prey to it.

Bringing on a lateral partner is a large investment of time, money, and resources—complete with sizable opportunity costs—and it deserves measured and comprehensive consideration.

So what do I mean by “homework?”

Two things, primarily:

  • Have you seriously, that is to say with state of the art psychological assessments and truly probing inquiries, formed a solidly grounded opinion on whether and how, precisely, this candidate would fit within your firm?
  • And have you spent the time to cast a wide net in going into his/her background?

Being lawyers, we are supercilious wise enough to scoff at psychological assessments. We know better; we are extremely confident in our ability to size up others, even through the briefest of interviews, and we know that what all of corporate America, and indeed the world, knows about the extremely challenging nature of making decisions about human talent doesn’t apply to us. (Did I mention we’re lawyers?)

But I have news for you: Judging relative strangers in artificial circumstances is really hard. You need every piece of ammunition you can put your hands on. And yes, that means psychological assessments.

They don’t have to be multiple-choice online tests with progress bars, but ask seriously probing questions that attempt to get at issues of personality, temperament, and determination. Firms with the stature of Google, McKinsey, IBM, Coca-Cola, and Johnson + Johnson not only try as hard as they can to get at these issues, they know how enormously important they are.

We, by contrast, remain single-mindedly focused on credentials, prestige and pedigree, and even imaginary finger-in-the-air projections of “books of business.”

What do Google et al. know that we don’t? Simply put, they know that firms hire for skills and fire for personality. At the level you’re dealing, skills are not only something you can assume, but they are by no conceivable stretch of the imagination a differentiator among candidates.

Finally, do your homework by spending a small amount of time turning over a few rocks.

Just as you wouldn’t dream of letting a corporate client omit material information from a disclosure document or a party to litigation suppress relevant and unprivileged evidence, you need to spend at least a minimal amount of time trying to find out if there are things you ought to know that you might not. This is very much in your self-interest but, human nature being what it is, might not be the first thing the candidate blurts out when you interview.

Yet I have heard time and again that the “deal momentum” surrounding a potential hire can build so quickly and seemingly irresistibly that people can’t even be bothered to make—or get a disinterested third party to make—a few discreet, deep-background inquiries. There’s a phrase for this: Managerial malpractice.

If you’re still resistant, I have a simple test for you: Have you spent as much time and energy researching each of your last half dozen potential laterals as you did the last time you tried to decide between, say, a BMW and an Audi for yourself?

 


To sum up: I find myself as skeptical of lateral hiring on principle as virtually anyone I know. And yet I amply recognize that it’s a large fact of today’s landscape.

So this pair of articles has been about urging you to indulge in this intoxicating and mind-altering drug as infrequently and selectively as you possibly can. Do not let it become a habit, much worse a first resort.

But if you must, I implore you: Be smart about it. Don’t try to beat the house’s odds. Use every evaluative tool at your disposal. Ask questions, or get others without a success fee at stake to ask them for you. Take your time. Be thoughtful, skeptical, and consummately selective. Trust, but verify.

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