My recent column, What Makes Laterals Run?, has generated a most rewarding level of reader feedback, worthy of an update to the original column.
Reactions have literally come from around the world, and, with the permission of my correspondents (all of whom expect anonymity, an expectation I most willingly grant), I wanted to share a sampling with you and then elaborate on what further thoughts of mine they prompt.
First, from a former partner in a couple of name-brand firms, with 30+years of experience under his belt in roles such as executive committee member, founding partner of various offices, and co-chair of his firm:
“Bruce, you definitely have this right. When I set up our new London office in 1999, I was able to recruit top laterals not based on our money offer (strong and fair but not the ridiculous offers of firms like [name removed to protect the firm so charged–Bruce]) but rather based on our business plan and specific suggestions as to how they could cross sell to our existing client base and strong practices in new emerging markets. You are seeing the same thing here.”
So what I’m suggesting has been going on for more than a decade–at least among the more discerning firms and lateral partner candidates.
Second, from another globe-trotting and astute observer of our wondrous profession:
Long time since I’ve emailed, but I was struck by something amusing, maybe even ironic, in your post today on lateral partner moves. Basically, it seems like lateral partner moves have now “caught up” with lateral associate moves.
Clearly, there were associates who used to move upstream (think bankruptcy associates during the last wave), who used to move downstream (the classic, maybe now defunct, “work/life” balance move), and who “serially divorced” (as in an associate I knew who was at 3 or 4 different firms in five years). But for a long time, there were also strategic associate moves — the associates who could not fully “read” how the firm planned for their future and moved to a firm where they believed their odds for making partner would be clearer and more transparent. If a 40-50 year old partner moves because they cannot discern their firms’ plans for the future and, indirectly, their future chances for increased fame, glory and compensation, is it really that different from those associates who used to move due to uncertainty over their own future?
Regards,
[xxxxxx]P.S. Yes, my use of the past tense for lateral associate moves was intentional. Depending on how long this Great Reset lasts (great name for it, by the way), I wonder when discussion of lateral partner moves will also move in to the past tense?
Interesting perspective comparing lateral partners’ strategies with lateral associates’ strategies. All I can add is that, yes, “work/life balance” is “so last August,” and that the insight that one thing both associates and partners may be seeking in a lateral move is greater clarity vis-a-vis where they stand with their firm. In my original column, I stressed partners motivated to look around because they perceived a lack of clarity in their firm’s strategic vision, but an equally strong motivation could certainly be lack of clarity from the firm about the partner’s own long-run prospects.
And as for using the past tense? Given that voluntary associate attrition has fallen to barely above 0%, I agree that the past tense is justified, at least until a technical-but-jobless recovery from the Great Reset becomes robust enough to reach the stage of actually creating net new jobs. (Don’t hold your breath on this one, folks; my own armchair guess is 2012.)
Third, a partner with a Magic Circle firm in Asia writes:
Great piece on laterals – and, I think your hypothesis is spot on !!! […] It is also very relevant to a major shift going on in the [local] market at the moment.
Finally, a periodic correspondent offers extensive, and very thoughtful, observations:
Bruce —
In response to your recent post on lateral recruiting, I drafted below a couple thoughts. My general view is that extensive lateral recruiting is the sign of real trouble at a firm. It typically is a sign that a firm has been unable to develop talent internally, and/or that a firm is trying to build a practice in an area that is not a core strength of the firm. Only where firms use lateral hiring very selectively — where they are able to specify the precise characteristics of the ideal candidate, and have targeted that person based on a unique firm strategy (rather than blind desire to replicate more profitable, NY-based firms), can lateral hiring have success.
I agree with your basic premise — that strategy matters in attracting and keeping talent. I also agree that we are seeing like firms and like partners starting to come together (e.g., securities specialists going to firms with substantial NY practices that earn higher PPP).
I have two questions:
(1) When will firms stop chasing laterals and start building talent from within. Most successful organizations develop talent internally, rather than through lateral acquisitions. For example, GE historically grew all its management talent within GE. Good professional football teams obtain most of their best talent from the draft, rather than frequent trades. In the legal world, certain firms (such as Latham) develop most of their talent internally, and rarely look for lateral acquisitions. Conversely, growth through acquisitions is often the sign of a weak company without any compelling strategy or vision (e.g., WorldCom). Talent grown from within is more loyal, and is often cheaper and less trouble than the lateral who is frequently bought and sold (think Terrell Owens). Today’s managing partners appear to believe either that there is some “silver bullet” to be had through lateral hiring, or that they do not have time to develop sufficient talent internally to meet their profit goals.
(2) When will firms start matching their lateral recruiting strategy to a firm strategy that is based on the firm’s (and the market’s) reality, rather than a desire to replicate the successful strategies of the top-20 AmLaw firms (who are mostly all in NY). If your hypothesis is true(that there is a migration of partners to firms that better “fit” their practice), one would expect to see a fairly quick rationalization of the law firm industry structure. Instead, that conversion is happening fairly slowly (though I agree it is happening). It seems to me that this is because firms refuse to accept their position in the market, and believe (as all firms do) that they are a “premier firm” able to attract top rates and to generate the most sophisticated legal work.
As a result, most firms still shop for the same, or similar, lateral candidates (such as high-end securities, white collar, IP, and M&A practices). Even if mid-tier firms are successful at attracting the lateral candidate, those firms often cannot create any “synergies” with that lateral candidate, because they don’t have the clients that might need the service, or because the firm’s reputation does not support such a high-end practice. And, the mid-tier firm will often pay at least as much in compensation as the lateral generates in profits. Thus, there is no net benefit to the firm of bringing in the lateral partner. Eventually, either the firm becomes disillusioned with the partner, or the lateral partner becomes disillusioned with the firm and concludes that he can be more successful at a different platform. The upshot for the firm is that it invested in talent that did not stay with the firm — a lost investment to the firm. Now, if the firm’s lateral recruiting were targeted to those areas where the firm was distinctive, and different from others in the market, the firm might be better able to hold onto the talent, and create potential “synergies.”
In other words, firms need to stop recruiting just for the sake of “growth,” or to increase profitability, and instead invest in lateral growth only in those areas that the firm has identified as being necessary for its unique strategy (and only when that strategy is rationally tied to the market reality of who the firm is, and not who the firm would like to become). Now, if firms were sufficiently well-run that they identified their strategy several years in advance, and identified the areas in which they needed expertise, they might even be able to help senior associates and partners gain the experience and develop the skills needed, and thereby avoid lateral recruiting in the first place. But, most firms do not appear to have reached that point.
So, what more have we learned?
I’m tempted to reiterate where I began the original column, by pointing out (confessing?) that “perhaps I don’t write as much as I should about lateral partners.” Certainly this piece seems to have unleashed some extremely thoughtful reaction.
The reason you rarely see me writing about laterals is blisteringly simple: I have long believed that the vast majority of activity on the lateral-pursuit-seduction-&-wooing front is fundamentally misbegotten. Yet, every day of the week you encounter firms and their managing partners (well, at least you did….) who act as if the single most valuable activity they can engage in to lift their firm’s fortunes is to pound the pavement for desirable laterals. And Lord knows the headhunting industry has made a living off it; never let me be the first to assume that entire sectors of the economy are premised on systemic, enduring, and irrational market failures. Yet I continue to believe that all but the most assiduously and astutely targeted lateral recruitment is a fool’s game. (Here I invoke the widely recognized folk philosopher Bob Dylan to explain my reticence to write about this topic: “And don’t criticize what you can’t understand….”)
But now that the genie is out of the bottle, I’m compelled to offer, or elaborate upon, a few observations:
- I continue to believe that on an industry-wide, macro basis, we are seeing a systematic sorting-out of talent as lawyers seek to match their skills to the most appropriate firm platforms. $1,000/hour rates are not for everyone, or for every firm, but they most assuredly are for some chosen elect and a similarly selective handful of firms. Economically speaking, the logic is compelling that those blessed souls and those firms on whom fate has showered its beneficence should get together.
- Conversely, as I wrote in the original piece, there’s room in this world for lower-margin, more routine work: This is a respectable, indeed admirable, sector of any rationally organized marketplace, and firms and individuals who know themselves should rush to satisfy this demand. And no, I’m not being condescending; au contraire.
I would tell you in all honesty that I think two of the finest cars for sale today are the Toyota Camry and the Honda Accord. Neither one remotely breaks the bank and while, admittedly, neither will pin your ears back with acceleration or stun your date into a state of befuddled worship, they are very gentle on the wallet, they start, stop, and go as promised, and you can ignore and abuse them for tens of thousands of miles without complaint. Try that with a BMW and see how long it takes you to cry
uncletow truck. Toyota and Honda have achieved something truly outstanding here. - There are other reasons to cast a jaundiced eye on excessive reliance on lateral recruitment as a core “strategy,” some of which I alluded to in my first piece and some of which our enlightened commenters have pointed out:
- There will never be a substitute for home-grown talent: Not at GE, not for the Yankees, and not for your firm. To cite a home-town (NYC) firm that has a long but not rigid tradition of emphasizing up-from-the-ranks talent, Paul Weiss seems to be thriving even in these currently challenging times. Pure coincidence?
- In MBA Land, professors delight in teaching about and management gurus delight in writing about “KPI’s,” or “key performance indicators.” What is a KPI? Well, it depends on what your company does, but if you’re a retailer (think Amazon, or Dell), a KPI might be the number of inventory “turns” you can generate annually. Another might be how fast you can collect cash from your customers before you have to pay your suppliers (both those firms, amazingly, have that metric in negative territory, meaning they collect their customers’ revenues well before they pay their suppliers–you might want to think of that trick next time you’re tempted to indulge a client who’s 90 days late and wants to be 150 days late).
But my secret suspicion is that, for every KPI, there has to be an evil twin: Call them “KRI’s,” or key risk indicators, which are dials on the dashboard indicating you might be headed for the guardrail, or over it. For law firms, one big KRI, in my book, is excessive and promiscuous lateral recruitment. Yes, “excessive” and “promiscuous” are both fudge phrases, but I think you know where I’m going and I think you know it when you see it. As I said originally, the best predictor of getting divorced is having been divorced. This is nothing, really, other than the flip side of home-grown talent’s loyalty.
- Finally, vast is the economic literature demonstrating and recounting the phenomenon of the “winner’s curse,” a/k/a “buyer’s remorse.” It’s quite simple: The winner of an auction (a bidding war for lateral partner talent, for Alex Rodriguez, or for Madonna) will be the firm that is closest to paying The Talent every last red cent The Talent can expect to marginally contribute to the firm. Which leaves the firm with….you guessed it: Nothing.
Do I suspect our fascination with lateral hiring and recruitment will go away any time soon? No, no more than corporate America’s fascination with the search for CEO-as-Saviour will end and no more, for that matter, than the all too well-chronicled proclivity of the ambitious and the striving for seeking out mates other than those individuals to whom they’re married.
But as a long-term strategy, I can’t really bring myself to endorse either tactic.
Now, what exactly is your firm going to do about it?
Permit me to suggest you start with the intellectually challenging and culturally slippery project of defining precisely your strategic advantages and what distinguishes your firm from your competitive set in the eyes of clients.
And a last word. If you intend to go about defining the Unique Value Proposition your firm offers clients, it has to meet each of these criteria:
- It must be credible. We are not all Skadden, Wachtell, or Slaughters.
- It must be ownable. It must connect, in other words, to a visceral understanding of who your firm is and where you fit in the great Value Chain of Law Land.
- And finally, it must offer a benefit to the client. Without this final component, I invite you to beat your breastplates all you’d like; it will matter not.
Then again, if all this sounds too hard, why don’t you just make a reservation at an elegant restaurant for dinner with a potential lateral?
