A-ha!
That, at least, was my reaction when reading the research report published this week in The Lawyer. Here are the top-line results, and then I’ll give you my reaction:
- The Lawyer hired a research firm called Motive to analyze lateral partner movements in the London market over the past five years, analyzing a total of 1,944 lateral partner moves
- They asked one simple question: Is that lateral still at the firm they moved to?
- And the results?
- Within three years of joining, one-third of all laterals had decamped
- After five years, it rose to 44%
And this, of course, does not follow on with the average tenure of those who still remained after five years. What about after 7? After a decade? (A decade is not all that long in the span of a career, folks: It’s becoming close to what we expect of our associates who want to march on towards partnership.)
The Lawyer also had this analysis to add (UK perspective readily understandable):
By some distance the poorest performers were US firms. Over five years US firms in London took on 540 partners. In certain core areas, such as finance, 45 per cent of these partners had left their firms by July 2010.
Take a shorter timeframe and the results are just as startling. Of all the partners hired into US firms in London from the start of 2006 to the end of 2008, a total of 330, 36 per cent had left by the end of 2010. At UK firms over the same period, 27 per cent (221 partners) had moved on by last year.
The immense cost of hiring alone should be a warning as to the importance of these figures. One senior HR director estimates that the average cost per hire at his firm is £150,000. On those numbers, that 36 per cent translates into £17.8m worth of wasted effort.
Any US firm that has borne the brunt of partner exits in recent years – think Mayer Brown, Paul Hastings or White & Case – will no doubt already be all too familiar with these statistics.
In London it has always been suspected that plumping for a US firm was a significantly more risky proposition than joining a UK rival. Now there is proof that this is true.
What’s going on here?
First, to state the obvious, law didn’t used to be a profession where partners moved. Thirty or certainly forty years ago, partner meant partner for life, even if it meant the superannuated given the obligatory office and part-time secretary for as long as he (and it was he, then) wanted to keep coming in three days a week for five hours a day. Quaint. And, yes, charming, and lovely, and on one level deeply, desperately, deeply missed–if only for what those wise elders could teach associates. But not today’s reality.
But back to lateral hiring and whether it works out.
Here’s how the head of Motive summed it up:
Mark Brandon, founder of Motive and author of the research, says the results clearly flag up two key themes: in many cases hiring partners laterally simply does not work; and US firms are worse at it in London than their UK counterparts.
Ouch.
But before we get back to the London market specifically, permit me to address the lateral market phenomenon overall.
I think it’s largely a losing game.
Yes, I know, firms across the spectrum are pursuing it as their primary path to growth, to profitability, even to salvation, but I believe it’s not up to the task. Why not?
- The best predictor of getting divorced is having been divorced. This means that laterals are more likely to decamp again than your average home-grown partner
- Books of business are not as portable, not as readily, and not as quickly, as advertised. Caveat emptor.
- Also, see #1 above: A portable book is portable, right? It can come and it come go
- The exclusive focus on revenue–to the exclusion of profitability–can lead to deals that look good on paper only to end up being net losers.
- And of course many firms’ efforts to integrate laterals can charitably be described as perfunctory. (As Matt Byrne, one of the authors of the piece, jokes, on many issues US and UK firms “just don’t see eye to eye [including] the correct meaning of the word ‘football.'”)
On the other hand, I will readily admit–indeed, endorse the notion–that acquisitions of entire firms or large practice groups can produce far superior results than laterals in a one here, two there sort of waltz. If nothing else, the group has demonstrated it can work together well, and clients tend to be stickier when a large group moves than when it’s a lone wolf.
Is there better news in any particular practice area?
Not such as you would notice.
Along with comparing the overall performances of US and UK firms, Motive drilled down into the detail. It analysed moves into the key practice areas firms have recruited into. Once again, US firms performed less well than their UK counterparts.
For example, US firms accounted for 28 per cent (540) of all moves in the five-year period, with the Americans placing particular emphasis on hiring finance, corporate (particularly private equity) and tax specialists.
But many of these partners did not last long. While 30 per cent of the finance partners taken on by UK firms in 2007 had left their firms by the end of 2010, the comparable figure for US firms was 45 per cent.
Similarly, UK firms had lost 29 per cent of their 2007 corporate hires by the end of 2010 compared with 42 per cent among their US counterparts.
Now, of course this study focused on the London market: Had Motive Research conducted a parallel study covering the same period in the New York market, I’ll bet with little fear of contradiction that the US firms would have had a higher retention rate than the UK interlopers, since we simply know our home-town markets better. The authors essentially agree:
“The findings in this research are intuitive to me,” argues Ashurst senior partner Charlie Geffen. “You’d expect the UK firms’ greater knowledge of the market would mean they’d have more success at integrating laterals.”
Brandon agrees, pointing out that “UK firms have home-field advantage”.
But the chairman of one of the global legal market’s most prolific lateral hirers, Peter Kalis of K&L Gates, says the attrition rate among some US firms in London is unacceptable, highlighting cultural reasons as among the chief culprits.
So why are US firms worse at hiring laterally in the UK than their domestic counterparts?
“[For] the same reason that the UK firms are so dismal in their US recruiting,” replies Kalis. “Cultural insensitivity, naivete and hubris.”
Kalis, as head of one of the world’s largest US firms, is quick to suggest that the survey results should not be used in a one-size-fits-all sense. “The study treats all US firms monolithically – this is fallacious,” argues Kalis.
There are 100 or more US firms in London, he adds, and most of their offices “are more aspirational than mature”.
In the end, I wonder if the lateral phenomenon in Law Land doesn’t echo what we see with sports stars and entertainment celebrities. (Those are two industries where the data is widely available, whereas the same can scarcely be said of our industry.)
And what is that phenomenon?
Simply this: The star generally captures the vast share of the incremental value they bring to the new firm, leaving just crumbs for the general benefit of the partnership as a whole. Sports analysts have spilled gallons of ink over whether Alex Rodriguez, for example, has been a net boost to the Yankees’ bottom line, with his sky-high contract, and the late Ahmet Ertegun, famous founder of Atlantic Records, notoriously refused to re-sign The Rolling Stones at the price of matching a competing offer from Virgin Records: “I couldn’t make any money at that level,” he said. “Only [Mick] Jagger and [Keith] Richards will make money.” Indeed, Virgin reportedly lost money on the Stones’ new contract.
Of course, I don’t expect either The Lawyer‘s research nor the findings from other worlds where superstars try to throw their weight around to convince anyone that salvation lies around the corner, in the hot pursuit of laterals. If nothing else, the chase is immensely entertaining, with wining and dining and secret scheming, and the headlines when you win one so gratifying. Then when they arrive it’s all too often “here’s the bathroom and the copy room and we’ll see you at the holiday party [by which time we’ll know whether you’ve achieved those numbers you promised us].”
No wonder the statistics are so dismal. All things considered, it would be bigger news were they not.
And one last thought: If your “strategy” is to focus on lateral acquisitions, you might want to revisit that.
Update (21 February): Mark Brandon of Motive Legal wrote to correct a misperception–while being graciously complimentary on the column overall. The research his firm undertook was not commissioned by The Lawyer, although they certainly chose to cover it extensively. Indeed, Mark’s firm has other studies up its sleeve “looking at law firm growth from a different angle.”
