Lateral Attorney Risk: An Essential Guide for Law Firms

A law firm's growth and evolution is often marked by the strategic hiring of lateral attorneys. These seasoned professionals bring a wealth of experience, new perspectives, and, quite often, a valuable book of business. However, despite their potential for enhancing a firm's reputation and profitability, the hiring of lateral attorneys comes with substantial risks. For the hiring law firms, it is essential to understand these risks and employ strategies to manage them effectively.

According to NALP's?Survey on 2022 Lateral Hiring, following the unprecedented increase of 111% in 2021, the 2022 lateral hiring market fell by 11.5%, but mostly for the associate market (-20%), but lateral hiring of both partners (+5.5%) and other lawyers (+9.5%) increased in 2022.

The reality is that lateral hires are a coin toss, with attrition rates of 20 percent in year one, 32 percent in year three, and 47 percent in year five.

1. The Culture Clash

One of the most immediate and obvious risks associated with hiring lateral attorneys is the potential for a culture clash. Each law firm has its unique ethos, work habits, and operational standards. Lateral hires from different backgrounds may not fit as seamlessly into your as expected existing culture. This misalignment can breed discontent among existing staff, hinder team cohesion, and ultimately harm the firm's overall productivity.

2. Inaccurate Book of Business

A primary reason for hiring lateral attorneys is the allure of their existing book of business. However, the stated value of this book may not always reflect reality. It's not uncommon for a lateral hire's clients to decide against making the move to the new firm. Overestimating this incoming revenue stream can significantly skew your firm's financial planning. Additionally, pushback (or even litigation) from the lateral's prior firm should be expected.

3. Risk of Malpractice

Lateral hires, with their varied ways of doing things, can inadvertently introduce malpractice risks. Your firm might face claims from the actions of lateral hires either before they joined or during their transitional period. Therefore, it is necessary to perform comprehensive due diligence during the hiring process to avoid these potential pitfalls.

4. Conflicts of Interest

Another crucial risk stems from potential conflicts of interest that the lateral attorney might bring with them. These conflicts may not be apparent immediately but could surface later, causing complications with clients and potentially harming your firm's reputation. Conflicts of interest remain the leading source of legal malpractice claims and a major attorney discipline risk.

5. Integration Challenges

The successful integration of lateral attorneys is an essential aspect of capitalizing on their potential value. Without a robust onboarding process, these hires may struggle to adapt to your firm's systems, causing inefficiencies and possibly leading to attrition. On average, law firms invest only 5% of their lateral hire costs on integration (while 95% is spent on planning and interviewing).

6. Underperformance

There is always the risk that the lateral attorney may underperform, not meeting the revenue or client growth expectations that led to their hiring. Underperformance not only hampers firm growth but also affects morale and profitability across the board.

Mitigation Strategies

* Due Diligence: Before onboarding, conduct extensive research into the lateral attorney's professional history, including a deep dive into their book of business. This helps to assess their cultural fit, uncover potential conflicts and malpractice risks, and determine the viability of their client base. Look at your prior lateral hires to determine a conservative baseline for the portion of the lateral's book of business that might actually transfer.

* Conflict Checks: Develop a systematic conflict check process to detect any potential conflict of interest before hiring. A thorough conflict analysis not only identifies issues at the outset but also demonstrates your firm’s commitment to ethical practice. Do not rely solely on the lateral or your lateral questionnaire but conduct an independent review of the lateral's prior clients.

* Cultural Onboarding: Instead of merely focusing on practical onboarding (such as introducing firm systems and procedures), give equal or greater importance to cultural integration. This will help the new hire align with the firm's values, work style, and expectations, fostering seamless integration. Consider community-building initiatives, social events, and lifestyle perks to promote integration and firm-wide morale. This is especially important in remote or hybrid work arraignments.

* Clear Expectations: Define clear performance expectations at the outset. Regular check-ins and performance reviews can help track progress and address any issues before they become problematic. Set early, realistic goals and develop support systems to assist laterals struggling to meet expectations.

* Protection Against Malpractice Risks: Secure robust malpractice insurance that covers your firm against potential liabilities from lateral hires. Explore excess coverage for your lateral hires and consider outside General Counsel to proactively defend your firm. These precautionary measures can shield your firm from significant financial and reputational repercussions.

* Mentorship Programs: Pair lateral hires with existing partners or senior attorneys. This mentorship will guide them through the integration process, minimizing the risk of friction or misunderstandings. A robust mentorship program, for all team members regardless of role or seniority is absolutely key to developing a team-based approach.

While hiring lateral attorneys presents immense potential for growth, law firms must approach this strategy with careful thought and foresight. By understanding the associated risks and implementing effective mitigation strategies, firms can maximize the benefits of lateral hiring while safeguarding their operational stability, reputation, and profitability.