Lateral Hiring Failures Tied to Fundamental Issues

The McCormick Group once again sponsored the recent D.C. Legal Market Conference, held by Sandpiper Partners. The conference featured a lively discussion of a number of topics, including the state of the D.C. legal market, relationships between inside and outside counsel, and the diversity imperative.

One other issue discussed was the challenge that firms face in the lateral hiring of partners. Studies continue to show that the effectiveness of lateral hiring as a strategy is questionable at best. In one of the more recent studies, Risky Business: Rethinking Lateral Hiring, it was reported that nearly a quarter of all laterals leave their firms within 3 years, and 40 percent leave within 5 years. That report also noted that 62 percent of laterals “underperformed” with regard to anticipated book of business, even after the firm discounted the projections of the lateral.

Panelist Howard Rosenberg of Decipher, one of the authors of that study, contended that the failure to do proper due diligence was the major factor. (Decipher markets a unique competitive intelligence and background investigation protocol to law firms evaluating specific candidates). However, in our view, while improvements can be made in the due diligence process, the current deficiencies in the lateral hiring market are due to more fundamental issues.

Let’s start with the fact that lateral partner recruiting is unlike virtually any other recruiting that is done in corporate America. Unlike most corporate searches, where firms engage one executive recruiter to help recruit and assess all potential candidates, law firms tend to outsource their partner recruiting to a multiple headhunters with just cursory guidance. Since most legal recruiters are “candidate-centric,” meaning that they spend most of their efforts attracting candidates who they believe need to make a move, they are likely to present attorneys that are “on the market” for one reason or another. While many lateral partner candidates have good reasons to seek other opportunities, such as irresolvable conflicts, pressure on billing rates, or financial difficulties at their current firms, many are looking for new positions because they have been asked to leave their current firms, either directly or indirectly.

Instead, firms need to do more work on the front end. They need to develop the story for both the firm and the practice area targeted. Firms that have done their homework are able to articulate, with specificity, things like business opportunities lost for lack of the potential lateral’s expertise and the track records of prior successful laterals at the firm. While legal recruiting firms are still an important resource, firms need to be more proactive in guiding them, both in identifying the proper targets and arming them with the ammunition to attract the leading practitioners.

Add to that the fact that firms are overly focused on portable business rather than the talent necessary to succeed in the long run. Indeed, firms evaluate laterals differently from their current partners. Most internal compensation reviews emphasize not only personal production and originations, but also the contributions that the partner has made to other partners or the firm as a whole. Yet we rarely, if ever, have seen a lateral partner questionnaire that includes those types of questions. Instead, virtually all of the questions go to the portability of existing clients.

A strategy that overly depends on a portable book of business is destined for failure, since the candidates with the most reliable portable business tend to be “lone wolves” who rarely cross-sell their clients and are often unavailable to work on institutional firm business. In these instances, the firm is merely “buying a book” and, in turn, opening the door to those same laterals leaving when they get a more attractive compensation offer.

Much has been written about the war for talent and its particular application to law firms. Firms need to rethink their approach to lateral partner hiring to emphasize that it’s a search for talent and not just a book of business.