DECIPHER℠ is an independent corporate intelligence provider which assists firms with reducing the risk of a bad executive level hire.
© 2018 Decipher. All rights reserved Disclaimer
5 Ways Law Firms Can Avoid Lateral Hiring Regret
Aebra Coe, Law360
February 16, 2018
Despite valuing lateral hiring as an integral element of their strategy, many law firms are failing to properly screen potential hires and, as a result, are often disappointed when promises made during the interview don't pan out.
A recent survey of leaders at large law firms found that all of them struggle with laterals who say one thing and then disappoint when it comes to bringing a certain volume of new business to the law firm. The survey, conducted by corporate intelligence provider Decipher Global, determined that the vast majority of law firms encounter problems with regard to business development expectations and the size of laterals' actual books of business.
But experts say those risks can be mitigated as long as law firms approach hiring in a more thoughtful and strategic way.
"Many law firms tend to be more reactive in the lateral market and it would probably do firms well to take a proactive, data-focused, intelligence-focused approach to the whole process," said Michael Ellenhorn, co-founder of Decipher Global. "Approaching it as if it's a mini M&A deal, they may find a clear way of vetting the candidate pool and sifting out the best candidates."
According to the survey results, about a third of lateral hires among the law firms surveyed did not work out, and yet only around half of firms request references from a lateral's clients and former colleagues, less than half perform social media background checks or a third-party background investigation, and just 14 percent "often" or "always" request tax returns from lateral partner candidates.
"The firms themselves in this survey recognized that they have a 30 percent lateral departure rate and other surveys have put that rate close to 50 percent. For a large firm recruiting lateral partners, a 50 percent loss ratio is a massive cash hit," Ellenhorn said.
Here, five ways law firms can avoid lateral hiring remorse.
Hire With a Strategy in Mind
When it comes to law firm partners, there are no "openings," per se, which means any time a firm hires a lateral partner, it presents an opportunity, said Gloria Sandrino, global chair of partner and group recruiting at Lateral Link.
In order to decide whether that opportunity makes sense, Sandrino suggested law firms begin the process of hiring laterals by determining their strategic needs, whether that's expanding into new geographies to serve existing clients, expanding practice groups that have gotten busy in recent years or delving into new practice areas that mesh well with existing practices
"The first part is that strategic need," she said. "I'm not saying numbers aren't important, but the metrics can't be the first place you start." Meaning just because there's sizable book of business does not mean it's always an appropriate hire, and the hire may not work out if other factors do not align.
Instead, law firms should be looking for lawyers that focus on particular practices with particular profiles in terms of their clients, the work they do and their books of business, Sandrino said.
Leave No Stone Unturned
Ellenhorn suggested law firms not limit their lateral hiring process to interviews and lateral partner questionnaires.
The process should be more comprehensive than that, he said, with everything on the table, including detailed questionnaires; interviews with professional references, character references, former colleagues and clients; a review of candidates' tax returns in states where doing so is permitted; credit report checks; social media and third-party background investigations; and the submission and review of business plans.
Additionally, interviews should not only be conducted by hiring managers but also by others, such as chief operating officers, risk management officers, the chief financial officers and the heads of conflicts, Ellenhorn said.
"There's a tremendous amount of available intelligence out there," he said. "There is much more transparency in the market available to law firms now than there has been traditionally. And so there is now more of an opportunity than at any time in history to get this right."
Dig Into Client Details
When it comes to forecasting how much business laterals may bring to their prospective firms, legal recruiter Natasha Innocenti said that it can help to drill down into the nitty gritty rather than talking about a single number.
"There are many factors that go into whether a lateral is successful and they include the portability of business. Most laterals will tell you that it is an inexact science — you can make predictions, but you don't always know what will come with you," Innocenti said.
Instead of simply stating how much their portable books of business are worth, she suggested lateral candidates detail the number of companies they believe will follow them to the new law firms, why they will, and how much income those companies are likely to generate over the next several years, using a sliding scale from a conservative estimate, to a middle-of-the-road one, to one that is optimistic.
Then, candidates can outline other clients that are "possibles," and they can list the long shots — clients who are not theirs but with whom they have had contact, for instance, referring them to other groups in their prior firms.
The key, she said, is going deeper than simply putting a number on the book of business.
Look Beyond the Book of Business
Another way law firms can ensure they find the right match is by looking beyond books of business to attorneys' personal qualities and attributes, according to Kent Zimmermann of The Zeughauser Group, something he says is more common among the large accounting firms than law firms.
Maybe potential laterals only have medium-sized books of business, but they're naturally adept at business generation or they're good team players, making them potential sources of future revenue.
"Are you screening the person and their attributes or what they could bring with them at the time they move, or both?" Zimmermann asked. "I think there's a lot to be said for looking at the person, in addition to the business he or she might bring, and looking for attributes you think would be successful at your firm."
When compared to the ways in which accounting firms hire partners, law firms too often make decisions based on gut feelings and not based on data both from within and outside the firms, he said.
"If you compare how law firms make big investments to how McKinsey and the Big 4 make big investments, you're going to find a lot of differences. And I think that's part of why you see such a high failure rate with laterals in law firms," he said.
Don't Fall Prey to Politics
Sometimes the reason law firms drop the ball on performing sufficient due diligence on laterals has to do with internal politics, according to Hugh Simons, a strategist, writer and speaker on the legal industry, who helped compile the Decipher report.
"If a senior partner is interested in hiring a lateral partner, very few people are in a position to gain from stopping that from happening," Simons said.
Law firms could benefit from changing the lateral hiring process by creating accountability and naming independent "devil's advocates" who have the authority to step in and stand up to enthusiastic senior partners, when necessary, Simons said.
"Firms don't too often take an objective look at their own data, in terms of what laterals have worked and which haven't. And they don't do an analysis because they know it could highlight bad hires made by powerful internal people," he said.
Include Integration Early On
Another way law firms can prevent lateral hiring regret is by including lateral integration into the hiring process, according to Sandrino.
"Pre-offer, the lateral integration plan should be in place, which is easier said than done," she said.
By the third or fourth interview, law firms should begin thinking about how prospective partners can be integrated, she said. Short partner questionnaires can determine how partners might fit in and how their practices might grow interdependently with those already there.
"It means a lot to that partner candidate if the firm starts to think about lateral integration before they see any numbers," she said.
And integration only works when existing partners are incentivized to help make the process work, Sandrino added, suggesting law firms provide monetary incentives by linking compensation formulas and origination formulas with the goal of creating collaboration.
"If you incentivize people and open up the origination formula, then I think that's when it all works out," she said.