Lateral pitfalls: The biggest failings when recruiting partners

The failure rate of lateral hires in the legal sector is striking. Research has found that 20 per cent of partner hires leave their new firm after just one year and up to 50 per cent leave within five years.¹ In addition, almost 65 per cent of lateral hires do not meet the full expectations outlined in their business plans over the first year.²

The churn and underperformance of lateral partners has been observed anecdotally for decades but, for many firms, it is only since the advent of the 'age of austerity' that a spotlight been shone on the problem with the necessary intensity and duration to really bring it into central focus for senior management teams.

The first step to solving a problem is to admit that you have one, and it is hugely positive that the legal profession is doing just that. This is evidenced by the fact that, where they have had a relevant initiative, over 50 per cent of the top-50 law firms ?in the UK have used an external due diligence provider in the past 12 months, and over 70 per cent of US practices operating in the UK and mainland Europe have done the same.³

When assessing a firm's structures for lateral hire acquisition and integration, it is important to focus not only on avoiding bad hires but also on ensuring that the firm makes the most of the hires that do work. Both of these things rely on information, which in turn relies on understanding the potential pitfalls and the questions to ask to avoid them, and then finding the right ways to ask those questions.

Why laterals fail

Broadly speaking, lateral hires fail for one of two reasons:?

1. hiring firms fail to accurately establish the genuine status of prospects (are they who they say/think they are and, if not, who exactly are they?); or

2. hiring firms fail to deliver on their side of the (too often implicit) bargain, either through lack of design or poor implementation of an integration process.

?The reason why firms fail to deal with these two issues is because they often confuse a good hire with a good individual.

Imagine the most successful partners in your firm: the client relationships they have, the work they generate and undertake, the way the market views them and the value they add to the rest of your practice. Now imagine them if they had no support around them: no partners in complementary areas, no well-trained junior support and no familiar culture in which they have forged their successful working style. In all but the rarest of cases, their success will be hugely diminished.

Equally, imagine that you have a clear-cut opportunity with existing clients and simply need an individual with an aligned area of technical expertise to join and exploit the new revenue stream. We have all come across situations before where, on paper, a lateral is a perfect match but, on digging further, it is discovered that he has a set of personal or professional characteristics which will cause havoc in the firm such that, despite adding a new revenue stream, his overall utility is reduced.

These contrasts are stark, but they show that there are two ends of the 'candidate/firm match spectrum', implying that there must also be points of greater or lesser compatibility along that line. In this way, the success of a lateral hire depends on your firm asking itself two ?key questions:

1. Is the lateral a good individual in isolation?

2. Is the lateral a good hire in the ?context of your firm/proposition?

?To the first question you must be able ?to answer yes; to the second you ?must either be able to say yes immediately or be able to see a route to saying yes through an achievable change in ?your organisation.

With that context set, let's look at ?three common pitfalls experienced by ?law firms in making lateral hires.

1. The candidate's projected and ?actual client following

In many business plans, the probability of clients following the partner has been materially overstated. In these cases, the candidate's actual likely following is almost unrecognisable from his own projections.

The reasons behind this misrepresentation range from a cynical ploy as a partner seeks to engineer a move because of pressures in his current firm to, more often, a naïve self-assignation of relationship capital which actually belongs to his firm or another partner.

There are also many less extreme examples where both the individual in question and the firm he is joining fail to accurately characterise their true profile with regards to technical, management ?and business development abilities. ?This leads to missed targets and ?missed opportunities.

2. Provision of services within the ?new firm

A lateral hire is much like a merger, ?with the same imperative to establish ?the value proposition of the combined entity. Too often, firms neglect to fully explore how a candidate's 'portable' relationships will respond to a new form ?of service provision.

This can result in clients failing to move because they feel that the new firm doesn't have the 'bench' required. It can also lead to missed opportunities where, with a deeper understanding, the new firm may be able to reap the benefits of more closely aligning its services to the requirements of the lateral's clients.

Further to this, firms can also fail to properly explore potential conflicts which may arise from the new hire's client base and the firm's existing clients. The advancement of risk and compliance functions in law firms has begun to change this, but firms are often so focused on the potential positives of bringing a lateral on board that they fail to examine how it may alienate other clients or cut off future opportunities.

3. Direction of the lateral's market ?and clients

Many firms hire senior individuals on the basis of past or current workflow without properly seeking to understand what the lateral's clients and market are looking for in their legal service providers in the medium to longer term.

When faced with a seemingly ready-made profit stream, it is hard to say no, but it is important to consider the longer term implications of a hire.

Ensuring success

The best way to ensure a hire is successful is to proactively set out to find individuals where you see an existing business case, rather than structuring a business case around an individual.

The question firms should always start with is 'how will hiring this person/team, in combination with our existing proposition, ensure a better provision of service for the clients we want to work with than they already enjoy'?

If this sort of proposition can be identified and a source or client-led approach is used to identify the person you need to exploit it, then it follows that the provenance of that hire will have been better established. You will then have a much greater chance of success than with a speculative partner bolt-on.

In reality, of course, these sorts of completely clear-cut opportunities are rare. Even so, taking the time at the outset to identify even the smallest additional strand to hiring rationale will result in a process which identifies individuals who are more likely to succeed in your firm and improve your chances of hiring them.

That aside, when dealing with more speculative opportunities, decision making comes in two parts. First, when faced with an important choice, do everything you can to acquire as much of the pertinent information as possible, consider it properly without allowing yourself to be rushed, make the best choice you can with that available information, and then back yourself in that decision through both your words and your actions.

Second, never regret decisions that you have made using the formula above because, although the effect may have been bad, the decision itself was good in theory. But, always try to improve your decision making through learning lessons when things don't go the way you expect. In this respect, treat every decision as important as, in doing so, you improve your faculty for future decision making and influence those around you to do the same.

There are two features that underpin organisations in which people make great decisions. First, there is a leader and a senior team with a clear and shared philosophy for decision making and risk. Second, there are clear structures which support and propagate that philosophy throughout the business without limiting opportunity through rigidity. The success or failure of a lateral hire programme ultimately boils down to those aspects ?of decision making.

 

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Ensuring your lateral hiring programme is a success

• Ask difficult questions. Do everything you can to acquire as much pertinent/valuable information as possible

• Consider the information properly without allowing yourself to be rushed, striking the right balance between a measured approach and the ability to act quickly when required

• Support hiring decisions with a proactive planning approach and continued efforts in the face of any challenges which arise

• Remain positive when things don’t work, but learn from any mistakes made

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The right questions

Law firms which have successful long-term lateral hiring programmes do four things consistently well (see box 'Ensuring your lateral hiring programme is a success'). ?Of the four points, it is the first which ?often poses the greatest practical challenge for leaders of legal practices: asking difficult questions. When trying to assess a potential lateral hire, how do you identify the right people to talk to and target them with the right questions, while protecting relevant confidences?

There is no uniform set of questions which will solicit all of the information you need, or all of the information that may be useful. However, in focusing on the right areas and seeking to acquire as much information as possible (given the boundaries of confidentiality and efficiency) for every lateral hire, you will improve your average significantly (see box 'Screening lateral hires: key questions to consider').

 

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Screening lateral hires: Key questions to consider

• Do you have existing relationships within the potential joiner’s clients/markets? What opportunities will this create and how will you resource them? Will it create any negative feeling internally as the inbound individual moves into relationships that others had earmarked for themselves?

• How can your firm provide the potential joiner’s transferable clients with a better service provision than the practice they leave behind?

• Have you considered whether support strength in a particular area may be hiding a weakness in a potential joiner, especially in the context of your firm’s own support structures?

• What, if any, conflicts exist between the potential joiner’s client following and your firm’s existing or potential future clients?

• How has the potential joiner been best motivated in the past and do your reward structures match or improve on this?

• What is the risk/opportunity profile of your potential joiner’s clients with regards to their own markets/workstreams over the next one to three years? How active will these clients be and in which areas?

• Is the potential joiner’s client base overly reliant on a small number of key clients? Will he be stretched too thin across too many contacts?

• Are you confident that the potential joiner has a set of personal characteristics that will arm him for success in your practice (i.e. similar to those of successful partners in your firm)?

• Do you have an insight into the candidate which is separate to that provided by the sources/referees the candidate/his agent has offered?

• Do you have specific examples of the candidate’s required abilities (such as management experience, business development or technical expertise)?

• What other strategic investments are you looking to make over the next one to three years and how might they affect the potential joiner? The firm’s potential new geographies, sectors, clients and business structure needs to be considered when assessing whether the lateral is a good hire for the medium to long term.

• Do you have a clear understanding of all of the potential joiner’s previous career moves and are you satisfied that they were for good reasons?

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A useful question to ask for every hire is 'have we reached the boundary of efficiently acquirable useful data?' If the answer is no, then you have not done enough. To do this most effectively, you must implement checking processes into your hiring systems.

Diligence is the watchword for success in lateral hires. The problems which underpin failed hires are not hugely complex when taken individually, but it is important to have sight of them all and to meticulously check them off for each hire that is made. Approach every lateral hire with the same level of inquisitive diligence and, not only will you avoid more bad hires, but you will also make more of the ones that work.

Gareth Ward is associate director at recruitment company Edward Drummond (www.edwarddrummond.com)

Endnotes

1. See Lateral Partner Hiring and Integration for Law Firms, Mark Brandon, Ark Group, 2011

2. Based on interviews with 42 of ?the top-50 law firms in the UK ?and 24 of the top-30 US law ?firms in London over the past six months. See Edward Drummond ?& Co Lateral Hiring Data, ?updated monthly.

3. ibid.