Aderant say that the secret to lateral hiring success in law firms rests in preparation

Article by Derek Schutz, Product Manager Business Intelligence, Aderant

“Fortune favors the prepared mind.” – Louis Pasteur

 

It’s almost an annual affair in the legal community.

By the second quarter of every year, we see a series of reports on lateral hiring in law firms. Each year, these reports seemingly draw similar conclusions:

While lateral hiring remains an important growth strategy, many lateral hires fail to meet law firm expectations.

Here’s a look at some of the most recent data on lateral moves that are publicly available:

81% of law firms with 250 or more attorneys have acquired laterals or law firms to improve profitability in the last few years (2017 Law Firms in Transition Survey by Altman Weil)

2,895 Am Law 200 partners moved firms between Sept. 30, 2016, and Oct. 1, 2017 – a modest 2.25% decline after three straight years of growth (ALM)

30%-38% of lateral hires depart within five years (Global Lateral Hire Risk Mitigation Study by Decipher)

59% percent of lateral moves over a five year period (2011-2016) were considered successful, which we deduce means 41% were unsuccessful (Citi Private Bank Law Firm Group as reported by ALM).

What is a success? Let’s assume it means more profitable work for the firm than it would have had without lateral hiring.

So, what is the top barrier to achieving that success? Laterals do not attract enough new business to their newly-joined firms.

The Decipher survey referenced above crystalizes this notion:

92% of firms evaluate laterals for their ability to attract new clients, yet 90% of firms say they experience business development challenges related to laterals.

79% say they evaluate the portability of a lateral’s book of business, yet 100% of firms say they experience challenges in moving the business to the new firm.

The question that remains is, if lateral hiring is so important to growth, year after year, why are law firms falling short of the very objectives they are evaluating?

In working with many large law firms over the years, I believe the answer to that question is available in the upstream analysis – planning and preparation.

The 5 Steps of Lateral Analysis Before Making an Offer

In many ways, lateral hiring is akin to mini-acquisitions. While law firms have become very focused on examining the cultural fit of proposed hires, they may be overlooking the empirical data.

When corporations do an M&A transaction, they take a hard look at the numbers. So, when we see statistics that suggest 41% of lateral hires are not successful, it’s telling us firms are still making many of these decisions solely on a gut feeling.

We recommend putting a framework for evaluating laterals in place long before a firm even begins recruiting.

1) Understand the existing individual statistics.

Ask any attorney to break out, by percentage, the profit they earned for the firm from new and existing clients last year, and most wouldn’t be able to articulate it. Maybe they don’t need to, but statistics like this are useful for a committee tasked with lateral hiring responsibilities.

Law firms should break out the data that answers the following three key questions for each partner:

In the last three years, has your book of business grown?

If so, what percentage of growth stems from new matters with existing clients?

Similarly, what percentage of growth stems from new matters with new clients?

While compiling these statistics law firms will get a sense of two key aspects of lateral hiring:

a) it identifies the firm’s core strength in new business development – and areas for improvement which in turn becomes central to the lateral hiring strategy; and

b) based on the existing performance the firm is able to make reasonable and data-driven expectations for a new lateral hire.

2) Analyze previous lateral success.

Law firms should track and analyze the performance of lateral hires on both an individual and group basis. Many firms have data on such performance that goes back 10 or even 15 years.

In a previous piece on the Think Tank, we suggest five metrics for benchmarking lateral hires. In addition, we offer the rationale for examining laterals on cohort basis:

“Laterals aren’t operating in a vacuum so the firm shouldn’t measure them as such. To the extent the firm can, it should group laterals into classes, the lateral class of 2017 for example or a lateral group based on a geographical presence, and then benchmark these groups against the aforementioned metrics. This gives the firm a holistic view of its lateral hiring program and helps determine benchmarks at various points in the process. This can provide both an early warning system as well as the opportunity to determine where a process can improve over time.”

3) Identify strategic goals for lateral hires.

If the firm performs an analysis and learns that most of its new business comes from new clients, then this knowledge can outline the lateral strategy. In combination with data from previous lateral cohorts, a law firm has a sound basis for identifying strategic goals in lateral hiring.

Of course, there may be other strategic plans to consider as well. A firm that wishes to build out a new practice area, or establish a foothold in a new geography are good examples.

Certainly, market data around the demand for a given practice area and rates can shape the firm’s thinking. However, the case is far stronger when it’s considered in the context of what a firm does well, and the level of success it has had with previous lateral hiring.

4) Set specific expectations for laterals.

I suspect many lateral hires fall short of expectations because the expectations tend to be vague and ill-defined. As such, firms haven’t really thought through how those expectations will be met, which is also important for the lateral to understand as well.

For the sake of illustration, a simple example of specific expectations might be: a lateral hire will grow his or her book of business by 50% over the next five years of which half will come from new matters from existing clients and a half from entirely new clients.

With specific expectations in mind, law firms can plan scenarios regarding rate and hours for a lateral to meet those expectations. This enables the firm to reasonably build into the plan how it will help the lateral meeting those objectives, while also understanding the impact on law firm profitability.

5) Understand the lateral hire’s objectives.

Lateral hires have career objectives too and firm should understand why a lateral is considering a move to another firm. Perhaps the lateral wants an opportunity to get into a more lucrative market, sees an opportunity to land more business, or a move is an endeavor in rate arbitrage. Whatever their expectations, these should mesh well with the strategic goals and success benchmarks the firm has established in the previous four steps.

The Internal Selling of a Lateral 

In any firm, there’s an internal sales process that must unfold in the process of lateral hiring. Other partners have to be sold on the idea of bringing in a new lateral.

An aforementioned ALM article aptly put it this way:

“Firms that have consolidated the lateral hiring process into a streamlined process are at an advantage. That often means a managing partner or hiring committee that has a track record of successful hiring and can secure buy-in quickly from the partnership. Those leaders clearly and consistently communicate the firm’s strategy to partners, recruiters said. So, when an opportunity arises that fits within the firm’s strategy, they are able to act quickly and boldly.”

The benefit of preparation – these five steps – is that it will guide the lateral strategy from the outset. The inherent benefit is that the systematic process helps “sell” other partners on a lateral hire before an offer is ever made or negotiated.