Targeting laterals

With rapid law firm expansion and changing career expectations among lawyers, many firms are engaged in lateral-hire programmes. The potential opportunities are obvious, but firms will need to be careful to avoid the significant business risks.

By William Wastie, Addleshaw Goddard LLP

In the battle for talent, and in a legal-services market where partnership careers are no longer seen as ‘for life’, the incidence of partner moves is ever increasing. This article looks at the ‘moves market’ and the issues that should be addressed from the standpoint of a firm recruiting a lateral-hire partner.

Firms must align their lateral-hire programmes to their strategy. They should not be reactive and simply take a particular lawyer because he is in the market. Where the lateral hire is to expand an existing team, the risks will clearly be less. There will be an abundance of work and a need for that partner’s immediate fee-earning and leadership capacity. Where the lateral hire is to take the firm into new areas, the risks are greater. The clients may not follow that individual, the new area may not be one that is strategically aligned, and you may not have all the support resource that the lateral hire needs to thrive within his or her new organisation.

Once you have identified that strategic need it is likely that you will be using a head-hunter to present your firm to potential candidates. While much of the research carried on by head-hunters may be of high quality, there are regular instances of basic directory trawls and a considerable burden being placed on the firm to go through initial lists, often very long, of potential candidates that might be recruited. For the fees that you are paying, however, you need to make your head-hunter work; you should expect a good knowledge of the marketplace, high-quality research skills and precise targeting.

Market worth

It appears to be particularly true in the legal-services market that there are many partners who occasionally feel that they should test their market worth. They will go to one of the numerous legal recruitment agencies to ask what opportunities there are and to test whether they are being remunerated in accordance with their own view of their worth. The effect of this is that there are often apparent partners ‘in play’ who in reality have no intention of moving from their present firm. Again, it is important for your head-hunter to evaluate this risk. To invest a great deal of management time and resource in recruiting somebody who is not ready to move is obviously wasteful. Part of your recruitment process will require you in many cases to loosen the glue that binds a partner to their present firm, thereby enabling you to make an offer that they are likely to accept.

The recruitment process

Once you have found the right prospective candidate(s) you must move into a well-oiled recruitment process that needs to be dynamic. From the individual’s point of view, it is important that they know what is expected of them and the timescales to which you are able to operate. For successful lateral hires there should always be competition. This does not mean that the systems and procedures that you put in place should in any way be short circuited – you must maintain complete integrity of your recruitment processes. The individual, however, will need to know how long the process is likely to take and you must not create false expectations if it is a quite long one. The right applicant should respect the need for you to carry out thorough due diligence upon them.

The level of due diligence carried out in the legal market seems to vary greatly. Some firms, particularly US firms, will carry out very extensive due diligence. For example, they may even ask you to give evidence to them that you are in good standing with the relevant Revenue authorities. Such a step is something that a UK firm would be most unlikely to take. It is important, however, that your due diligence does not focus simply on the individual’s perceived client following and billing capacity. These are of course very important but you must not expect them to deliver either. There are many stories of how lateral-hire partners have promised a very high-performance delivery only to disappoint. In practice, the greatest disappointment has probably been for them, rather than just for the firm that recruited them. It is embarrassing to oversell oneself.

You will be looking at the way that the individual is to fit into your existing business. You will be planning who they will report to, what the supervisions requirements will be, especially in early days, and what objectives and targets should be set for them through the recruitment process. This will probably be delegated to the divisional head of the team in which they will work. At the leadership level you will be looking at the financial package and other terms that will he offered to them. Might they require special provisions with regard to your existing profit sharing or retirement arrangements? You must consider how they will be received by your ‘key talent’, which is to the greatest extent the existing team that you have, both partners and senior associates.

Looking to the individual, it is my experience that partners who move regularly demonstrate that they are more in the practice for themselves than they are for the team and the organisation within which they work. While it should not be an absolute rule, one should have considerable concern if a partner is on their fourth move. If they are, they need to be able to demonstrate why they have not succeeded at previous firms and satisfy you that they have the right team skills to be part of your organisation and make a long-term contribution. The costs of recruitment are very considerable and to recruit somebody for a relatively short period, only to have them move on to a competitor, is a most unsatisfactory outcome and brings risk upon your business.

It is inevitable that you will not be able to apply the same selection criteria to those that you laterally hire as to those that you promote internally. For example, it is extremely difficult to test in a recruitment process the way that a lateral-hire partner will lead and develop a team of people. Isometric testing and other techniques that can be provided by external consultants may help you considerably in this area. You should always take a reference preferably by calling somebody that you know in the firm from which the partner is leaving, and you should use the obvious research tools to look into that partner’s past to see whether the story they are telling you at recruitment is consistent with the market’s perception of them. There is a wealth of material available nowadays on the performance of law firms and partners within them. Directories, particularly Chambers, are a useful source of reference. You may be able to verify that the partner is a regular speaker or writer in their particular area of expertise. You may have existing clients who are encouraging you to develop in that field and you may wish to share with them, in confidence, that you are thinking of recruiting Mr X or Ms Y and asking them how they would react if you did that. You should make sure that the lateral hire undergoes a full medical examination before your offer becomes unconditional and if you have any doubts about their behavioural characteristics you might ask the doctor to consider those as part of their discussions with the lateral hire.

Setting achievable targets

Constructing the right package for a lateral hire will often be a matter for negotiation and for managing expectations. There have been numerous instances of lateral hires overselling themselves. This is not only a problem for the recruiting firm but also for the individual. Ideally, as part of the recruitment process you will have identified a few ‘easy targets’, which the lateral will be able to achieve soon after joining your firm. Achieving these will boost the lateral’s confidence and demonstrate to your partners that you have made a successful hire.

Where a lateral oversells themselves the reverse effect is often quite rapidly achieved.

It is therefore necessary to tailor the financial package to the objectives and targets that you have. As lockstep profit sharing moves towards its twilight, this is a matter that is easier for law firms to address than in the past. Where there is a lockstep profit-sharing system you will have to deal with the issue of where on that lockstep a partner should join. The same point of course applies where there is a points-progression scale but where management has tools by which it can adjust partner profit share to performance and achieving a set of agreed objectives; such adjustments can be made to the benefit of the firm and the lateral. Some laterals will look for guarantees. Our experience is that these are usually sought for two or three years. Much will depend upon the growth in profits per point of your firm. If the lateral is satisfied that the firm’s strategy is cogent and that the profits per point are likely to grow, no guarantee may be sought. The giving of guarantees may not be acceptable to fellow partners. They will ask what this lateral brings to the firm that makes him or her entitled to something that they don’t have. The more a lateral seeks to have some form of guarantee, the more you should be concerned to see that there are benchmarks by which their performance can be measured and, as a last resort, the possibility of retiring them from the partnership if everything ends in tears. There are still some partnerships that are close to lockstep profit sharing and that have very high thresholds for removing underperforming partners. Such partnerships will of course experience more risk when they are active in the lateral-hires market.

Induction and integration

Assuming that everything has gone well, that you have found your ideal candidate, made them an offer that they are going to accept and you have a realistic date for when they can leave their existing firm, and know that they are not going to be put on garden leave, then your work has just begun. There follows the process of induction and integration. Where there is only one lateral partner moving with none of their former support team, that process is one that will need great support. The individual is going to need to be made welcome, to be brought into all the firm’s systems and must be able to draw upon all the goodwill of the firm to try to achieve his/her goals. Appointing a mentor to support that partner through this process is in my view very important. That mentor needs to be seated close to the partner and have the time and commitment to make the integration process work as quickly as possible.

Where the lateral moves with a team, the integration process will have a different dynamic. The new firm may well have acquired a new service line. There will be a process of educating other people within the firm as to the work that the new team does, and as to the additional opportunities that the service line can bring to the firm’s total legal-service offering. But that team is likely to have its own culture and way of doing things. Its leader and each member are going to have to commit to changing their ways and adapting their methods of practice to the new firm’s. It is important that you enable a lateral hire to sell your firm as early as possible. This will involve their meeting senior partners in the various service lines, understanding their business, identifying mutual opportunities etc. It may be prudent, if it is possible, to send the lateral hire as a member of a pitch team early in the period after they have been recruited. This gives them a first-rate opportunity to hear experienced partners sell the
new firm.

My final thought is to not forget those easy initial targets. People who are confident will always perform better. Many people going through the lateral-hire process will have gone through times of considerable uncertainty and doubt. Lawyers are generally resistant to change and often quite conservative. Having gone through the process of loosening the glue with their existing firm they
will be approaching their new assignment with vigour and energy, but with some trepidation. Having the initial, reasonably easy-to-achieve targets in place will reinvigorate them and give them the confidence and drive that they need to perform in the new environment.

William Wastie is a barrister specialising in partnership and LLP law at Addleshaw Goddard. He can be contacted at william.wastie@addleshawgoddard.com