Lateral thinking

It used to be that partnership in a law firm was for life. With firms continually having to readdress their strategies in a consolidating market, however, that certainty has vanished, and partners are all too willing to make their own strategic moves to match personal career aspirations.

By Tina Lofthouse

‘The client is king’ is an oft-used phrase, but one that has become particularly relevant for law firms. Against a background of increasing competition, today’s firm has to focus on what their clients are demanding and not what a particular partner’s specialities might be. A talented partner is then left with little choice but to up sticks and take their services elsewhere if they want to realise their full potential.

Additionally, the ‘war for talent’ means that the best partners are more in demand than ever before. Consequently, they are able to pick and choose from firms that meet their requirements in areas such as career development and work/life balance.

For the law firm, hiring a lateral and their team allows the firm to expand quickly or diverge into another practice area without all the risks that a full-scale merger can entail. A lateral can also bring a loyal client following and a big book of business.

However, while a lateral-hiring strategy brings opportunities, it can also pose a number of threats. Although it is believed that lateral hires will help a law firm avoid one of the biggest dangers with merger – a culture clash – firms ignore ensuring a similar ‘fit’ when hiring laterals at their peril.

While it is much easier for a firm to divest themselves of a lateral hire than it is to detangle a merger, a new partner that does not mesh well and subsequently leaves, wastes recruitment time and money, can damage team morale, and even dent a firm’s reputation.

Fit for purpose

To this end, many law firms put their idea of ‘fit’ at the top of their priority list, over and above any need for a lateral to have a big client following. “We spend a lot of time in the early stages making sure there is a genuine meeting of minds in what
the prospective new hire is looking for and what we’re looking for,” says Richard Baxter of Stevens & Bolton. “We’re not overly obsessed with things like followings – I think that card is overplayed. It is more a case of judging track record and a candidate’s individual qualities.”

This cultural fit is as important to the recruiting firm as it is to the lateral. Richard Linsell and William Wastie, prominent LLP and partnership law practitioners, joined Addleshaw Goddard from Mayer Brown Rowe & Maw (now Mayer Brown) two years ago. “The cultural compatibility is one of the reasons why our move has been so successful,” says Wastie. “You can’t underestimate this aspect and you have to meet people at the new firm both formally and informally before you decide to move.”

Kingsley Napley tries to recruit its laterals through recommendations from their current staff, and efforts are financially rewarded for successful introductions. “You have the comfort of knowing that someone you trust within the firm thinks this person will fit,” says managing partner Linda Woolley. “The cultural compatibility has been considered even before you start the recruitment process.”

However, the priority list may change. While many firms currently claim that cultural fit is the deciding factor, and not a lateral’s client following, Mark Brandon, from recruitment consultancy First Counsel, believes the credit crunch is having an impact. He says that firms are increasingly looking for laterals with a ready book of business: “Firms are quite nervous about bringing people on without a substantial client following, meaning they can ‘feed’ themselves. There is little will to actually invest.”

But for now, cultural compatibility is key. However, even the best fit in the world doesn’t negate the need for thorough due diligence. At the most basic level, CVs, references, claims record, and a practising certificate all need to be checked, and references from clients are also helpful. Firms should also investigate the lateral’s reputation in the marketplace. Information should be readily provided to the lateral so they too can do their own due diligence.

Restrictive covenants that may prevent the leaving lateral from soliciting clients and staff should also be considered. While they can protect a firm’s goodwill, they should not be unduly onerous. Wastie points out that firms can shoot themselves in the foot if they unreasonably try to prevent a client following their advisor of choice. “There is a certain sophistication required by management in marshalling the battery of covenants they have to the best effect to protect the firm’s goodwill but also its reputation in the marketplace,” Wastie says. Firms also need to be aware what they’re asking of their new hire to ensure no confidential information is disseminated that the lateral has no right to provide.

Departures should be kept amicable. “Once a partner has handed in their notice, a lot of emotional and intellectual energy will have been spent arriving at that decision. It can be a stressful time so it is best kept as amicable and straightforward as possible. Plus, it is pretty unedifying to clients if they are aware of bickering in the background,” Wastie adds.

Lawrence Abramson, managing partner at media-law specialists Harbottle & Lewis, believes the impact of a departing partner isn’t usually particularly detrimental, as long as they are not taking their clients with them. Indeed, it can be seen as ‘one less mouth to feed’ and partnerships are quick to gel again afterwards. However, it can also unsettle the remaining partners, who need to be reassured lest they should start considering their options. A raft of departures can bring about the downfall of a whole practice area.

Searching and approaching

Given the ‘war for talent’, how should the law firm set about actually finding the new lateral in the first place? LG has made a number of lateral hires in recent months, including Richard Marke, who joined LG’s commerce and technology practice from Travers Smith. In response to the credit crunch, the firm’s strategy is to have strong banking and financial-services litigation expertise, and so it appointed three partners and an associate from Dorsey & Whitney MNP in February.

LG HR director, Helen Loughlin, explains: “We have built strong relationships with a small number of quality recruitment consultants, who know us, our practice and our culture, and have good market knowledge. We also watch the market ourselves and have a constant dialogue regarding which teams and partners might be a good fit for us.”

While there is some cynicism surrounding recruitment consultants in the business world generally, others earn their weight in gold. A trusted consultant can provide strategic advice, as well as identifying which candidates are genuinely looking to move, and which are just trying to gauge their value in the market.

But you need to be honest with your recruiter. “Firms think they have to put on a brave face and give recruiters a PR gloss,” says Mark Brandon. “That’s all very well if you’re dealing with some of the salespeople you get at the ‘factory’ recruiters, who think they need to play to their clients’ preconceptions, but at a senior level it’s a bespoke process. You need to be honest and let your recruiters help you,” he adds.

There’s also the advantage that the firm can remain anonymous initially, so they won’t have to reveal externally that they are, for example, looking to shore up or launch a particular practice area.

Brandon reckons that firms can benefit from anonymous advertising as it avoids any preconceptions about a firm. Crucially, it also changes the balance of power so that the law firm becomes the recruiter. The law firm is not in the position of having to woo a certain candidate – it is the candidate that has to impress the law firm.

Whatever approach they take, firms need to prepare the ground properly for senior hires. Brandon adds: “It’s no good trying to hire a new partner if there is opposition within the department; no matter how important it is to the firm strategically. That means sorting out underperforming partners, getting rid of mavericks, or at least ring-fencing them, and making sure the hire will be properly supported. Otherwise it’s a waste of everyone’s time.”

How firms handle the lateral hire process varies. Magnus Swanson, chief executive with Maclay, Murray & Spens,
says that he acts as the ‘clearing house’ for lateral recruitment. Ultimately, the partnership will vote on it, but by that stage it is unlikely to be negative as the business case will have been argued and the teams will have met the lateral, so it will already have become apparent that they will be culturally compatible.

At Addleshaw Goddard, the managing partner is heavily involved in each hire, but a ‘scratch team’ is created relevant to each opportunity, generally involving senior partners from the relevant division. The candidate may then meet others from different parts of the business to ensure they have the right fit.

Meanwhile, Taylor Wessing has a partnership-admission committee that decides on a new lateral hire once the interview process has taken place and a business case, put together by the prospective lateral and relevant practice group, has been reviewed by the board.

Gently does it

Integration strategies also vary. At Harbottle & Lewis, one individual is allocated responsibility for the practical aspects of integration, such as ensuring a working e-mail and phone line are in place, from day one. The buck stops with them, and so there is less likely to be a slip.

When Wastie and Linsell joined Addleshaw Goddard they were introduced to partners in each division to discuss reciprocity across divisions, as well as looking at how they could help each other with current workloads. They were also provided with a partner to guide them through the systems.

Wastie reckons that it is far easier to move as a team than a lone lateral, as your team and support staff will get to know many more people throughout the firm. “You will have that entry into a firm on a wider level than you can possibly hope for as an individual and it is a powerful mechanism for putting your roots down more effectively.”

While it may be easier for a team to integrate, Stevens & Bolton’s Richard Baxter points out that it is difficult for a regional firm to be able to attract such teams, as the likelihood of a group of three or more all wanting to make a geographical move is small. The Guildford-based firm has, however, been successful in attracting a two-team hire from Middleton Potts, as well as a number of laterals from City firms.

Demonstrating that the firm is on a strong financial footing is important in attracting laterals, explains Baxter. “Most people will acknowledge you are not going to earn as much in the regions as some City firms, but laterals want to feel they are in a financially successful firm that can stand comparison with an awful lot of London firms.” Half of the laterals that Stevens & Bolton has taken on in recent years made the initial approach to the firm, rather than the firmseeking them out. Baxter puts this down to “having a reputation for quality in terms of work and clients” as well as its financial record.

Return on investment

Once the lateral has been hired, it is important not to expect too much in an unrealistic timeframe. Reassurances should also be given that the lateral will not lose out in terms of lockstep or profit share.

“I acted for one partner who was basically told to leave after three months because his promised following ‘hadn’t materialised’ despite the fact that the business plan, which the firm accepted, had the first six months focused on business development,” says Brandon. “There are few other businesses that will make an acquisition and demand it is profitable within a year, but law firms seem wedded to that idea.”

If you are hiring a lateral to launch a new practice area, you also have to make sure they are properly supported. “You need to be swift on further recruitment to make sure the laterals get the resources to exploit the potential the hire gives to the firm in the first place,” adds Baxter.

The consolidating legal market necessitates law firm growth, and so the trend for lateral hiring will continue. But Baxter warns that firms shouldn’t just believe that if they get big fast, the rest will look after itself. “It isn’t about bolting on turnover, but finding very high-quality individuals who are going to be a good fit for the firm and integrating them well. Otherwise you are not building your business on strong foundations.”