Lateral Hires and the “Slam Dunk” Myth

This is an edited extract from the second (and much expanded) edition of Ark’s best-selling report Tackling Partner Underperformance in Law Firms by Nick Jarrett-Kerr, released in April, 2018.

It seems logical that both law firm growth and the plugging of a skills and market gap can be met by hiring a partner with an existing following or reputation from another firm. Law firms are still beguiled by the concept of easy success through lateral hires despite all the mounting evidence that investment returns and harmonious integration both can be elusive. As reported in a recent client advisory,[1] the Citibank Law Firm Leaders Survey found firms reporting only a 59% success for laterals hired during the period between 2011 and 2016. The report notes that “this is consistent with the results we have reported for the five years prior, with the average never being above the 50s. For comparison, in recent years we have asked the same question about partners who were promoted from within and the reported success rate for the same time period is materially higher at 72 percent.” In a recent survey carried out by Ark Publishing for the forthcoming and much expanded second edition of my best-selling book Tackling Partner Underperformance in Law Firms, more than a third said that the majority of lateral hires had failed to meet expectations.

It is therefore not surprising that analysis of 1,130 hires in BigLaw found that, globally, 47 percent of laterals hired in 2011 had moved on by the end of 2016.[2] Even so, firms still continue to weigh up the risk reward equation and recruit those they perceive have a realistic business at least to cover his or her direct costs over the first two to three years. In other words, firms often feel that the risk is just as much (or more) on the lateral hire failing to deliver as the firm getting it wrong. It is therefore no surprise that lateral hiring continues to boom. A 2106 survey by Robert Half Legal[3] suggested that more than half (58%) of lawyers interviewed thought lateral hiring to be an effective strategy for improving firm revenue. Nearly one-quarter (23 percent) of lawyers said their law firm will increase its hiring of partner- or senior-level attorneys in the next two years. According to another report,[4] nearly all law firms (95.6%) said they would continue to pursue lateral hiring as a growth strategy, noting further that two-thirds of firms will also “seek to acquire lateral groups.”

When lateral hires are made, one problem is that if there are negative signals, firms then often fail to act swiftly, succumbing perhaps to the “sunk cost fallacy” in which the leaders focus on the investment already made and hope that by continuing to support the laterally hired partner, investment costs will be recouped and the earlier recruitment decisions vindicated.

It is vital therefore (but beyond the scope of this article) to get the hiring decisions right, and then to integrate and support the new recruit appropriately. It is sobering to remember that recent estimates are that the cost of a failed laterally partner can be as much as four times the lawyer’s actual compensation, including the costs of replacing that lawyer after a departure.

Whose fault is it? Why they fail

There seem to be at least four main reasons for the failure or under-productivity of a lateral hire, other than a poor hiring decision in the first place.

Reason One – The Misfiring Business Plan

First is when the lateral hire’s business plan is unrealistic or over-optimistic. Clients that the new partner relies on bringing to the new firm do not transpire or fail to produce sufficient volumes of work. Referrers are not as supportive as expected. The efforts of the old firm to preserve the departing partner’s book of business prove successful. Team members that are expected to follow the partner after a suitable period decide to stay with the old firm. According to the ALM,[5] half (51%) of lateral hires fail to produce three-quarters of the expected first year book of business, and nearly one third fail to produce even half the expected revenue.

Reason Two – The Cultural Misfit

Second, the new partner proves to be a cultural misfit or makes no effort to espouse the firm’s values, to embrace the firm’s expected behaviours or to become part of the new firm. This does not always turn out to be the fault of the lateral hire. As Mark Brandon reports,[6] “part of the problem is that culture in law firms is often like the proverbial elephant: ‘I’ll know it when I see it.’ As such, judging who to bring in is largely a subjective issue.” On a simplistic level, some law firms pride themselves on their collegial environment whilst others value a more individualist culture. The latter will likely find it is better served by hiring a rainmaker rather than a technical legal expert. Equally, cerebral lawyers may be a good fit for a law firm seeking to fill a skill or practice-area gap. Behind all the talk about cultural fit lies a deeper truth. As Joel Barolsky opines,[7] “’I’d love a dollar for every managing partner that says they want to recruit a new person, or acquire a new practice, that has the right cultural fit. What does that really mean? When push comes to shove, in most firms cultural fit is a proxy for ‘no dickheads'[…]. It means a person like us who won’t disrupt the status quo.”

Reason Three – Lack of Integration

Third, the firm or the new partner’s practice group makes little or no attempt to integrate or befriend the new partner, regarding him or her as an outsider who remains outside the inner circle. A 2016 survey of London lateral hires by Major, Lindsey & Africa found that whilst just over half were effective in their efforts to integrate the new partner into the partnership, only a quarter of lateral hires thought the new firm to have been effective in communicating what was needed to succeed.

Reason Four – Lack of Support by the New Firm

Fourth, the new partner remains unsupported by the firm in terms of cross-selling or providing the right platform for success. The 2016 Major, Lindsey & Africa survey also found that laterally hired partners who in hindsight might have chosen a different firm were less likely to have seen referrals of originations increase as a result of their move, and also reported weaker integration efforts by their new firm; less than a quarter of all lateral hires felt their new firm had been effective in cross-selling the firm’s services to the clients of the lateral hire. There is a particular difficulty when the firm is trying – by the introduction of a laterally hired partner – to fill a service or specialisation gap in an area where the firm is particularly weak or even absent. I recall the example in my own firm many years ago of bringing in a pensions expert when the firm had no relevant expertise or suitable client base. The firm was simply unable to cross-refer clients to the new partner, to support him technically or to make him part of a pre-existing team. It was an initiative doomed for failure.

Defeat is always a bitter pill but all the reasons for failure that I have listed are capable of being rectified, given time and effort on all parts to reinvigorate business plans and to integrate the lateral hire into the firm more effectively. All of these measures are addressed in the special report.

[1] 2018 Citibank and Hildbrandt Consulting

[2] Simons, H. A., “Global Lateral Hiring by The Numbers: A Look Behind the High 5-Year Attrition Rate,” American Lawyer, 3 February 2017.

[3] http://rh-us.mediaroom.com/2016-09-14-Survey-Nearly-One-Quarter-Of-Law-Firms-Plan-To-Boost-Lateral-Hiring-In-Next-Two-Years

[4] Altman Weil “2017 Law Firms in Transition”

[5] ALM 2016 Report “Minimizing Risk in Lateral Hiring – Effective Due Diligence”

[6] Ark Group’s Smarter Lateral Hiring for Law Firms (2017) at page 55

[7] Joel Barolsky “Cultural fit, or do you mean no misfit?” LinkedIn

Superstar or Renegade? Keeping Toxic Lawyers Out of Your Partnership

“Superstar employees are the obsession of the corporate world,” a recent article in the Harvard Business Review (HBR) begins. “They’re highly sought after, given the most attention and the best opportunities, generously rewarded, and expressly reassured after setbacks.”

Does this remind you of any members of your law firm’s equity partner class? Especially those recruited laterally from other firms?

This elite class of workers is “highly sought after” for good reason. These superstars can be four times as productive as average workers, the HBR suggests, and can generate as much as 80% of a business’s profits while also attracting other star employees. Given this sort of payoff, it’s little wonder law firms are constantly trying to poach key rainmakers from rivals at any price.

But the HBR article goes on to identify a kind of “evil twin” to the superstar employee: the toxic worker. “These are talented and productive people who engage in behavior that is harmful to an organization…. [A]voiding such people can save companies even more money than finding and retaining superstars.” In fact, a toxic employee can cost a company more than twice as much money as a superstar generates.

Here’s the problem for law firms: superstar lawyers and toxic lawyers tend to share many of the same characteristics.

The HBR article, citing a Harvard Business School study, identified four characteristics shared by toxic workers: “Overconfident, self-centered, productive, and rule-following employees were more likely to be toxic workers.” Powerful lawyers tick off those first three boxes almost immediately. The fourth, which means inflexibility concerning the application of rules, is frequently on display among lawyers. Other characteristics of “bad guys” in the office include charisma, curiosity, and high self-esteem. A quick look around your partnership table for all these characteristics should give you immediate cause for concern.

Virtually every major law firm actively recruits high-powered lawyers who possess the features of a potentially toxic worker. And for every toxic partner your firm inadvertently recruits, it cancels out the positive effect of more than two genuine superstars.

Law firms can take two steps to reduce their risk here. The first is to deepen and broaden the background checks of potential lateral recruits. Look well beyond their book of business; find out everything you can about what this person is really like. Ask yourself why this person is even looking around for new opportunities: is it that they’ve worn out their welcome at their current firm? Is this their first lateral move, and if not, why is that?

Don’t just interview the lawyer’s old friends and favoured clients, either. Their glowing reviews will simply strengthen your own confirmation bias: you want to hear good things, so you choose the sources likeliest to provide them. Actively seek out people who have complaints, grudges, or scars from working with this person, and consider this contrary evidence carefully. Be adamant that you will recruit only good corporate citizens into your partnership, and that your due diligence in this respect will be exemplary.

Despite a firm’s best efforts to spot bad apples, however, some will inevitably slip through. In fact, the truly lethal ones will be the toughest to spot, diabolically practiced as they are in the art of telling you what you want to hear. So the second tactic you can employ is to reduce your firm’s vulnerability to the emergence of a toxic partner.

Exercise greater vigilance over this person upon their arrival, quietly monitoring them for signs of antisocial conduct. This is not impolite behaviour towards a guest: it is the strict application of a probationary period of scrutiny to a stranger in your midst. Watch closely for warning signs in the first several months of the person’s tenure, and don’t hesitate to pull the plug on a lateral hiring experiment that is clearly going wrong.

As well, insist upon integrating their new client teams with veterans from your firm, especially professional staff who can lay down links with these new clients to your firm’s systems and processes. Do not permit the new partner to set their own rules or evade the firm’s existing practices: bad things will happen if a foreign culture is allowed to implant itself into your firm’s ecosystem.

Really, the best way to lower the risk of recruiting toxic employees is to reduce the impact that any one individual can have, positive or negative, on your firm. Enhance your firm’s client service infrastructure through the systematization of legal work production and delivery. Undertake the difficult but necessary job of shifting the ownership of client relationships from individual partners to the institutional firm.

Toxic employees can derail your law firm in a hurry. Take whatever steps you can to keep them from ever boarding the train in the first place.