Are Lateral Hires the Way to Law Firm Growth, or Not?

julie-savarino-lawfuelAn article from Julie Savarino, an attorney and owner of Business Development Inc and published by BloombergLaw, took a close look at lateral hires, the most favored strategy used by many law firms to increase market share and revenue.  Julie Savarino advises many law firms on ways in which to generate greater growth.  But the pace of growth among those who use lateral hiring  has continued with mixed results.  The article examines why the results are mixed and what firms can do about it.

Lateral hiring/acquisition is—by far—the number one strategy used by the majority of major law firms to increase revenues. The current pace of lateral hiring and turnover continues unabated. In addition, the total percentage of new revenues generated by lateral hires/acquisitions is in the double digits for many law firms (while the total new revenues generated by organic growth for most major law firm is flat or in the single digits).

A recent American Lawyer/LexisNexis survey found that, as a way of growing, 96 percent of law firms surveyed planned to hire laterals in the next two years, and 75 percent expected to continue to hire laterals over the next five years. However, only 28 percent of respondents said that hiring laterals had been “very effective” over the past five years, and 10 percent said hiring laterals was either neutral or negative. These results suggest that original expectations are not being met on either side.
High Expectations, With Average to Low Success Rates

In a lateral hire or acquisition, expectations are high on both sides, and for the law firm those expectations usually extend beyond what the individual lawyer will bill and collect. Just as the new lawyer anticipates enhancing his/her client current client relationships and creating new ones by joining the firm, the number one and greatest expectation of most law firms is that the lateral’s book of business will come with him/her and add immediately (or within 60 to 90 days) to the firm’s revenue stream. The second greatest expectation on both sides is that the lateral’s clients will buy/purchase/use other services the firm offers. Third, is the expectation that the lateral has a set of skills and experience that can be offered to existing firm clients. If less than 30 percent of lateral hires/acquisitions are rated as “very effective,” these three expectations are too often not becoming reality.

Why is the success rate for lateral hires so low? If approximately 70 percent of laterals are considered less than effective to one degree or another, obviously the original, pre-deal expectations have not been met on one or both sides. In any addition of lawyers, whether individual lateral hires or acquisition of a firm or practice group, both sides spend considerable time discussing the details and mutual expectations. Yet rarely are the precise expectations of both sides clearly spelled out and mutually agreed upon in a written plan that assigns responsibilities, timelines and is continually assessed during the approximately two years required for full integration.
Defining the Lateral On-Boarding and Integration Process

Successful lateral hiring is a process that takes time and the integration process in particular is often not as well supported as it could be within most major law firms. The lateral retention and turnover rates at any individual law firm can be improved upon by creating a more formalized integration program beyond simple orientation and a few, informal follow-ups. Several firms offer laterals a full menu of integration services/options that may help to attract laterals to the firm, improve lateral satisfaction rates, and help the lateral embrace the firm culture.

From initial identification to the lateral’s start date, significant of hours involving law firm and practice area leaders, lawyers and staff are devoted to the lateral identification, search, courtship, vetting, due diligence, selection and hiring processes. Increasingly, knowing that so many laterals end up leaving the firm, many partners are asking: “Why are we spending such an inordinate amount of time, effort and resources finding and hiring laterals and so little time and effort to ensure they stay with our firm?” In simple business terms, law firms need to decrease their lateral attrition rate and increase the lateral retention rate through effective integration. As noted, this process takes time. In firms with over 150 lawyers, successful integration may take at least two years at least, and at larger firms, even longer.

On the front-end lateral identification, due diligence and hiring processes, most major law firms have a well-organized internal process, and/or a checklist with associated steps of ‘who will do what’ and when. In the deal negotiations, expectations are discussed but not always understood. Putting expectations in writing to ensure accuracy and clarification may help improve a law firm’s average lateral success rate. Most law firms detail in writing the actual or potential clients the acquiring firm hopes will move with the new lateral. But there is rarely complete or ongoing support to assist with the actual client transfer process and to help ensure that the maximum number of clients or amount of business will come to the new firm. Surveys show that the number one reason that partners leave their firms for competitors is due to “lack of support.”

Interestingly, when comparing the results of overall lateral satisfaction surveys versus satisfaction surveys of actual clients, their results are about the same: approximately 7 out of 10 (on a scale on 1 to 10 with 10 being the highest). This highlights a tremendous opportunity for most major law firms, in that a slight increase in the level of satisfaction from both laterals and their clients, say from a 7 to an 8, would yield significant benefits in terms of time and costs savings and increased revenue. Therefore, adopting a plan to improve overall satisfaction could benefit many firms. And some of the country’s largest law firms are doing just that.

What Some Major Law Firms Are Doing

One international law firm, Mayer Brown, has implemented a leadership-driven strategy to handle overall satisfaction from both the client and lateral perspectives. The firm recently assigned full-time responsibility for global lateral recruiting and integration to Chair Emeritus Herbert “Bert” W. Krueger. Bert explains that “laterals are an important part of the life blood of our firm and that is why we have a formal, organized approach and support processes to help insure their success.” While he admits that “there is no magic bullet,” Bert uses a formal, written pipeline to track all lateral needs, targets and efforts. In this pipeline, the lateral is assigned one or more firm sponsors, who may include the head of the office where the lawyer will be based, relevant practice/industry group head(s) and another senior lawyer. Bert’s work dovetails effectively with that of another senior partner, Debora de Hoyos, who served for over 15 years as the firm’s Managing Partner. Debora now serves as the firm’s Global Client Relationship Partner overseeing Mayer Brown’s global industry sector groups, client teams and related client satisfaction and global business development initiatives. In that capacity, Debora meets with prospective and new lateral hires and initiates appropriate connections with relevant firm lawyers, client teams, industry groups, resources and/or other interests within the firm.

Before each lateral starts at Mayer Brown, the firm’s full integration team, led by Bert and supported by three staff members, works with the lateral to draft a business plan and also create an integration budget to insure the new hire can travel to other offices, meet new colleagues and attend relevant events. “True integration is not fast or easy,” says Bert. “Initially, integration requires a concerted effort because everyone is so busy,” he points out. “After a year or so, we find most laterals have assimilated/integrated within the firm and my reports to management reflect that.”

Read the article at BloombergLaw

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