If your firm is like most, the pursuit of lateral partners is a critical piece of your growth plan, and you invest in it disproportionately. But unless yours is an exception, the effort under-delivers. Consider data highlighted in a January article from ALM, authored by Nicholas Bruch, Michael A. Ellenhorn and Howard Rosenberg.
- In the past 5 years (2014-2018) there were almost 9,000 lateral moves made within Am Law 200 firms. (This doesn’t count firms with fewer than approximately 200 lawyers that, though not on the registry of America’s 200 largest, rely heavily on lateral hiring as a center piece for growth.)
- 97% of Am Law 200 firms contributed to that 9,000-moves figure above.
- According to the authors, “Slightly more than half averaged at least one lateral every two months over that period, and one-quarter averaged at least one-lateral per month. This is the equivalent of a firm completing one sizable acquisition per year.”
- The estimated value of business moves between Am Law 200 firms (meaning from one Am Law 200 firm over the last 5 years is $17.1 billion. To quote the authors again, “To put that into perspective, Am Law 200 firms grew their revenue by a total of $16.9 billion during that period.”
We should pause to let that last bullet point sink in — the value of business moved within the Am Law 200 lateral market over the past five years eclipsed the value of total revenue growth among the Am Law 200.
What About The Pay Off?
The ALM article goes on to paint a picture you’ve probably already seen.
- 24% of lateral partner hires leave within 3 years.
- Within 5 years, nearly 50% leave.
- Two-thirds of lateral partner hires fail to produce even 75% of the expected “book.”
“Put simply,” the article posits, “bad hiring decisions are costing law firms (and their partners) significant amounts of money.”
As stark as they must appear to anyone examining strategies for growth and business development, these numbers do not represent new news. Big investments for little-to-no return have been a common theme for law firms and their lateral hiring programs for decades. The ALM article puts a fine point on the reality of today’s increasingly competitive market where revenue growth isn’t easy to come by.
Why Lateral Strategies Fall Short, Or Fail
The authors of the article cited above suggest an overhaul of lateral programs that begins with two changes: reducing firms’ reliance on search firms; and increasing the amount of due diligence devoted to the process.
(Side bar note to Business Development Professionals — if you’re not already, it is time to plug in to your firm’s lateral hiring efforts; business development intel and due diligence are areas where your experience and expertise are assets.)
Any steps taken that result in a more intentional approach to the lateral process should yield a better result. However, we would submit that the place to begin is much more foundational in nature. In short, a lateral strategy produces sub par results (and let’s face it, that’s putting it mildly) for one of two reasons:
- the firm has no real strategic plan, and therefore no strategy when it comes to growth; or,
- the actual lateral process does not align with the firm’s strategic plan.
Before you yawn and move on to the next thing in your inbox, this is not a case for a 100-page B-school style paper that does little more than consume hours to create and then gather dust. It is, on the other hand, a suggestion that a few guiding principles will provide a framework that will turn your lateral process into a productive investment.
Five Guiding Principles
Should you add a lateral in a given area of practice? Should you add a practice area? Is it time to seek a lateral in order to seed a new office? What will it cost in terms of compensation? What about your culture? How do you find the right candidate? Will you know the right “fit” when you see it? When should you say ‘no’.
Having an answer to these questions is the difference between a proactive lateral growth initiative, and a “send-us-anyone-with-a-book-of-business” approach — which, for the record, is simply reacting to what the market throws your way.
It has become cliche to say it, but there is no cookie-cutter here. Every firm is a unique partnership, with unique reasons for choosing to practice together. However, with plenty of room to edit and personalize, there are at least five issues around which the most critical decisions in a firm’s life are made — five areas out of which guiding principles emerge. These are:
- the Nature of the Practice, including a profile of ideal clients and projected pricing;
- the Nature of the Platform, including aspirations related to size and geography;
- the Compensation System and related profit goals (and how this aligns with projected pricing);
- the Work-Life Equation, Core Values, and other matters related to firm culture;
- Issues of Governance and Succession.
The partnership that explores, zeroes in on and continues to refine the foundational elements in each of these areas has, in practice, a set of guiding principles against which decisions that matter can be made. Taken as a whole, these principles give shape to an aligned strategy for growth.
The Formula For Success
Based on history, most firms are going to sit back, wait for what the market offers in terms of available laterals, and then react — and call it an opportunistic strategy.
And most firms will continue to see more than half of their lateral hires leave within a five year window characterized by a significant lack of productivity — presumably for greener pastures or because the partnership just “wasn’t a fit.”
For the few firms serious about overhauling their approach, the formula is a simple one: get strategic, and become proactive.
The formula is simple; the work is demanding (and apparently distasteful).
History indicates that when issues of revenue growth are the topic, most firms repeatedly turn to the same levers — choosing to focus everything except the value to be derived from a strategic plan that expresses the shared goals and aspirations of a partnership.
Focus on the strategic work, and a roadmap for a lateral process will emerge — one that will shape how and when you choose to partner with recruiters and other referral sources, define productive due diligence, and begin to build a lateral program that provides a measurable return for your efforts.
How will you know this strategic focus is working? The ROI will be clearly manifest in lateral hires who stay…and deliver…becoming long-term producing members of a growing partnership.