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Jean-Yves Gilg

Editor, Solicitors Journal

Jean-Yves Gilg

Editor, Solicitors Journal

Branching out

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Branching out

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Thomas Berman of Berman & Associates reveals the problems of building a regional office through lateral hires.

By Thomas Berman, Principal, Berman & Associates

This is a letter in two parts. This first part highlights a number of issues involved in the practice of building a law firm’s regional office using lateral partners hires.

We all read the headlines. Large firm ‘A’ to acquire small firm ‘B’ in Los Angeles to establish an office in that region. Or large firm ‘A’ hires prominent lawyer ‘C’ from competitor firm to open a new office in Houston. Law firm ‘D’ wishing to develop a new practice area or the same practice area in a new region seeks to hire experienced lawyers, either as a group (assimilating a smaller entity for example) or hiring individuals and developing a new law firm location.

Any of these scenarios (and there are lots of examples) make the headlines when they are announced. What doesn’t generally make the headlines, however (no press releases are handed out), are the many difficulties associated with the concept, and the disastrous consequences that sometimes transpire.

Let’s start from the beginning. What’s the optimum circumstance? What would be considered to be the best possible course of action in opening a branch office? The answer, of course, is to have an established partner from the ‘home’ office move to the new location, take up residency and begin to build a regional entity based on the needs of an established client base. This is the best possible scenario, because it provides the firm with a clear link to the new office, and with as much assurance as possible that the cultural elements of the firm can be transferred to the new sub-entity. It also helps to avoid many of the difficult compensation issues associated with starting a branch office with new partners. The theory espoused here is that the further one gets from that ideal, the more problematic the issues are in establishing a regional office.

If we’re building an outline of the very limited selection of factors that will play the most prominent role in the success or failure of such an enterprise, what elements are on our list?

Making this kind of move, of course, requires careful consideration. It should include specific market analysis of the region by a third party whose business it is to size up the region, the potential practice area and the possibilities for growth and development of the office. This is expensive and time-consuming if it is done properly – two subjects with which lawyers may not always be comfortable.

How many times have you known law firms to hire a new lawyer based upon the personal experience of one lawyer in the firm? Unfortunately, even if that individual’s analysis is correct (and often it’s not) there are many other factors involved in making these choices. Lawyers excel in a narrow gauge of expertise and often lack the time, business and/or management savvy which may be more important in making a choice involving the hiring of a new lawyer or establishing a new location. Again, it’s up to the firm to seek out assistance in setting the hiring criteria and establishing priorities.

Conflicts of interest surrounding this ‘lateral’ movement of attorneys from one firm to another have also proved to be a risk management challenge. Issues abound, including problems such as those created when former clients do not come to the hiring firm. Firms need to create workable systems to ensure conflicts are identified in advance, as well as after the laterals’ arrival. Software is available that will allow a firm to input former clients of laterals and automatically receive notice when a matter is opened in which one of these former clients is listed as an adverse party. However, it is important to remember that the potential for these conflicts to develop does not cease when the lateral walks through the door. This paragraph could become a book on the subject.

Conflicts can also be about more than issues involving former clients. They may very well involve an ‘industry’. A good example exists in the intellectual property arena. Setting up a regional office with lateral partners who have an existing book of business may appear to be without conflict until a core client lets it be known that, even though there is not a direct conflict within its milieu, the client feels this represents a move contrary to its best interests. Working for the search engine Yahoo! may not appear to present a conflict of interest if the regional office represents Google, but Yahoo! may feel otherwise.

The next part discusses issues involving the establishment of hiring criteria, the impact on the rest of the firm and the professional liability issues that attach to such a move.

– tberman@bermanassociates.net