Lateral churn

Melinda Wallman and Lynnsey McCall discuss how to increase retention of lateral partners from US and UK firms

 

Recent research shows that nearly half of all lateral partner hires in London leave their new firms within five years. Many leave even earlier, especially if they’re working for a US law firm.

Significant differences between US and UK law firms’ lateral hiring practices help to explain why one has a higher retention rate than the other. For instance, most US firms emphasise personal financial performance and portable books of business, while the majority of UK firms focus more on client relationships and reputation that can be leveraged as an institutional strategy.

Firms that focus more on a lateral partner’s personal business are more exposed to fallout than those that look at the contributions a partner could make to group strategy, whether that is practice, client or sector driven. The recession has compounded that risk.

One of the reasons UK firms focus less on books of business than US firms is that most UK partners are subject to restrictive covenants that prevent them from soliciting business from their contacts for up to 12 months after leaving their old firms.

If a partner has a relationship with a client that is already a client of the new firm, then an agreement may be negotiated between the departing partner and his/her old firm about his ability to service that client, thus focusing on what is in the best interests of the client.

Both US and UK firms also look at subjective criteria such as reputation, entrepreneurialism and personality fit. They look for individuals who have shown they know how to develop client relationships and try to determine if, given the types of business the firm is interested in pursuing, the person would be a good addition to their team.

Another factor behind the lower retention numbers among US firms is the fact that many are still in growth mode in the UK. As K&L Gates chairman Peter Kalis notes, “most of the US firms in London are more aspirational than mature”. Many also feel like remote outposts – that is, definitely not where the major decisions are made.

This, of course, is not the case for UK firms, which have home advantage over their US rivals and are therefore able to make new laterals feel more central to their operations. The lack of proximity to the home office can be minimised if the people in charge of the London office are close to the board and thus able to influence decision making and the allocation of resources.

Another factor that reduces the amount of among UK firms is the institutionalisation of outside counsel relationships. Unlike in the United States, where some companies hold competitions to determine which firms will win their legal work, relationships between UK companies and their outside counsel tend to be more static. This reduces the potential upside of making a lateral move.

Many market commentators think it is likely that the UK pattern will eventually give way to the US practice, with more companies turning to the marketplace to determine how much they can get in terms of services and how much they can save financially if they put their legal needs out to bid.

And, as clients continue to push for alternative fee arrangements, partners who are being stonewalled by their firms’ inflexibility may see lateralling as the only option to keep their clients happy.

As these trends become more pronounced, a larger number of partners will see lateral moves as a way to improve their situations and law firms will need to implement better systems for attracting and retaining them.

 

Clarify strategy

While most firms know that they must carefully research a lateral candidate’s background, practice, cultural fit (including personality, values and goals) and references, many skip a crucial first step.

Before launching a search, there should be a meeting of minds among the firm’s key decision makers. Far too often, firms look for candidates without having reached a clear conclusion about their own strategy.

The best hires tend to be made when the firm has a clear plan dictating how lateral partners should be evaluated. That is usually the case when a firm has launched a retained search, but often not the case when presented with lateral partner candidates opportunistically.

The firms that do best in lateral partner recruitment have agreed at every level of the firm:  

• their key areas of growth – practices, sectors and geographies; 
• which clients they are targeting; 
• their financial goals; and
• where are they willing to make investment.

If those responsible for lateral hiring are clear on these points, they can easily evaluate lateral partner candidates against these criteria, regardless of whether candidates come to them through a retained search or a contingent introduction.

Answering these questions and clarifying the firm’s objectives may be another reason for the lower turnover rate among UK firms. Firms that focus on the immediate revenue-generating ability of the lateral are likely to seek unrealistically quick returns, while firms seeking a carefully-considered strategic fit will spend more time integrating new partners into their business.

 

Communicate internally

Some firms address the above issues and zero in on their strategic needs, but then fail to communicate this information to everyone who will be involved in the hiring decision.

It is particularly important for those who will be interviewing candidates to understand the firm’s strategy and back story. Line partners often ask candidates questions that have no bearing on the position the firm is attempting to fill and which overlook issues and character traits that they should investigate.

To help improve their odds, an increasing number of firms, including Shearman & Sterling and Norton Rose, are starting to engage outside firms to run a secondary and deeper round of due diligence than the traditional reference check at the end of the recruitment process.

This is particularly important when a law firm has found a candidate on its own. Independent due diligence exercises are often the only way to determine whether the candidate is appropriate for the specific hiring opportunity and if his clients are going to be loyal to him or to his current firm.

 

On-board laterals

Another overlooked key to a successful lateral hire is having a well-established integration programme. After attracting a star partner, you must make it compelling for him to stay. This is not just about financial rewards – although they do play a part.

You need to deliver on the promises you made, provide laterals with the resources they need to succeed, and connect all the dots between them and the people in the firm who can help them.

There are five key components to a successful lateral integration programme: 

1. cultural integration;
2. cross-selling by the lateral;
3. cross-selling by the firm;
4. clarity in communicating the expectations of the lateral; and
5. clarity in communicating the expectations of the firm.

When choosing a new firm, lateral partners often attach the greatest importance to the firm’s ability to support or expand their practice, which means being provided with cross-selling opportunities.

To accomplish this, you should:  

• invite new lateral hires to meetings where they can pitch their services to the firm’s existing clients;
• introduce the firm’s other services and partners to their clients;
• engage them in planning sessions (across practice groups and geographies); and
• connect them with members of the marketing team who can assist them with their speaking and publishing endeavours.

You should also ensure laterals and their support staff are comfortable with the firm’s IT, HR and other day-to-day processes. Little things like having case-related files uploaded into the firm’s document management system can make a big difference to on-the-job happiness.

Firms that are the most effective in integrating lateral partners into their partnerships, cultures and practices not only meet but exceed laterals’ expectations.

All of this takes planning and commitment. You can’t expect individuals to automatically include new partners in their practice group or client meetings. Someone in the firm has to be held accountable for the success of each new lateral partner’s integration.

Some firms assign a case manager to new partners; others make it a part of their evaluation process. As New York City mayor Michael Bloomberg has noted, “if you can’t measure it, you can’t manage it”.

You should also encourage all new partners to create business plans. This will give the firm a way to understand their goals, provide the firm with a way to communicate some of its goals and expectations, and create a roadmap to help the new partners to be successful.

The plan should be produced by the lateral hire and the firm’s marketing, business development and finance professionals, suggests Elaine Rinaldi, a partner at Cozen O’Connor. A timeline should also be established for specific actions to be taken by all key players. This will incentivise both sides to learn more quickly about each other’s practices and clients.

Business plans for more senior lawyers should include not only revenue goals and business development targets, but also ways in which the veteran can support the firm’s long-term growth. This could involve mentoring up-and-coming stars, taking on some management tasks, helping the firm to improve its efficiency and profitability goals, and even getting involved in succession planning processes. This would go a long way toward making them feel that they are a part of the firm’s future.

 

Long-term growth

Seeing a lateral partner departure as a failure does not necessarily take into account the partner’s perspective. Often, the move is a ‘pull’ to something better, rather than a ‘push’ from something that is bad.

The partner may be looking forward to the prospects offered by a different firm and be confident that his practice will attain ever greater levels of success with the new platform. It doesn’t have to mean the current firm has failed, only that it is not the best environment for that particular partner.

To increase a firm’s stability, improve its chances for significant growth and reduce the cost of recruiting and on-boarding new partners, it is incumbent upon every firm to check in regularly with their productive partners to ensure they are getting everything they need to continue to be part of the family.

Firms also need to improve their recruitment and integration practices so that all of their lateral hires have a greater likelihood of long-term success.

 

The lateral leap

This article focuses on several things law firms can do to improve their lateral retention statistics. Below are a couple of things lateral candidates can do to help ensure their move to a new law firm is successful.

 

Due diligence

Something that should go a long way toward improving lateral retention statistics is the growing trend of reciprocal due diligence. These important fact-finding exercises used to be one-sided – that is, the firm conducted diligence about the lateral candidate.

The economic downturn and resulting implosion of some firms has encouraged many partners to conduct their own investigations, with particular emphasis on a potential firm’s financial health and leadership.

Unlike associate and in-house recruiting, the lateral partner process is as much an opportunity for a candidate to test the law firm’s fit for him and his clients as it is for the law firm to evaluate the candidate.

Buchanan Ingersoll & Rooney’s co-managing shareholder, Howard D Scher, comments on the change as follows: “There has been a significant and permanent shift in the way laterals investigate and integrate with potential firms and vice versa. It has become a more complex dance of mutual self-evaluation. Today’s recruiting process is more like a mini M&A operation than a hiring and a handshake”.

 

Staffing practices

In addition to the obvious financial concerns, lateral candidates should consider the different office and staffing practices between US and UK law firms to ensure their clients can be properly serviced by their new firms.

For instance, UK firms tend to have higher associate to partner ratios than US firms. Before the recession, it wasn’t unusual to find 7:1 ratios in some practice areas in the UK.

This, of course, means that many US firms expect more from their partners – some are still required to bill 2,000 hours a year. This is highly unusual in the UK, where a larger share of the work is passed down to associates. Partners should know exactly what is expected of them before making the lateral leap.

 

 

mwallman@mlaglobal.com; lmccall@mlaglobal.com

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