Five Ways to Improve Lateral Recruitment

Numerous reports indicate that lateral recruitment is thriving. Law firms of all sizes are aggressively pursuing lawyers in other firms, offering generous compensation packages and perks to tempt these lawyers to join the new firm ' with their clients, and the billable hours these clients represent, in tow. For some, this strategy works well, and firms have derived great benefits from adding to their partner ranks. For others, the results have been disastrous, leading to fractured relationships and partner defections, client dissatisfaction, and financial turmoil. The root causes for such divergent results are many, but here are five ideas that law firm leaders can embrace to improve their own success rate at finding and integrating laterals into their firms.

1. Be Selective

No statement could be more obvious, or more ignored. Law firms have traditionally operated under a model that relies on a constant stream of billable hours to fund hungry overhead and compensation expenses. As we described in this space previously (see The Fallacy of Merger Math, March 2013), when the formula for success is billable hours x hourly billing rate x timekeepers, and clients are strongly resisting increases in both rates and hours, we must rely on the remaining factor for growth. So we add timekeepers, either through mergers or through lateral recruitment. The challenge with this approach is that rather than emphasize cultural fit, or cross-selling potential, or complementary specialties, instead we focus on top line performance. A lateral candidate with an $8 million book of business in some new and divergent practice category is often perceived to be more appealing than one with a $3.5 million book of business in a practice adjacent to an existing one.'

Instead, law firm leaders are better off using a scorecard of multiple factors, with top line revenue serving as an important factor, but not the prevailing decision criterion. A lateral candidate who works in isolation, isn't open to cross-selling, demands high compensation guarantees, and whose practice requires resources and tools that the firm doesn't currently have and must acquire, is far more disruptive than one who enjoys collaborating with colleagues, whose practice feeds or is fed from an existing practice and who can hit the ground running using existing firm resources.

2. Calculate the Net Impact

When scoring the appeal of a lateral candidate, there are several factors that require deeper analysis. It's easy to be blinded by a lateral candidate's prior year's billings, and expect this performance to continue ad infinitum. But not only does past performance not predict future results, past performance doesn't always give the full story.

First, focus on a multi-year trend line, not one year in isolation. Second, look at hours and billings to identify both billing realization and collection realization. Next, look at profitability. While this is significantly impacted by firm infrastructure, with some analysis we can gain a directional sense of whether a book of business will benefit, or suffer, from having access to the suitor firm's resources.

But don't stop there. Run a preliminary conflict check and determine which incoming revenue will impact current or future revenue from conflicted clients. For some, the impact is negligible; for others, it's a startling and preventable revelation. Also study inbound and outbound cross-selling. Has this lateral candidate been additive to a team environment, or dilutive, or invisible? This performance, which is based as much on attitude as market opportunity, can be more predictive of future fit than other financial measures.

3. Culture Matters

It's human nature that during courtship we tend to overlook flaws, even glaringly obvious flaws, in our suitors. And we're always surprised when that ber-confident lateral candidate who required onerous logistics just to secure an initial meeting, and who was reluctant to provide any details or client references, pointing instead to “a respected market reputation” as a self-evident selling factor, joins the firm and instantly makes waves with his regal demands and inflexibility. Similarly, law firm leaders tend to cast their firms in a soft glow, like a Currier & Ives holiday scene, glossing over challenges visible to any reader of the legal trades.

There are few absolutes when it comes to organizational culture. Sometimes an “every partner for himself” environment in which conflict is acceptable works for those involved. Sometimes, partnerships value collegiality far more than conflict. Whatever the particular flavor, finding personalities that fit culturally is critical. Corporate chieftains, when bemoaning acquisitions gone poorly, often lament overlooking “soft” considerations because the financials were so appealing. In reality, the organizational calculus of mismatched suitors will inevitably lead to depressed financial performance.

4. What Goes Up Must Come Down

Another obvious but oft-overlooked aspect of lateral recruiting is that firms relying heavily on constant inbound traffic of fresh, bright-eyed laterals will generate a steady stream of outbound laterals, sometimes even the same laterals that took so long to pursue. This is both a function of the lateral mindset ' some are constantly on the lookout for a better opportunity, some are always looking to stay ahead of their mistakes, some are just restless ' as well as a firm mindset that focuses more on importing revenue and talent than developing both from within.

There's a big difference between a lateral partner who jumps around frequently seeking a better opportunity and one who does so infrequently and only after much deliberation. Though frequency isn't a perfect measure, it's improbable that the lateral partner who has jumped around every two years has finally found her home with you. Some firms tire of the endless chase, and the long-time partners tire of devoting ever-increasing guarantees to untested recruits. They may find that focusing on growing business with existing clients is less tumultuous than importing revenue. Your mileage may vary.

5. Integration Is a Team Sport

The usual recruitment process happens in darkness, making all of the above analysis challenging. And when an offer is accepted, there's a fire drill of website updates, importing contacts and client memos. A more thoughtful integration can be far more effective. Include business analysts early on to develop the scorecard. Involve Marketing to develop an effective rather than a rushed launch campaign. Have a well-oiled playbook of activities to introduce the new partner.

Whatever the tactics and whomever you involve, treat this as a significant business combination in which the inbound lateral's start date is merely the middle of the integration process. Cross-selling requires participation from those who will make introductions as well as those who will receive introductions. And both parties must feel trust with one another and that value is delivered to all, including the client. Simply announcing the arrival of a new lateral and then hoping the partners “do the right thing” and make introductions is both lazy and wishful thinking.

Conclusion

Yes, it's hard to gather financial metrics to make informed assessments during a recruiting process, particularly without raising red flags. Yes, an intrusive look under the hood can scare away a lateral candidate that we're trying to recruit. But just as no professional sports team will select an athlete without reviewing either game tape or looking at performance statistics, no law firm leader should engage in lateral recruitment without a proper scorecard reflecting the factors that really matter. If you rely heavily on lateral recruitment for your growth, then you had better be very good at it.

Timothy B. Corcoran authors the Corcoran's Business of Law blog and is the 2014 President of the Legal Marketing Association. He advises law firm leaders on strategy, business process improvement, legal project management and business development. Reach him at tim@corcoranconsultinggroup. Phone: 609-557-7311.

Numerous reports indicate that lateral recruitment is thriving. Law firms of all sizes are aggressively pursuing lawyers in other firms, offering generous compensation packages and perks to tempt these lawyers to join the new firm ' with their clients, and the billable hours these clients represent, in tow. For some, this strategy works well, and firms have derived great benefits from adding to their partner ranks. For others, the results have been disastrous, leading to fractured relationships and partner defections, client dissatisfaction, and financial turmoil. The root causes for such divergent results are many, but here are five ideas that law firm leaders can embrace to improve their own success rate at finding and integrating laterals into their firms.

1. Be Selective

No statement could be more obvious, or more ignored. Law firms have traditionally operated under a model that relies on a constant stream of billable hours to fund hungry overhead and compensation expenses. As we described in this space previously (see The Fallacy of Merger Math, March 2013), when the formula for success is billable hours x hourly billing rate x timekeepers, and clients are strongly resisting increases in both rates and hours, we must rely on the remaining factor for growth. So we add timekeepers, either through mergers or through lateral recruitment. The challenge with this approach is that rather than emphasize cultural fit, or cross-selling potential, or complementary specialties, instead we focus on top line performance. A lateral candidate with an $8 million book of business in some new and divergent practice category is often perceived to be more appealing than one with a $3.5 million book of business in a practice adjacent to an existing one.'

Instead, law firm leaders are better off using a scorecard of multiple factors, with top line revenue serving as an important factor, but not the prevailing decision criterion. A lateral candidate who works in isolation, isn't open to cross-selling, demands high compensation guarantees, and whose practice requires resources and tools that the firm doesn't currently have and must acquire, is far more disruptive than one who enjoys collaborating with colleagues, whose practice feeds or is fed from an existing practice and who can hit the ground running using existing firm resources.

2. Calculate the Net Impact

When scoring the appeal of a lateral candidate, there are several factors that require deeper analysis. It's easy to be blinded by a lateral candidate's prior year's billings, and expect this performance to continue ad infinitum. But not only does past performance not predict future results, past performance doesn't always give the full story.

First, focus on a multi-year trend line, not one year in isolation. Second, look at hours and billings to identify both billing realization and collection realization. Next, look at profitability. While this is significantly impacted by firm infrastructure, with some analysis we can gain a directional sense of whether a book of business will benefit, or suffer, from having access to the suitor firm's resources.

But don't stop there. Run a preliminary conflict check and determine which incoming revenue will impact current or future revenue from conflicted clients. For some, the impact is negligible; for others, it's a startling and preventable revelation. Also study inbound and outbound cross-selling. Has this lateral candidate been additive to a team environment, or dilutive, or invisible? This performance, which is based as much on attitude as market opportunity, can be more predictive of future fit than other financial measures.

3. Culture Matters

It's human nature that during courtship we tend to overlook flaws, even glaringly obvious flaws, in our suitors. And we're always surprised when that ber-confident lateral candidate who required onerous logistics just to secure an initial meeting, and who was reluctant to provide any details or client references, pointing instead to “a respected market reputation” as a self-evident selling factor, joins the firm and instantly makes waves with his regal demands and inflexibility. Similarly, law firm leaders tend to cast their firms in a soft glow, like a Currier & Ives holiday scene, glossing over challenges visible to any reader of the legal trades.

There are few absolutes when it comes to organizational culture. Sometimes an “every partner for himself” environment in which conflict is acceptable works for those involved. Sometimes, partnerships value collegiality far more than conflict. Whatever the particular flavor, finding personalities that fit culturally is critical. Corporate chieftains, when bemoaning acquisitions gone poorly, often lament overlooking “soft” considerations because the financials were so appealing. In reality, the organizational calculus of mismatched suitors will inevitably lead to depressed financial performance.

4. What Goes Up Must Come Down

Another obvious but oft-overlooked aspect of lateral recruiting is that firms relying heavily on constant inbound traffic of fresh, bright-eyed laterals will generate a steady stream of outbound laterals, sometimes even the same laterals that took so long to pursue. This is both a function of the lateral mindset ' some are constantly on the lookout for a better opportunity, some are always looking to stay ahead of their mistakes, some are just restless ' as well as a firm mindset that focuses more on importing revenue and talent than developing both from within.

There's a big difference between a lateral partner who jumps around frequently seeking a better opportunity and one who does so infrequently and only after much deliberation. Though frequency isn't a perfect measure, it's improbable that the lateral partner who has jumped around every two years has finally found her home with you. Some firms tire of the endless chase, and the long-time partners tire of devoting ever-increasing guarantees to untested recruits. They may find that focusing on growing business with existing clients is less tumultuous than importing revenue. Your mileage may vary.

5. Integration Is a Team Sport

The usual recruitment process happens in darkness, making all of the above analysis challenging. And when an offer is accepted, there's a fire drill of website updates, importing contacts and client memos. A more thoughtful integration can be far more effective. Include business analysts early on to develop the scorecard. Involve Marketing to develop an effective rather than a rushed launch campaign. Have a well-oiled playbook of activities to introduce the new partner.

Whatever the tactics and whomever you involve, treat this as a significant business combination in which the inbound lateral's start date is merely the middle of the integration process. Cross-selling requires participation from those who will make introductions as well as those who will receive introductions. And both parties must feel trust with one another and that value is delivered to all, including the client. Simply announcing the arrival of a new lateral and then hoping the partners “do the right thing” and make introductions is both lazy and wishful thinking.

Conclusion

Yes, it's hard to gather financial metrics to make informed assessments during a recruiting process, particularly without raising red flags. Yes, an intrusive look under the hood can scare away a lateral candidate that we're trying to recruit. But just as no professional sports team will select an athlete without reviewing either game tape or looking at performance statistics, no law firm leader should engage in lateral recruitment without a proper scorecard reflecting the factors that really matter. If you rely heavily on lateral recruitment for your growth, then you had better be very good at it.

Timothy B. Corcoran authors the Corcoran's Business of Law blog and is the 2014 President of the Legal Marketing Association. He advises law firm leaders on strategy, business process improvement, legal project management and business development. Reach him at tim@corcoranconsultinggroup. Phone: 609-557-7311.