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Retirement Succession Can Hedge Against Lateral Partner Acquisition Risks
Increasingly, law firms rely upon acquiring lateral partners and practice groups to grow revenue more quickly than they can by increasing output with existing talent. Larger firms understand that this is a good way to move up quickly on the Am Law 100 or 200 scale (which rank firms based on gross revenue) and increase average profits-per-partner (a key metric for attracting sought-after lateral candidates). Smaller firms also recognize the importance of lateral recruiting to making big jumps in profit over a short period of time. Regardless of where in the food chain a firm resides, achieving even incremental upticks in gross income through lateral acquisition can translate into substantial increases in profitability.
While growing by this means can be lucrative if done correctly, it carries many risks. Lateral candidates' projections of the revenue they will bring to a new firm can prove inaccurate, or a particular candidate may simply be a bad fit culturally — both common occurrences according to a 2023 report by recruiting analytics firm Decipher Investigative Intelligence. These risks are amplified by the enormous cost of acquiring a lateral partner, estimated by Thomson Reuters in a white paper called "The Changing Paradigm of Lateral Attorney Hiring" at "anywhere from $715,500 to $4 million in the first year."
With this kind of money at stake, a prudent firm is constantly on the lookout for ways to hedge against the risks of acquiring laterals. Implementing an effective retirement succession program is one of them.
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