why are lateral ‘success’ rates so low? · 2019. 4. 2. · law firm’s rationale for hiring...
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WHY ARE LATERAL ‘SUCCESS’ RATES SO LOW?
NEW COMPETITIVE INTELLIGENCE FOR A SUCCESSFUL LATERAL HIRING STRATEGY
2 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Details on the report
Risky Business: Rethinking Lateral Hiring
Opportunities and risks law firms face in the lateral hiring markets.
This report, conducted in partnership with Decipher, provides a clear-eyed
picture of the opportunities and risks law firm face in the lateral hiring space. The
data collected diagnoses many of the primary problems firm face when hiring
partners in the lateral markets. It also provides straightforward, implementable,
steps to address those problems.
The traditional methods just aren’t working. Findings highlight how the allure of
increased revenue and profitability has dulled firms’ senses to the immense risks
inherent in the lateral hiring process and finds that the cost of acquiring lateral
partners is incredibly high as are the failure rates – close to 50%! Beyond these
financial considerations, firms face significant risks from issues related to
malpractice, workplace harassment, and conflicts.
https://www.alm.com/intelligence/solutions-we-provide/business-of-law-
solutions/analyst-reports/lateral-partner-hiring-study-2019-edition/
Download a free copy of the report:
3 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Today’s Speakers
Howard Rosenberg
Co-Founder & CEO
Phone: +1 203 293 3950
Email: [email protected]
Michael Ellenhorn
Co-Founder & General Counsel
Phone: +1 917 993 0128
Email: [email protected]
Nicholas Bruch
Director, ALM Intelligence
Phone: +1 617 866 0229
Email: [email protected]
4 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
The lateral partner market
Lateral moves and average book of business of lateral hires
For Am Law 200 firms
2,014
2,754
2010 2011 2012 2013 2014 2015 2016 2017 2018
Lateral Partner Moves
$1.7m$2.0mAverage Book of Business of Lateral Partner
Revenue moving through
the lateral partner market
in 2018
since 2010
$3bn
$31bn
5 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Almost all firms hire lateral partners
Percentage of law firms by number of lateral hires per year
Average of moves for Am Law 200 firms between 2014 and 2018
3%
11%
12%
23%
33%
15%
6%
0 Hires
1 Hire Per Year
2 Hires Per Year
3 - 5 Hires Per Year
6 - 11 Hires Per Year
12 - 25 Hires Per Year
26 - 50 Hires Per Year
of Am Law 200 firms average more
than one hire every two months54%
6 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Lateral partner retention rates are lower than many firms would like
Lateral partner revenue retention rates for Am Law 200 firms
95%
90%
76%
66%
60%
1 Year Lateral PartnerRetention Rate
2 Year
3 Year
4 Year
5 Year
1 Year Retention Rate
2 Year Retention Rate
3 Year Retention Rate
4 Year Retention Rate
5 Year Retention Rateof lateral partner hires depart the
hiring firm within five years40%
7 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Research Methodology
How many lateral partner hires has your firm made
over the past 12 months?
Percentage of firms responding to ALM Intelligence -
Decipher Lateral Partner Hiring Survey
2%
12%
16%
35%
25%
10%
None
1 to 5 lawyers
6 to 10 lawyers
11 to 25 lawyers
26 to 50 lawyers
51 or morelawyers
1. Data Analysis: analysis of 10,000+ lateral moves
contained in ALM Legal Compass
2. Custom Survey: gathered data via a custom survey
from a quarter of the Am Law 200
3. Interviews w/ Law Firms: interviews were held with
over 40 Am Law 200 law firms representing a broad
range of global, national, and regional firms
4. Interviews w/ Other Thought Leaders: interviews
were held with lateral recruiters, consultants, and other
thought leaders who advise law firms in areas related
to lateral hiring
Research Methods Used
Strategies used to gather data on the lateral market
8 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
The lateral hiring life cycle
Needs Assessment: identifying how lateral hiring can support the firm’s strategic goals
Candidate Sourcing: finding candidates and working with recruiters
Due Diligence & Interviewing: gathering and analyzing information on candidates
Structuring the Offer: creating a business plan-informed compensation system for the new partner
Post-hire Integration & Performance Management: integrating the partner into the firm
9 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
The lateral hiring life cycle
Needs Assessment: identifying how lateral hiring can support the firm’s strategic goals
Candidate Sourcing: finding candidates and working with recruiters
Due Diligence & Interviewing: gathering and analyzing information on candidates
Structuring the Offer: creating a business plan informed compensation system for the new partner
Post-hire Integration & Performance Management: integrating the partner into the firm
Common Difficulties Reported by Am Law 200 Firms
• Managing opportunistic vs. strategic hires
• Finding recruiters who are can be a ‘partner’
• Understanding the risks related with different types of hires
10 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
12%
18%
46%
50%
74%
Replace exiting partners
Seize new revenue
Develop new areas ofexpertise or expand into new
geographies
Strengthen existing practiceareas
Gain new client relationshipsGain new client relationships
Strengthen existing practice areas
Expand into new areas
Seize new revenue
Replace exiting partners
Law firm’s rationale for hiring lateral reveals why so many firms
hiring programs are biased toward opportunistic hires
Why law firms hire laterals
Percentage of firms reporting as a major reason for hiring
85%Of Am Law 200 firms report that hiring lateral
partners with a client following is a major focus
of their revenue growth strategy
11 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Different forms of lateral hiring carry different kinds of business
risks – but all hires carry risks
Rationale for Lateral Hire Business Risk Work Place Risk Cultural Risk Reputational Risk
To grow the business
Support existing strengths
Expand into new areas
Succession planning
Risks are contingent on the candidate’s behavior,
work style, personality, etc.
Risks are contingent on
the candidate’s ability to
bring in work
12 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Due Diligence & Interviewing: gathering and analyzing information on candidates
Structuring the Offer: creating a business plan informed compensation system for the new partner
Post-hire Integration & Performance Management: integrating the partner into the firm
The lateral hiring life cycle
Common Difficulties Reported by Am Law 200 Firms
• Gathering the right information on candidates
• Analyzing information on candidates
• Incorporating due diligence into offers and integration plans
13 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Many law firms are struggling to accurately assess the amount of
work lateral partners will bring to their new firm
Book of business conversion
Percentage of lateral hires which brought their expected book of business
38%
32%
20%
10%
Performed as expec ted: brought in expected book of business
Slight ly underperformed: brought 75% to 99% of expected book business
Underperformed: brought 50% to 75% of expected book of business
Signif icantly unperformed: brought less than 50% of expected book of business
Performed as expected:
Brought expected book
Slightly underperformed:
Brought 75% to 99% of expected book
Underperformed:
Brought 50% to 75% of expected book
Significantly underperformed:
Brought less than 50% of expected book
of lateral partner hires
underperformed expectations62%
14 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Most law firm’s lateral partner questionnaires (LPQ) should be
expanded and ask specific questions
The Problems in most LPQs (1) Not asking the right questions
Questions All Law Firms Should Be Asking in Their LPQs:
a) Reputational Risks to the Firm: Are you aware of any facts or circumstances that would result in
damage or embarrassment to FIRM or to you if you join FIRM as a partner? (If yes, please elaborate).
b) Malpractice: Have you ever been involved in a matter that resulted in a malpractice claim or allegation
against you (whether or not an action was actually filed and whether or not you were individually named
as a defendant)? (If yes, please describe and state the status and outcome of each).
c) Problems With Past Employers: Have you ever been asked (explicitly or implicitly) to leave a legal
employer or partnership?
(2) Lack of specificity in questions
A complete list of questions is included in the report
15 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Increasing the consistency of information gathering efforts on
laterals should be a major focus
Frequency of due diligence checks performed by law firms
Percentage of firms reporting
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Psychometric testing
Interviews with former colleagues
Interviews with previous clients
Interviews with professional references
Property ownership
Social media check
Financial background
Credit report
Criminal records check
Educations verification
Client conflicts check
Bar license & disciplinary reviews
Always Sometimes Rarely Never
16 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
Firms should increase their use of intelligence-focused source
interviews
Research Into Lateral Candidates Can Reveal:
Source
Interviews Legal skills
Personality and ability to work with others
Business development and client skills
o Hidden Convictions or Legal Troubles
o Social Media Exposure
o Tax Liens, Bankruptcies, and Property Ownership
o Potential Conflicts and Non-Disclosure Issues
o Potential Collusion With a “Bad” Client
17 W H Y A R E L A T E R A L ‘ S U C C E S S ’ R A T E S S O L O W ?
A look behind the curtain: responses heard in lateral partner
interviews
Actual quotes from Decipher due diligence reports
“I would say she is totally untrustworthy across the board.”
“When I tell people stories of the worst experience I’ve ever had in law, I talk about this guy.”
“At one point he insulted the genetic makeup of the plaintiff counsel’s children.”
“He’s an embarrassment to the legal community. He’s just all talk.”
“She was a nightmare for me – us – anyone who worked with her, really.”
“Not on my life would I recommend him.”
“Run like hell.”
THANK YOU
Nicholas Bruch, Director, Legal Market Intelligence
617-866-0229 | [email protected]
Michael Ellenhorn, Co-Founder & General Counsel
917-933-0128 | [email protected]
Howard Rosenberg, Co-Founder & CEO
203-293-3950 | [email protected]