The February 1 online edition of The American Lawyer features The Big Law Lateral Hiring Frenzy Continues. It reports the results of a survey that portrays a perverse dynamic, one in which everyone pursues the same strategy despite acknowledging that it only works in a small percentage of cases.
An overwhelming 96% of survey respondents said that "hiring lateral lawyers with a client following" was "very important" or "moderately important" to their revenue growth strategy.
92% of firms ranked a candidate's ability to develop new clients if existing ones failed to move with them as "least important" among their concerns when interviewing a prospect
less than 30% placed strong importance on assessing business development skills, client service skills, or knowledge of clients' businesses
30% of lateral partner candidates delivered less than half their expected book of business
Yes, you read that correctly. The ability to develop new clients to replace those that don't accompany the lateral as projected is the "least important" of their concerns. How is this possible?
Virtually all firms recruit laterals based on laterals' claims of transportable business, yet almost none of them think it’s important that candidates are able to replace clients they don’t persuade to follow them, despite laterals’ poor record of doing so.
So, let's look at the stakes in lateral partner recruitment.
According to a 2014 Major Lindsay & Africa study reported in Law360, average equity partner comp was $981,000. For 2016, let’s call it an even million for simplicity’s sake. The new lateral will get two years to make good, so that’s two million at risk. Add a 30% recruitment fee, and you’ve got $2.3 million at risk. At 40% gross profit, that lateral has to bring with them, or replace, $5.75 million over those two years for the firm to break even. Yet, “only 54% of laterals hired in the previous five years were regarded as a ‘break-even’ on the firm’s investment”?
According to Eric Dewey, the survey’s co-author, the data "suggests that you have to be better about picking the candidates and being more strategic about identifying the types of candidates that amplify your strategic intentions." Indeed.
So, how do firms do this? According to the article, “80% of firms use a lateral partner questionnaire to estimate how many of a lateral partner candidate's clients likely would follow him or her to the new firm.”
I haven’t seen this questionnaire, but the word “questionnaire” suggests that firms ask the lateral candidate how many of their clients will likely follow them. That sounds like a rock-solid basis for making a multi-million-dollar investment, right?
Short of having clients sign an enforceable agreement to deliver legal work with a specific fee value, which no client would ever do, there’s simply no way to project laterals’ transportable business with any reliability at all. In fairness to laterals, there are any number of legitimate reasons why clients may not follow them that are, in whole or in part, completely beyond the lateral’s influence.
When recruiting laterals, firms should assume three things:
laterals will bring with them only 50% of what they project
they won’t have the necessary skills to replace the half they lost
they’ll need training and coaching from Day One to generate those skills
The focus should be on assessing what how long it will take to close the revenue gap, and what remedial investment they’ll have to make in training and coaching to close it.
Business development, marketing, and sales are not learned in a seminar, or a handful of webinars, or through a few months of coaching. They’re professional skills. You don’t get them quickly, or free.
To get a feel for what's really involved in approaching an opportunity professionally, schedule a 30-minute call, on me, to prepare for your next prospect call or meeting, or speaking gig. No charge. We'll both win. You'll raise your odds of succeeding, and I'll get to show you how much of a difference a sales coach can make.