Why Lateral Partners? Law Firms’ Rationale

It’s a hot legal market for lateral partners these days, and growing hotter.

Why? Lateral partner hires drive revenue growth for law firms. In fact, according to Decipher Investigative Intelligence research, they represent the single largest source of revenue growth potential for law firms.

There are four ways that new partners from the “outside” can boost firm business.

Lateral hires strengthen firms’ existing practice areas. One of the most common reasons as to why law firms seek out lateral partners is to boost their existing core practice areas.

Research suggests that stronger practice areas are more sustainable in the long run, and that firms with well-established practice groups reap the benefits of recruiting top legal talent. It’s a competitive market for laterals; attracting the top candidates can pay off in spades in terms of long-term revenues and profitability.

Lateral hires offer new clients and growth. The second-most common reason we see for firms hiring lateral partners is new business generation: laterals help bring in new clients and support law firm growth.

Following The Great Recession, law firm leaders have seen slow growth, leading them to seek out new ways to grow their business. The total value of lateral partners’ books of business moving between Am Law 200 firms is estimated to be in the billions of dollars.

Lateral hiring is not all rosy for firms, however. Hiring and fully integrating laterals into firms can be difficult. Our research shows that most lateral partners fail at their new firms in some fashion, from failing to bring their promised books of business or by leaving within five years.

Lateral hires allow for law firm expansion. The next most common reason for firms to hire laterals is to support expansion. Over the last two decades, large firms have expanded their footprints by opening new offices. Law firms’ expansion into new markets is largely attributed to growth from lateral hires. Hiring lateral talent can serve as a shortcut to growth in new markets.

Again, this strategy is not without risk: our research shows that lateral hires seen as adding new skills typically proved most challenging. Additionally, firms have reported that their hiring success rates for laterals are lower when they are hired to enter new markets.

Lateral hires aid in firm succession planning. Lastly, firms frequently look to lateral partner candidates for succession planning purposes. It’s not uncommon for existing partners to put succession planning on the back burner, but even the most well-prepared law firms can experience unexpected vacancies among their leadership ranks. The lateral partner market is often vital for leaders looking to fill such vacancies.

Inherent Dangers of Lateral Partner Recruiting

There are many positive outcomes associated with hiring lateral partners, but just discussing the positive aspects is not giving the full story: hiring lateral partners is an inherently risky proposition.

As previously noted, the failure rates for lateral partners are high. Consider three statistics on lateral partner failure, from Decipher research:

  • 48 percent of laterals leave their new firm within 5 years.
  • 62 percent of laterals fail to bring their promised book of business.
  • 35 percent of laterals fail to fit in at their new firm.

When lateral partners fail, not only do law firms fail to realize the benefits of hiring them, but they are also put in an even worse position where they need to spend more money to replace the failed lateral partner.

These costs are substantial: For Am Law 151-200 firms, the onboarding, recruiter’s fee and compensation associated with a failed lateral hire averages a total cost of $715,000 per replacement. For Am Law 51-150 firms, those costs average roughly $1.5 million, and for Am Law 50 firms, more than $4 million.

Those figures are staggering, and make clear that law firms should go into lateral hiring with eyes wide open about the candidates before them.

How Law Firms Can Mitigate Risk

Our research shows that while many firms follow industry best practices for researching lateral partner candidates, their processes still fall short. Uneven, incomplete and superficial vetting processes don’t pass the muster: law firms need a comprehensive, consistent approach.

One example of incomplete vetting can be seen in the standard lateral partner questionnaire. Our Decipher research shows that candidates frequently leave them incomplete, potentially leaving law firms in the dark about their previous clients, disciplinary history, conflicts and the full picture of their book of business.

We encourage firms to implement a comprehensive due diligence program. Such a program can help you spot and avoid a full range of red flags, significantly lower your risk of a lateral hiring failure and boost your return on investment.

Decipher can help in that effort. We provide deep-dive pre-hire due diligence that helps law firms make better decisions, avoid financial losses and prevent reputational harm.

Our results speak for themselves: of the partners we have recently vetted, only 3 percent have moved again, as compared to a market rate of 33 percent.

In addition to comprehensive vetting services, we also offer law firms a free diagnostic tool to calculate their risks associated with a failed lateral hire.

The diagnostic tool analyzes your firm’s risk profile based on size and partner candidate pipeline inputs, estimating potential pipeline costs and costs associated with losing failed lateral partners.

Our diagnostic tool also breaks down the number of candidates in your pipeline that are likely to fail to bring their promised book of business, fail to fit into your firm, and who will likely leave within five years.

The costs of hiring the wrong person are significant, both when it comes to financial concerns and law firm reputation. Consider today how your law firm can raise the bar on its lateral hiring efforts. Contact us for information on how we can help.

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