Lateral hiring – making it work
CM Murray, London
The days of associates being promoted to partnership and remaining at that firm for their careers are, for many lawyers, an historical anachronism. Though the grass can be greener in other pastures, it is not always the case. Given the increasing mobility of partners and increasing acceptance by firms that lateral hires can be key for growth, the panel discussed the motivations for partner moves; lateral hiring strategies; what a success lateral-hire strategy looks like; factors that may cause lateral partners to fail; and how to ensure the lateral hire can benefit the firm, its partners and the lateral hire.
Bruce Cooper, Chief Executive Partner at Clayton Utz in Sydney and Chair of the IBA Law Firm Management Committee’s Strategy and Finance Subcommittee, began by asking what motivates partners to make a lateral move and whether the key factor is money.
Michael Robertson, a director at Carlyle Kingswood Global, also in Sydney, explained that his view from a recruiter’s perspective is that money ‘is not always the headline but is certainly the underlying factor’ and it manifests in issues on management, culture and pressures on the practice.
Good management can drive growth and attract new partners. A lack of confidence in management will affect profits. Bad partnership behaviours may be driven by the remuneration model and partners move to look for increased remuneration.
Zulon Begum, partner at CM Murray in London and Vice-Chair of the Strategy and Finance Subcommittee, shared her experience of working at a law firm that has grown significantly through lateral hires, and also of her role as an adviser to partners who make lateral moves. Begum agreed that money is not the only factor. A lateral move is challenging for both the firm and the lateral who cannot simply leave a firm and transport a practice elsewhere overnight. Given the challenges inherent with a move to a new firm, there is usually a ‘multiplicity of factors that spurs partners to move’.
The push factors are where:
- the individual has outgrown their existing firm due to a lack of future opportunities or investment;
- there is a lack of confidence in the management;
- there is a proposed merger with client conflict issues;
- there are cultural issues, e.g. lack of transparency, collegiality, or diversity; or
- where partners ‘run from a sinking ship’ when the firm is struggling financially.
Partners can also be ‘pulled’ by opportunities to move to a better platform with synergies for clients, cross-referral opportunities or a promise for focus and investment in the lateral’s practice area.
Hanim Hamzah, Regional Managing Partner at ZICO Law in Singapore, and Senior Vice-Chair of the IBA Law Firm Management Committee, added that there may be personal reasons such as responsibilities for caring for family and ageing parents, the need to re-locate, etc.
Cooper believes that culture will be a ‘big battleground for 2020’ and firms will need to sell the move to the partner. He asked the panel what motivates the firm, to which Begum replied that, in her view, the firm is often motivated by growth. Organic growth is achieved by a good succession plan and increasing the client base. Mergers are a faster route to growth but can be difficult to achieve. A lateral hire is a popular ‘halfway house between organic growth and a merger’.
The firm may want to fill a gap where a partner has left or increase bench strength in a practice area and stay competitive. Firms need to think carefully before going on a ‘lateral hiring spree’. They need a business plan that existing partners will buy into.
Hamzah shared her experience in Asia where organic growth is impossible in larger countries where there is a ‘war of talent’ for quality lawyers.
Cooper highlighted that there is an inevitable tension in balancing the needs of potential partners in the firm and lateral hires. There is a limit to the due diligence that can be done on lateral hires. Lateral hires involve an element of risk compared to a promotion of an individual who the firm already knows.
Research by Robertson’s firm showed that organically grown partners are more likely to succeed in the long-term than a lateral hire and that a firm adopting a proactive strategy is more likely to succeed than a firm making an opportunistic hire of a partner who is introduced to the firm. Australian studies have shown that just over one in four lateral hires succeed. There is a lot of work to put in with stakeholders to manage and a high chance of failure.
Cooper asked the panel how firms should prepare to ensure success. Begum suggested setting clear expectations on both financial and non-financial matters. The firm should have a performance management policy and clear and transparent key performance indicators (KPIs). All partners need to be aware of the expectations but there should be some flexibility for lateral hires. The firm should ensure that the KPIs for lateral hires are realistic and achievable so that the partner is not ‘set up to fail. The lateral partner should also have a realistic business plan. Contractual restrictions which may hamper a lateral partner in transporting their clients should also be taken into account. In the United Kingdom, restrictive covenants are prevalent and can typically apply from six months to two years. The lateral hire may also have been on garden leave without any client contact for months or even a year.
Cooper put forward a question from the audience: ‘How do potential candidates assess and conduct due diligence on culture and platform when it means different things to different people?’ His view is that assessment of the platform is easier. Some practice areas have clients who will be loyal to the firm and other practice areas may have clients who tend to follow the lawyer. When assessing culture, he recommends asking probing questions to understand the partner’s motivations.
Hamzah agreed that the key is to ask the right questions at the start of the process. Firms can ask for opinions from their clients on who to target to fill any gap in the firm’s knowledge or services. Nowadays, it is easy to find out a firm’s culture through market knowledge, social media and discussions. To have a deeper understanding of the culture, the partner needs to meet a few people in the firm.
Robertson believes that the assessment of culture is a ‘time issue’: spending more time with key people will increase your understanding of whether there will be a cultural fit. Culture essentially means having like-minded people.
Another question from the audience was on whether it is better to go through a recruiter or to make a direct approach (or to do both). Robertson’s advice is to use the strategy that has proven to be the most successful in the past for the firm. Cooper’s experience is that it is helpful to have a trusted and reliable recruiter to provide market intelligence.
An audience member then asked if the panel could share examples for strategies on integrating the client base a lateral partner would bring with them. Cooper discussed the approach adopted by his firm. A partner who has been involved in the hiring process becomes a sponsor or mentor to the lateral hire and is responsible for the success of the lateral hire. He posed the question, what happens when the lateral hire fails?
Hamzah pointed out that organic hires and lateral hires have different needs for training and induction to the firm. A lateral hire has a book of business and contacts and may have been out of the market for 24 months. They need close connection and support. Cooper agreed and added that his firm provides laterals with regular meetings with the senior partner (which is helpful to identify and resolve any issues early). Robertson added that lateral hires tend to be unsuccessful where the expectations have not been set or are not understood by both sides. The lateral hire needs to know immediately how the firm will view performance issues (which may be different to the approach of their former firm).
Cooper then asked who should take responsibility when the lateral hire fails. He described the ‘self-executing strategy’ where a lateral is given a three-year guaranteed deal but departs in year four.
Robertson’s experience is that some partners are shocked to find that the move is not working. The cause is usually a lack of communication from both sides. There needs to be an ongoing and clear dialogue. The longer issues are left unresolved, the lower the chances of success. Some firms cut their losses by removing the lateral hire but this can create a bad reputation for the firm.
Begum’s view is that firms need to be transparent about the consequences of consistent under-performance. The constitutional agreement should have a range of options for performance management (such as points reduction, de-equitisation and compulsory retirement). There should be a rigorous performance assessment with a paper trail. She often advises firms that have a partner who has been under-performing for a number of years and when it comes to a decision to exit the partner, they find that the partner has never had any feedback or an appraisal (making the exit very difficult and contentious).
Cooper’s view is that no one wins if there is a failure. It damages the firm’s reputation externally and upsets the succession plan internally.
The key to success is preparation, execution of the plan and 360 feedback to identify issues.