Laterals have been getting a lot of bad press lately. A US study was released recently [Risky Business: Rethinking Lateral Hiring] in which it came out that 62% of lateral partners underperform in delivering their stated book of business.
There may not be an agreed technical definition of the term ‘lateral hire’ but in a law firm it usually involves hiring a lawyer who will bring their clients and revenue to the new firm.
Back to the bad press. The research study found that 10% of laterals generated less than 50% of the expected revenue. Only 38% generated revenue to expectations at the time of hiring. Between 40% to 50% of laterals do not last 5 years in their new firm.
It is an expensive exercise getting it wrong with a lateral hire. Other than the direct costs of hiring, such as the recruitment fee and the time and resources in vetting, a firm might actually lose money on the hire or not make a reasonable return on the investment. The report’s authors advocate for a more formal due diligence and vetting process.
It has been pointed out that investigating the veracity of the billing claims of potential senior hires shows a lack of trust and that this is a negative way to start a new relationship. Too much investigation and due diligence also puts confidentiality at risk and may raise suspicions in the prospect’s current firm.
A lateral hire is not all about the immediate bottom line. There are other benefits of hiring a lateral:
- Introducing new clients to the firm’s other fee earners
- Diversifying and thus reducing risk in spread of areas of law and/or clients
- Building the prestige of the firm
- Boosting staff morale
- Utilising resources better by spreading existing overheads across a greater number of fee earners
These benefits together can make it worthwhile to recruit a lateral that achieves no more than break-even profitability.
Because of these benefits and the potential for a firm to actually make a profit from a lateral, there can be a bidding war when a strong candidate starts looking around for better offers.
Lateral hiring is part of the law firm landscape and it is not going away. It has always been a cornerstone for growing a legal business. When it doesn’t work out it can be painful and embarrassing for all involved. A valuable research study would be to ask lateral hires whether their new firm lived up to the expectations that they were sold.
Access the research report, Risky Business: Rethinking Lateral Hiring, here