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Comment: A triumph of hope over experience – Lateral hiring needs an upgrade for the post-Covid era

Law firm leaders are getting restless. They are beginning to look past Covid-19 to what comes next. Even if finances remain a concern, there are fewer ‘unknown unknowns’. The process for getting people back to the office is mapped out. Huge uncertainties and challenges remain, but a way forward is emerging. The question now is: how to regain momentum and rally the troops?

A key part of any proactive strategy will likely include lateral hiring. It’s striking that a steady trickle of strategic hires has continued during the coronavirus crisis. Expect that trickle to become a gush by early 2021. And whether your firm is calling potential partners, other firms are calling yours.

This seems counterintuitive. We know lateral hires are risky and expensive. A 2019 ALM Intelligence – Decipher survey of Am Law 200 US firms found almost half of all lateral hires didn’t last five years and two thirds underperformed their new firms’ revenue expectations. Few would argue it’s significantly better in the UK. Surely, now is not the time to place risky bets on new partners when firms are slowly emerging from survival mode.

But this is precisely the moment when the strongest players will move. As Warren Buffet put it in an investing context, ‘Be fearful when others are greedy and be greedy only when others are fearful’.

Why? Because this crisis will only serve to accelerate a trend already apparent – the best firms are widening the gap with weaker competitors. Partners outperforming on their current platform wonder if they should be on a bigger, better stage. Firms doing better have firepower. Laterals are crucial ammunition in the arms race to strengthen key practice areas, expand into new markets and win new clients. And when a Wachtell Lipton partner is poached, as in a rare exit last month, it’s fair to assume something’s cooking.

Done well, lateral hiring can boost growth much faster than purely organic means. Indeed, it might be the only realistic option, short of merger, if you want to move up a tier in the rankings, add capacity in strategic areas or even just fend off fiercer competition.

What works best? Building on a firm’s strengths – adding lateral hires to strengthen an already strong practice area – tends to have higher rates of success. Younger laterals with established practices often do better than older ones more set in their ways. Partners with stronger relationship-building skills take root in new firm more quickly than those lacking those skills. Firms that are honest and clear about what is going to work are more likely to pick people who will thrive in their environment.

It’s well known that failed hires are expensive. But the indirect costs are even higher than the cash hit: management time wasted, leadership capital squandered, lost time and reputational impact with clients and other potential hires.

Given the costs are so high, why so many disappointments? Lack of long-term planning, inadequate due diligence, lame execution and poor integration are the usual suspects.

Increasingly, lateral hiring is the product of thoughtful, strategic planning for turbocharging growth. But too often it’s still opportunistic, seen as a panacea to cure all ills or simply a way to acquire a book of business without much more thought. Of course, unexpected opportunities do sometimes arise. But experience suggests that purely opportunistic hires – candidates who are ‘presented’ to a firm that had no previously identified need in that area – are rarely a fine catch. A good question to be asking is: ‘Why am I so lucky?’

The firms most effective at lateral hiring tend to have a coordinated approach to planning hires and a system for assessing priorities across the firm. They create a consistent process aligned with their process for promotion of internal candidates.

Due diligence remains a thorny area. Partners keen on recruiting a lateral often object to anything they see as jeopardising the hire by setting the wrong tone. They don’t want their candidate upset by questions perceived to be intrusive. They fear a leak by talking to clients and former colleagues of the proposed hire. They consider it unnecessary – they think they know the market and the potential hire’s reputation.

In practice, these fears are usually overdone, and partners often don’t know as much about the individual as they think they do. Confidentiality issues can be managed. The tone is critical but needs to be balanced with the responsibility to the firm for informed decision-making. Most lateral candidates understand the business need for thorough vetting and accept it, provided the process is explained upfront and transparently.

Firms that are good at lateral recruitment do extensive due diligence as a matter of course. A good practice is to hire a third party, such as a trusted head-hunter or specialist for the job. This has to be someone independent of the recruitment process to avoid conflicts of interest. There is huge value in insightful and objective views on candidates.

It’s surprising how much can be discovered about a candidate’s personality and character from discreet conversations with clients, former partners, associates and others who know them. It’s all very well having a big book of business, but if they burn through associates, fight with fellow partners or behave as ‘big trees’ under which nothing can grow, they may turn out to be more liability than asset.

Anyway, the best firms are less concerned about a lateral bringing a book of business; they are more concerned about whether that partner can thrive on the platform. Since most lateral hires fail due to lack of fit, cultural or behavioural issues, this due diligence should be mandatory. Done well, it should inform an integration process tailored to the candidate’s personality and situation, for example, team moves have a different dynamic to moving alone. At the very least, proper due diligence helps ensure you are hiring with open eyes.

Criminal background checks, conflict checks, education and qualification verification, social media checks, credit report, telephone interviews with referees by people skilled in reading between the lines should all be standard. It’s rare but Catch Me if You Can candidates with fake qualifications do exist.

The best firms insist on accountability. Who is the sponsor and what is the business case? These are essential challenges, along with getting firm and practice group/office leadership on the same page, before the recruitment process even starts.

Top firms tend to insist on legions of partners meeting the candidate. They know it’s key to the buy-in from existing partners that’s so critical to effective integration. But it’s time-consuming and tempting to cut corners. Stories abound of office heads at even some of the best-known firms discovering they have a new partner in their office only on the day that new partner arrives. That is setting them up to fail.

It all takes time. A process lasting a year is not unknown. Remember too that quality candidates can easily be lost if no-one is driving the process and it loses momentum.

Top firms also tend to use a small group of head-hunters with whom they build a relationship of trust. These individuals are skilled at conveying the right messages and ensuring expectations are managed on both sides. They anticipate and head off potentially fatal misunderstandings. They keep both sides warm. They speak truth to power – sometimes the hiring firm needs the facts of life to be explained or issues forced.

The best firms have an integration programme that begins during recruitment. The days of plonking a lateral down in an office and leaving them to get on with it are largely gone. Some firms nominate sponsors, a ‘buddy’ or both. Others have added senior support staff whose only job is to get the integration right. A plan is made; introductions to key partners and clients arranged. Some firms hire executive coaches that specialise in integration with a 100-day initial plan that involves talking to the new hire, their sponsor and other influential partners as things develop, helping to match expectations and surface issues early.

Top head-hunters observe true integration often takes two years. Yet few firms formally support integration beyond three-six months. That creates a fundamental mismatch of expectations. And too often firms want to hire an external solution to an internal issue they don’t have the courage to address. There can be too much focus on the wider firm culture and not enough on the micro-culture into which the lateral is entering which, again, is setting them up to fail. Always better to deal with the internal issue first, however hard, rather than expect an external saviour.

Firms that are getting this right are dramatically reducing failure rates. They are achieving happier and more successful laterals. In the highly-competitive markets most firms face right now, that’s a crucial advantage that will play out for years. Now might be a good time to overhaul your lateral hiring process to achieve better results.

David Morley was senior partner of Allen & Overy between 2008 and 2016. He provides strategy and leadership consultancy to law firms globally 

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