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Legal Talent & Inclusion

Forum: 3 steps to more effective lateral hiring

Michael Ellenhorn  Founder & CEO / Decipher

· 6 minute read

Michael Ellenhorn  Founder & CEO / Decipher

· 6 minute read

Lateral hiring, long used by law firms to acquire new talent, may not be the boon it was always touted to be, at least according to the latest data

When it comes to hiring lawyers, data shows that law firms continue to fall back on antiquated strategies and tactics. For example, consider the average attrition and performance rates in the legal profession:

      • For every 20 associates hired by law firms, 15 will leave, according to the National Association for Legal Placement.
      • Nearly 25% of large law firm associates moved in 2021, according to the Thomson Reuters Institute’s “2022 Report on the State of the Legal Market.”
      • Among lateral partners, nearly 50% will leave within five years, according to a 2021 survey by Decipher Investigative Intelligence and ALM Intelligence.
      • Nearly one-half of respondents in the same survey indicated that the majority of their firm’s laterals underperform when it comes to bringing their stated book of business.

The costs from these departures are far from negligible. Considering compensation, on-boarding costs and recruitment fees, each failed lateral partner can cost a firm anywhere from $715,500 to $4 million. The missed opportunities are even more daunting, as 62% of revenue growth is now generated via lateral partner hiring.

From a business perspective, this should be unacceptable: What other firm initiatives would gain approval, year after year, with failure rates up to 75% and sunk costs in the seven figures? If a firm would not tolerate these results from its IT department or the Contingency Fee Committee, why are they acceptable for hiring?

67% of law firms have had a lateral partner leave for failure to bring the expected book of business.

It’s time law firms stopped hoping for good luck, or taking the “If you want to make an omelet, you need to break a few eggs!” approach. Only those law firms that take a different approach – a data-driven, strategic and purposeful approach – will control their own fortunes.

A better way

Almost every law firm can improve its results by using three straightforward steps.

Step 1: Follow a talent strategy in hiring

Law firms become more vulnerable to bad hires, particularly with lateral partners, when they are working on the fly and are perennially open to the “opportunistic hire.” Firms often get burned when well-meaning partners recommend friends or acquaintances or when recruiters approach with candidates who seem too good to be true. This is especially hazardous in the post-pandemic talent war, where our analysis shows law firms that had been taking four to six months to hire a lateral are now completing the process in four to six weeks.

No matter the temperature of the talent market, hiring must adhere to the firm’s growth strategy – and strategy is about making choices. While every firm will set a different course, the talent strategy must objectively address several key growth-related questions, including:

      • Geography – What markets does the firm plan to enter or expand into?
      • Services – What are the firm’s strengths? What practice areas does it plan to enter or expand into?
      • Client focus – Where can the firm expand its offerings to existing clients and take market share?
      • Demographics – What areas require succession planning?

Commit to the firm’s talent strategy first – before you interview or assess any candidates. Commit to this plan in writing, share it widely throughout the firm and use it to evaluate any opportunities that surface. Better yet, perform a proactive market analysis based on your talent strategy, and identify the best candidates well before a recruiter may even consider your well-thought-out approach.

Step 2: Know whom you are hiring

Your lateral hiring due diligence must extend beyond a Lateral Partner Questionnaire and rapid-fire, round-robin interviews. Our data provided a compelling rationale for this.

After analyzing hundreds of lateral partner candidates, we categorized individuals into two groups: ideal candidates, who were viewed positively by all sources, and red flag candidates, who inspired negative commentary, had an unsubstantiated book of business, and/or other questionable objective findings. Both categories of candidates have comparable average years of experience, billing rates and billable hours.

Interestingly, in the Lateral Partner Questionnaires, the red flag candidates skewed higher on some significant metrics:

      • Red flag candidates listed an average of 18.4 portable clients, compared with 9.6 portable clients for ideal candidates.
      • Red flag candidates estimated their portable books of business at $8.2 million, compared with ideal candidates’ estimates of $5 million.
      • Red flag candidates had more career moves, averaging 4.5 previous employers, while ideal candidates averaged 3.4.

These disparities are notable and give rise to two theories: Attorneys with larger practices tend to come with baggage; and/or attorneys with red flags inflate their claimed book of business on the Questionnaires.

Both scenarios pose very real threats for law firms. More than two-thirds (67%) of law firms have had a lateral partner leave for failure to bring the expected book of business; 29% for cultural fit issues with other partners; and 10% for behavior issues with the professional staff or junior attorneys, according to the Decipher/ALM survey.

Despite these flight risks, many law firms still do not conduct meaningful pre-hire due diligence. While nearly 70 percent of the firms surveyed by Decipher said they wanted more transparency about a candidate’s practice, nearly half “rarely” or “never” speak to the candidate’s purported clients.

The data also tells us that thorough pre-hire due diligence works. Over the course of 2021, Decipher Investigative Intelligence saw a 57% increase in red flag rates over 2020. And since March 1, 2020, candidates’ claimed books of business have increased by a staggering 75%.

Given the stakes to your firm’s revenue and reputation, it is imperative to conduct comprehensive pre-hire due diligence – and to act accordingly upon it.

Step 3: Prioritize the cultural “fit”

As mentioned, nearly one-third of law firms have had a lateral partner leave for cultural fit issues involving other partners. This is likely to become more pronounced in the post-pandemic era, as the prevalence of remote work may dampen traditional orientation efforts or conceal bad “lone wolf” behavior.

While a portable book of business is important, the effects of bad cultural fit take a very real human toll. More than one-half (54%) of female lawyers and 11% of male lawyers in the US have been sexually harassed; 63% of female lawyers and 38% of male lawyers have been bullied; and 10% of partners are considered “bullies” by their subordinates, according to a survey by the International Bar Association. These incidents can lead to unwanted turnover, lower morale, reputational harm and even litigation. Not surprising, in our analysis of lateral candidates, cultural fit was a top issue, with 68% of red flag candidates surfacing some behavioral concern.

As firms enact the above steps, cultural fit must be a bright line: A firm cannot credibly say it values wellness, diversity or inclusion if it knowingly admits lawyers of questionable character into the partnership.

Far-reaching rewards

Taking a sensible and strategic approach to hiring can result in myriad quantitative benefits, with higher retention, lower attrition and lower overall costs among them. However, the most meaningful advantages may be in the qualitative benefits. Associates and professional staff will thrive in a workplace where they know they are safe and respected. Partners and clients will benefit from less turnover, more continuity and productivity that come from a fulfilled and inspired team.

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