Are Laterals Are the Answer?: Part 1, Opportunities and Struggles

The Opportunities and Struggles: PART 1

It is indisputable that lateral hiring is at the top of nearly every firm’s wish list. Some even view it as their top business development strategy. This strategy, whether conscious or not, relies on the premise that it is easier to hire a client’s existing lawyer than it is to procure a client through a direct business development effort.

Whether you agree with this premise or not, successful lateral hiring is an important component of building a law firm. The right lateral hires can accelerate a firm’s growth, expand their service offerings and improve profitability.

The trouble is that firms report lackluster results from lateral hiring. Studies show that lateral hiring continues to be a top growth strategy, yet a large number of firms indicate disappointment in their experience with laterals. Reports show that only about half of laterals reach a break-even point five years after their hire.

Elements of Lateral Hiring

Why do firms struggle to make good lateral hires that add long-term value?

My experience is that there are two main reasons:

1. Incorrect motivations

2. A weak vetting process

1. Incorrect Motivations:
Firms should consider their motivations for seeking laterals and should carefully consider the following questions:

• Are the firm’s existing profits unacceptable or diminishing?
• Are there existing situations involving people, overhead or management in need of attention?
• Will addressing these issues ahead of bringing in a lateral or laterals threaten the existence of the firm?
• Will the transaction require paying one or more of the contemplated laterals more than anyone else present in the firm?

If you answered yes to any of these questions, STOP and address these issues before proceeding.

Firms also do well to understand that lateral hires often make moves because they believe a new situation will help them overcome existing weaknesses of their own.

Unfortunately, these two situations tend to attract one another, which almost guarantees the making of a bad deal. Firms suffer from incorrect motivations when they use a lateral hiring strategy to overcome an unwillingness to address existing weaknesses.

2. A Weak Vetting Process:
Even firms with the right motivations are vulnerable to not properly vetting potential lateral transactions. The reasons for a weak vetting process range from political to a lack of knowledge.

It has been my experience that well-run firms focus on how the proposed transaction will make them more successful, and how potential hires will succeed in the firm. Smart firms do the math, ask the tough questions, and are comfortable with a no-deal outcome.

Solid laterals, who are sometimes naïve to the business side of a law practice, at least recognize that they have something to lose and appreciate what they need from a potential new firm to be successful.

The most difficult part of vetting top-quality laterals is to educate them at the same time you are negotiating with them. Laterals need to understand the difference between a first-year deal and the ongoing economics related to succeeding in a firm.

In PART 2 of the article, we discuss how to improve a law firm's odds when hiring lateral attorneys  

Read Part 2 of the Lateral Hiring Series