Thinking Laterals Are the Answer: Improving the Odds, Part 2

August 11

THINKING LATERALS ARE THE ANSWER_
In our previous article: PART 1: THE OPPORTUNITIES AND THE STRUGGLES we discussed the opportunities that the right laterals can bring to a law firm, along with the struggles many law firms encounter to make good lateral hires that add long term value. Part 2 of this article will discuss ways to improve the probability of a successful outcome with laterals.

IMPROVING THE ODDS
To help ensure a successful negotiation and lasting relationship, consider these simple concepts regarding the motivations of a lateral:

  • Are they concerned with the firm’s ability to pay competitively?
  • Have they expressed an interest in eventually impacting the priorities of the firm?
  • Are they concerned with access to capital to maintain or grow their practice?
  • Has there been an indication that they see value in associating with the firm and the firm's members?

 

Laterals focused on these attributes exhibit a level of maturity that increases the chance the proposed relationship will be successful. Of course, the firm has to consider these same concepts as applied to the potential lateral. From the firm’s viewpoint, these questions become:

  • Are we able to pay competitively consistently?
  • Are will willing to incorporate the needs of the lateral's practice into the priorities of the firm?
  • Will we invest in the lateral and his or her practice?
  • Will the firm and its members benefit from this association?
  • Have we considered that the lateral may be the top earner in the firm?


Do the math
Finally, I strongly encourage firms to do the math. What I mean by the math is a follows:

  • Client profitability – before and after
  • Cost per hour before and after
  • Time to profitability
  • Compensation considerations
  • Market comparisons

 

There are a number of subset questions that will be answered by this analysis. For example, staffing efficiencies will show up in the client profitability and cost per hour analyses.

 

Necessary information
Depending upon the complexity of the transaction, I typically ask for three years of history for the following items:

  • Individual production hours and dollars
  • Originating dollars by client with working attorney allocations hours and dollars
  • Any available profitability information
  • Compensation history
  • Historical staffing structure, lawyers and other timekeepers, secretarial and admin staff
  • Other information as the analysis evolves

If laterals are unable or unwilling to provide this information, I see that as a pause point. A desire to focus on the “big picture” is often a way to masque weakness. Firms should be wary of these tendencies, whether it be on the part of the lateral or themselves.

Firms that use this type of process most certainly improve the probability of a successful outcome. Finally, running this process requires a measure of objectivity that is very difficult for most firms. Experienced outside support is often essential.