What Critics of Lateral Hiring Get Wrong

For more than two years, academics, journalists, former practicing attorneys and countless legal bloggers have shared a ride on what I call the anti–Big Law bandwagon, slowing down only to regurgitate the story of change in the legal industry, the many evils of Big Law and the impending doom heading its way.

First, let’s be perfectly clear:

The legal industry has indeed experienced tremendous and permanent change over the past five years. Demand for legal services—while beginning to show signs of a rebound—has been down for many private law firms. Realization rates have been at record lows; client pressures related to efficiency and predictability have increased; advances in technology and the emergence of alternative providers have permanently affected the volume of legal work performed by large firms; and some clients have begun to distribute their work across a number of smaller, lower-cost providers.

Without question, then, Big Law’s critics are not completely off-base. Firms expecting to automatically return to prerecession growth levels by hunkering down without making operational changes will continue to face deserved client pressures while suffering a dramatic and permanent impact on both demand and revenue. What can and should be questioned is the desire of these commentators to consistently point the finger at large law firms and their leaders as a whole for all of the industry’s woes, to discount Big Law’s ability to adapt to changes in the market and client expectations, and the seemingly ghoulish appetite for seeing the backbone of the legal industry collapse.

The aspect of large law strategy to come under attack most recently is lateral partner hiring, which various observers blame as the cause of frustration among associates, poor partner morale, disruptions in firm culture and flat financial performance during between 2008 and 2012. The subject was covered at length in The American Lawyer’s February cover story.

Here are some of the claims, and my view of their merits:

• Lateral partners are not successful in many firms.

There is some truth to this argument. Depending on which statistics you believe, about 35 percent of lateral partners do not meet their new firm’s expectations. This is not what anyone would suggest is desirable. Some commentators say this is because law firms do not effectively integrate their lateral hires. While a small percentage may in fact fail because of poor integration, the vast majority fail because of poor selection caused by the lack of careful evaluation. If a lateral candidate has been at three firms in 10 years, you might think it would require asking a few questions.

Meanwhile, statistics also show that more than half of lateral partners are successful, complement business strategies and contribute to the economic success of their new firms. The creation of new practice groups, development of diversified business lines, enhancement of a firm’s book of business and geographic expansion—domestic and international—are all more effective and successful with the use of well-selected laterals and/or strategic combinations. Big Law’s critics seem to miss or choose to ignore these facts.

• Lateral partners played a big part in the industry’s poor fiscal performance over the past five years.

The main reason many large law firms have experienced flat or diminishing performance over the last several years—whether they hired five lateral partners or 20—has little to do with lateral hiring and everything to do with what was a deep recession that affected the industry broadly. Like almost all other businesses, the legal profession has been the victim of that recession and the accompanying reduction in the demand for its services. Many firms are now beginning to see improved financial results, not in spite of hiring lateral partners, but because they have diversified practices and clients by doing so.

• Law firm leaders only hire lateral partners to preserve profitability.

The legal industry is highly competitive and profit-driven. Profitability is what allows firms to make investments, hire staff and associates and compete in the changing legal market. The hiring of a lateral partner is an expensive proposition in that it requires time and patience to realize economic success.

• The hiring of lateral partners hurts morale.

A lateral partner who is not performing up to expectations after a reasonable period of time can certainly cause morale problems, as can a longtime partner whose performance falls short. Both must be dealt with. Effectively communicating the rationale for lateral hiring and setting realistic expectations about when a return on lateral investment can be expected are critical in staying ahead of potential morale issues.

• The reliance on laterals is making it harder for associates to rise in the ranks.

This is an interesting and important issue. In the six years prior to the recession, many firms admitted far too many partners—some into equity partnership, many into income partnership. A driving factor in the number of partners in the lateral marketplace is that firms are coming to grips with the mistakes of the past. Lax admissions standards have been a far greater issue than mistakes made on laterals. The most successful law firms have always had strict admission standards, which are essential for building a strong firm. On the other hand, firms that do not promote their best and brightest associates are simply not building a strong firm. As a successful New York firm’s chairman told me recently, “It is essential to bring new blood into the firm from the associate ranks to ensure the long term health of the firm.” Interestingly, early indications suggest that the percentage of organic promotions is currently on the rise.

It is obvious that a large number of lateral partners are successful, complement businesses strategies and contribute to economic success. They are a critical component in any law firm’s long-term strategy. The most successful firms will deploy a strategic blend of organic growth, performance management, a light screening process and a “return on investment” measurement process for lateral acquisitions.

One final point: There has been a tendency in recent articles to paint the leaders of law firms as incompetent and incapable of comprehending the new realities of the marketplace. Some of these critics point to the bankruptcies of Dewey & LeBoeuf and other failed firms as evidence of how poorly law firms are managed. Perhaps that is true in those situations, but to indict all large law firms on the basis of the failures of a few is absurd.

In more than 30 years of strategic planning with law firms, I have seen an array of changes in the market from the inside, some of them short-lived and others significant and permanent. The one constant has been Big Law’s ability to assess the market and make the changes necessary to continue meeting client expectations of service. Large law firms are weathering the storm of the past five years and continue to transform their businesses to operate with efficiency and agility amid a new set of client expectations. Not all firms have been willing or able to change at the same pace, and there have been winners and losers. To paint all of large law with the same brush is not only unfair, but also inaccurate.

Brad Hildebrandt is chairman of Hildebrandt Consulting, a firm that provides strategic consulting to law firms around the world. He is also a senior strategic adviser to Thomson Reuters and chairman of its annual Executive Legal Briefing.