SCORECARDS AND CLIENT BOOK DUE DILIGENCE CAN IMPROVE LATERAL HIRING PERFORMANCE
Lateral hiring performance in large law firms have achieved mixed results, at best.
The 2015 ALM/GDC study, Surmounting the Lateral Partner Hiring Challenge, found that only 28% of lateral partner moves brought 100% of the clients expected to port over. But one third brought less than 50% and nearly 20% of the laterals brought no clients. These results, the report estimated, shaved as much as six percentage points off the average AmLaw firm’s profits.
The lateral partner challenge is, essentially, a vetting challenge. And yet, few law firms take a strategic approach to vetting and hiring laterals. They generally do not collect the objective data to project and assess lateral performance and, instead, leave the selection process to intuition. This is especially risky for those hires that are on the margins of profitability, come alone or are in commoditized practice areas.
There is a more reliable approach. Two recommendations, in particular, will improve the lateral selection process: developing lateral scorecards and conducting independent client book due diligence.
The first initiative involves designing a lateral candidate balanced scorecard. The scorecard provides law firm leaders with a comprehensive framework that translates the firm’s strategic growth objectives into a coherent set of selection criteria and performance measures. Much more than a measurement exercise, the lateral scorecard memorializes the business case for making the hire. It also captures the attributes of top performing laterals to assist in evaluating current prospects. The lateral scorecard serves as an objective, data-driven acquisition management system that can help ensure each candidate’s fit in terms of their client mix, practice contribution, financial performance and personality. Used consistently, lateral scorecard data can offer significant insights to improve selection, integration and client book analysis.
The second recommendation involves estimating the portability of a candidate’s clients. The results of the GDC/ALM study indicated wide variation in performance results - a strong indicator that current due diligence methods in firms are not working. With investments in top candidates well in excess of seven figures, firms should insist on a more accurate estimate of the client potential than the estimates provided by the candidates. Compensation schemes that place the risk of underperformance on the candidate serves only a short-term fix and doesn’t address the root weaknesses in the talent acquisition process.
A surprisingly accurate assessment of the candidate’s client book can be accomplished through interviews with the candidate that are structured to identify the markers of client movement. The process includes an assessment of the candidate’s top client relationships and evaluates each company in several categories of factors that can influence the company’s decision to move to the new firm. Simply, the process tests the rationale that candidates give for why their clients will move. By digging deeply into these factors and understanding the true nature of the candidate’s relationships with their clients, client book due diligence provides an objective perspective that enables law firm leaders to make more informed hiring decisions.
The client due diligence process laid out here is an invaluable tool to gain an objective view of the portability of a candidate’s clients. It serves as a basis for developing the candidate’s business plan as well as the firm’s integration plan. A client book due diligence report helps establish realistic expectations of the candidate’s likely performance in the new firm and can be an important tool in negotiating the candidate’s compensation or in winning partnership approval. Simply agreeing to an independent due diligence analysis of the client book tends to demonstrate a high level of commitment by the candidate to making a move.
Some factors that influence a client company’s decision to move cannot be known. But the depth of information gathered in the lateral scorecard and client book due diligence process helps set realistic expectations, informs the integration efforts, and gives the partnership a better understanding of the rationale for making the offer. Most importantly, a data driven approach to lateral hiring will enable firms to improve their success rate in an increasingly important growth strategy.