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What Can Be Learned From the 2012 Lateral Market?As 2013 brings on a new year, things will very much remain the same in terms of law firms seeking lateral partner hires. The Wall Street Journal, American Bar Association and The American Lawyer, at the end of 2012, all reported that 96 percent of surveyed law firm leaders said they intend to expand their firms over the next two years by lateral hires.
2013-02-19 12:00:00 AM
As 2013 brings on a new year, things will very much remain the same in terms of law firms seeking lateral partner hires. The Wall Street Journal, American Bar Association and The American Lawyer, at the end of 2012, all reported that 96 percent of surveyed law firm leaders said they intend to expand their firms over the next two years by lateral hires. Nearly three out of four plan for lateral hiring over the next five years. Despite those who might be displeased with some lateral hires (only 28 of the surveyed lawyers said their firm's lateral efforts were effective, and 10 percent said they were neutral or negative), there are a number of reasons why law firms will not sway.
First, law firms are in the business of making money, and the quickest way to generate capital is by bringing in a lateral partner with a sizeable book of business. The more lateral partners with substantial books of business, the more the firm can grow. Such actions can equal immediate financial gain. Moreover, if a senior-level attorney leaves a firm, a quick fix could be made with the hiring of an experienced lateral who can cover client needs.
Second, as law firms are becoming more sensitive to their clients' concerns of budget spend for legal fees, they often find attractive, experienced attorneys who can do the work efficiently. An attorney who can hit the ground running is a valuable commodity. For example, clients are more conscious of receiving value for their legal spend and are not receptive to paying for a less-experienced attorney's learning on the job. Often, the client contact for large corporations is an experienced in-house attorney who has a good idea of what is required for various legal tasks and therefore can scrutinize and identify excessive fees for activities. More and more, in-house attorneys are also required to partner up with outside counsel on legal matters giving them visibility to the matters' progress and therefore expected costs of legal work.
As the former chief employment litigator and adviser to Microsoft Corp., I was charged, and even evaluated annually, on my ability to partner with outside counsel on matters and control costs. The more I operated, practically, as if I was the senior partner on matters, the more of a handle I had on costs and could appreciate law firms that submitted thoughtful invoices associated with the work. Currently, as a member of the firmwide management committee and managing shareholder of the Philadelphia office of an international law firm, I am especially sensitive to how much time, and therefore cost, is spent on legal work that is sent to our clients. Our clients are smart and sophisticated and they know the law. As our firm continues to grow, lateral attorneys offer the built-in know-how to help service clients in an effective and efficient way.
Despite success stories for lateral hires, law firms should be careful not to let their aspirations of financial prosperity blind them. The character and personality of a lateral candidate should not be taken lightly. Often, law firms are so anxious to grow financially that they may discount the importance of a candidate's character and personality. Whether you are a law firm or some other business, for organizations to prosper, persons have to be able to work together, trust one another and have mutual respect. The wrong lateral candidate, who has a book of business but is simply not a good fit, can cause a once harmonious and productive workplace to become disruptive and ultimately less profitable. Law firms should be cautious when considering lateral hires by doing their due diligence, getting a full picture of the candidate, and taking into consideration firm culture to determine whether the candidate makes sense.
Here are 10 things to consider when hiring laterals:
Focus on the person before considering the business needs of the firm.
Do a cultural analysis. Does the candidate's current law firm culture match your own?
Do the character and personality of the candidate mesh well with existing attorneys and staff?
Determine the candidate's experience and evaluate his or her work history.
What are the reasons the candidate is considering leaving his or her law firm?
What type of book of business does the candidate bring and do conflicts exist?
Research the financial health of the clients the candidate intends to bring.
Consider the candidate's business plan to determine billings and collections from the past five years (e.g., originating, managing, billing and working).
Retrieve a copy of the current firm's financial profile for the candidate.
Will the overall considerations lead to a quality hire?
Will economic conditions make lateral attorney recruiting more or less competitive going forward?
As the nation's leading law firms are looking at the recession as something, metaphorically, through their back window and are thinking optimistically about their futures, the unsettled economic conditions should have different effects on lateral recruiting competitiveness. (According to The American Lawyer's 10th annual law firm survey, 75 percent of the 113 participating Am Law 200 managing partners and chairs described themselves as either somewhat or very optimistic with respect to their firms and the economy, a slight increase over 73 percent a year ago.)
The increased complexity of the legal landscape to include technology, the ratcheting effect of regulations and global business expansion will impact lateral hiring.
Large law firms anticipate that litigation, and especially IP litigation, will be a source of increased revenues. This is in large part because of the technology/software industry and its interest in protecting their intellectually property. Technology waits for no one and is forever changing and being redefined. There will be a need for more talented lateral hires to keep up with this reality.
Domestically, with the impact of the Obama administration's strengthening of the National Labor Relations Board, as well as new legislation such as the Patient Protection and Affordability Care Act (124 Stat. 119, et seq.) and the pending American Jobs Act (S. 1549; H.Doc. 112-53; and H.R. 12), labor and employment matters and related litigation are also expected to rise. In order to meet the demand of litigation created because of the current administration's efforts, as well as a broader awareness of employee rights in the workplace because of the weakened economy, lateral hires will be required to handle the legal work.
Globally, with China's slowing economic growth and Europe's debt crisis, the effects of such nations' financial status on the U.S. marketplace is unpredictable, leading to very conservative business approaches for companies domestically. In light of such, there is little optimism with regard to an increase of transactional and corporate work at the largest firms. Mergers and acquisitions lessoned in 2012, and forecasters believe that 2013 will not be any different. Because of the lack of need for legal representation in these areas, competition for lateral hires, relatively, will decline.
Generally, the world is getting more complicated, therefore the demand for legal experts will continue. Whether the emphasis is on litigation versus transactional work or pertinent substantive areas, the need for lateral attorney hires is here and here to stay.
Paul Lancaster Adams is the managing shareholder of Ogletree Deakins' Philadelphia office. With a strong in-house and outside counsel background, he brings a unique perspective and focus to client matters. He has addressed, through counseling, negotiation or litigation, a broad range of key employment issues critical to the modern workplace. He has particular experience with multiple-plaintiff, class action, non-competition, trade secret and fraud litigation and has successfully tried to verdict more than 25 matters in federal and state courts, and handled numerous arbitrations and mediations.