Law firms are defined by some essential elements, such as culture, leadership, operations, strategy and the platform provided to their lawyers. Every one of these factors is important and differentiates firms in the marketplace. Having worked with firms of all sizes around the country, I dispute the view of some lawyers that all law firms are basically the same — they really and truly are not.
The one thing, though, that every firm (and quite frankly, every business) has in common is the need for revenue, for it is the lifeblood for an organization. No matter how wonderful a firm’s culture may be, how outstanding the work product produced by the lawyers is, or the long and proud history and reputation it has earned over many decades, all of that goes away if strong top-line revenue is not maintained. Granted, all dollars are not equal, as rates, collectability and strategic importance of fees to a firm (such as not blocking other revenue streams due to conflicts), all come into play. But, once assessed, revenue that fits a firm’s business model is what makes it go.
This is not a revolutionary concept, as every lawyer surely knows it. Nevertheless, I continue to be amazed that, for some, this fundamental truism recedes to the back of their consciousness and seemingly is forgotten at times. I most often see this in these contexts:
• With some service partners who have a rather pronounced sense of entitlement as to their role with clients and their relative standing within their firm, which, for some, seems to flare up annually at compensation time. I offer this with the important disclaimer that many service partners are outstanding lawyers whose contributions are significant and highly valued. Nevertheless, without the efforts of others who brought in the clients they support, they would not have the opportunities to showcase their skills and would have no work to do. If they were then forced into the open market, a rather rude awakening as to relative value would await.
• When a key rainmaker leaves for another firm, an important client moves its work elsewhere, or a founder who built much of the firm’s client base retires. The impact of these developments is often downplayed, as there is an assumption that revenue will still somehow continue to flow. I refer to this as the “We are (fill in the name of your firm) syndrome,” which is premised on the belief that despite the loss, everything will be OK because of the firm’s reputation and history. In some cases, this is true, but in many others, unless replacements are found, the effect of the loss can be debilitating.
• When accomplishments of significant rainmakers are downplayed and viewed as likely one-offs, attributed to good fortune or the firm itself (even if it was the rainmaker who went out to bring in the work), or some other limiting rationale. This, too, seems to come into play in compensation season, especially if there is an ethos to not let anyone get too far ahead of other lawyers in the firm.
Lawyers who have worked in-house or have run companies can attest that the more general business world does not lose sight of the overriding importance of revenue. Successful companies align their operations so that their key producers — who most often are their sales force — are well-positioned to bring in revenue. All others — whether they are senior management or in areas such as finance, operations/logistics, marketing, legal, etc. — realize that their security is tied not only to performing well, but in supporting the functions that produce revenue. In essence, if you are not bringing in revenue, you had better be supporting it in some important way.
This is borne out in several important ways. In most companies, especially the ones I worked in (several of which had revenues well into the hundreds of millions — and one in the billions), many of the most highly compensated individuals on an annual basis, setting aside equity grants, were sales people. One CEO for whom I worked fully supported this paradigm, as he noted that “without the revenue they bring in,” we would be without a job. Additionally, companies that are acquired often see quite a few employees, including senior management, lose their jobs as part of the “synergies” that help to rationalize a deal. The one group that almost always survives is the sales force, especially the strong performers, as their talent for bringing in revenue is coveted by the acquirer.
So, with this as a backdrop, I offer the fundamental and oft-repeated axiom that there are three ways of driving revenue in law firms: 1) getting new work from existing clients; 2) adding new clients, and 3) recruiting lateral partners who have books of business.
As is well-established, the first revenue source is the backbone of most firms and historically has accounted for at least two-thirds (or more) of fees. This has become increasingly difficult to maintain in recent years, as 1) the size of the legal pie has become smaller, on a relative basis, due to the economy and companies’ continuing efforts to bring more work in-house; 2) there are more slices of that pie that are being divvied up, as the days in which just a few firms controlled the work are long gone; and 3) the competition for that work is relentless.
Firms should always be able to add new clients, but that, too, is the subject of brutal and fierce competition. The effort that is entailed in landing those clients has become much heavier, as RFPs, protracted beauty contests and other qualifiers require significant expenditures of time and cost. Even if the path seems clear, it often becomes much more circuitous, due to increased concerns today about conflicts and the economic demands that new clients can make as to rates and related fee issues that may make this potential new work less attractive than it initially seemed.
Consequently, lateral partner recruiting (with the obvious footnote as to what I do for a living) is more important today than it ever has been and is only likely to increase in significance in the future. Partners, and especially groups, who have strong portable practices, not only provide instant infusions of revenue, once they acclimate, but add key building blocks for future revenue growth in a firm. Laterals who have a track record of production have the rainmaking skill that can be a panacea. This resonates loudly when contrasted with all those hours and dollars spent on training very good lawyers to develop business, though they may never be able to make it rain, despite their legal prowess and determination, as they just don’t have the touch or verve to make it happen.
Strategic and savvy firms realize this, and have prioritized this third prong of the revenue stool. The enhanced significance of lateral partner additions should not mean the diminution of due diligence; in fact, the opposite is true, as multiple rounds of interviews and comprehensive assessments now rule the day. The firms that are outpacing their rivals in this realm, and, in my opinion, will be the long-term survivors and winners, are the ones that are more aggressive, are able to fast-track the due diligence process, are not afraid to take some risks, and have lawyers and staff in place who like and excel at recruiting.
This latter point is a significant one and is another differentiator among firms. Firms that tend to emerge as the victor in hard-fought battles for laterals — especially with larger groups and bigger practices — are not just the ones that offer the best financial terms. A point person in the firm — one who can keep the process moving, has clout and knows the firm well, and presents it in a positive light — is invaluable. Similarly, senior management, who get involved (often early in the process), emote genuine enthusiasm, and develop bonds with candidates, make a huge difference. If the recognized top leader in the firm happens to fit that mold, jumps in to help and has the magic touch, it is an X-factor that is often a game-changer. Firms that have leaders who not only are respected inside their walls but are recruiting rock stars should consider themselves very fortunate.
So, if you are in a law firm, helping with recruiting, especially of lateral partners, is a critical way of supporting an increasingly significant stream of revenue. Fighting the good fight to get more work from existing clients and landing new ones will always be part of the equation. But, much like playing defense is one way of contributing if you are a basketball player whose shot is off during a game, so, too, is supporting lateral recruiting, especially if you happen to be in the midst of a down year on the business development front, as you will still be adding value.
Interestingly, one of the biggest roadblocks I have seen over the years has been the resistance to recruiting laterals by some lawyers who are not “hitters” in their firms. While many rainmakers are solidly behind adding other rainmakers (as they “get it”), some of the rank and file can often derail efforts, even when due diligence has shown that a firm should fully be in “go” mode as to a particular recruitment. These lawyers, most of whom would likely not make it into their firms if they tried to join today, hold laterals to standards that are unrealistic, especially when compared to their own performances. This is not a winning strategy — especially today — as you don’t want to be “that guy” in your firm. •
com ) a Pennsylvania based legal recruiting and consulting firm that focuses on law firm mergers and partner placements. He is a former partner in an Am Law 200 firm, general counsel in privately held and publicly traded companies, and vice president
of business development. He can be reached at firstname.lastname@example.org .