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Something’s up at Texas firms — lateral hiring. According to firms responding to Texas Lawyer‘s Lateral Hiring Survey, hires are on the rise across the state. Firms reported making 970 lateral attorney hires in 2001, compared to 931 the previous year. These Texas firms also said they lost 723 lawyers last year, while 755 departed in 2000. Dallas-based Thompson & Knight reported the best retention rate for 2001, losing one attorney while gaining 28 laterals. Dallas-based Vial, Hamilton, Koch & Knox had the highest turnover percentage, losing 11 attorneys — 25.6 percent of its end-of-year Texas Lawyercount of 43 attorneys. As for volume, Dallas-based Akin, Gump, Strauss, Hauer & Feld reported the most departures in 2001, losing 127 attorneys while gaining 60 laterally. Fulbright & Jaworski, based in Houston, had the second highest departure rate, losing 78 attorneys and gaining 35 lateral hires in 2001. Dallas-based Jenkens & Gilchrist takes first-place for the most lateral hires with 171 gained firmwide. It had 70 departures. Dallas-based Winstead Sechrest & Minick came in second with 93 lateral hires and 28 departures. Pete Riley, Thompson & Knight’s managing partner, says there’s no magic formula for his firm’s successful retention. “Its interesting,” he says. “We’ve actually looked for a different kind of lateral to see if they have similar work intensity, whereas we used to look at their book of business. We’ve been hiring people we know to a much larger extent than we had in the past. “And we’ve worked harder on having someone responsible for them. You can laugh but we used to not do that. I betcha a lot of it is luck,” Riley jokes. “The firm has changed somewhat the last few years. We used to have lockstep-based compensation. Now, it’s become merit-based. I think that explains retention. We’re doing a better job matching up bonuses. I don’t think there’s any magic thing.” Richard Pullman, managing partner of Vial, Hamilton, says his firm’s turnover percentage is not bad news. “We lost some associates because people offered them more money than we were willing to pay. Also, we took on some laterals based on the premise that they were to earn more than their direct costs. When we cut our space, we told our attorneys they were responsible for their entire overhead. They had to cover direct costs and indirect costs. Toward the end of the year, some people decided they weren’t going to be profitable and went elsewhere. Now we have our overhead under control, and we don’t have excess office space.” R. Bruce McLean, Akin, Gump’s managing partner, says attrition is a problem for large firms. “Like many firms, in 2001 we continued to experience significant levels of attrition in our associate ranks, which is a problem we continue to address,” he says. “While we’ve made progress, we haven’t made as much progress as we would have liked. Additionally, we have a very clear business strategy of what we’re trying to achieve and what we expect from our attorneys. Some attorneys have decided that isn’t a model they want to be a part of and have elected to pursue their careers elsewhere.” Fulbright’s attrition rate is in line with other firms of its size, says co-managing partner Mike Conlon. “There was no particular event or a large group of departures,” he says. “We’re a large law firm, and we have departures for a number of reasons. I don’t think those numbers are out of line for a firm of our size. There was nothing out of the ordinary.” Jenkens’ successful lateral recruiting numbers are attributed primarily to its merger with New York-based Parker Chapin, says the firm’s managing partner, William Durbin, which netted 126 attorneys. Winstead’s success also is related to mergers, says Mike Baggett, the firm’s managing partner. Lawyers change firms for a number of reasons including lifestyle changes (meaning less billable hour requirements), desire for a different management style, improving their long-term prospects and — for partners — to move away from nonbusiness-generating colleagues, Durbin says. “We’ve had lawyers join us for all of those reasons,” he says. “I would think long-term prospects for the firm that has demonstrated financial stability and growth is very important to people.” BE HONEST On the surface, logic would dictate that a lateral hire makes more financial sense than hiring an associate fresh out of law school. It takes time to train new attorneys, whereas laterals already know the ropes and often have their own clients. “I think it’s high time that law firms be honest with themselves about the merits of hiring directly from law schools,” says Howard Mudrick, president of Carrollton, Texas-based HM Solutions, a law firm consulting company. “The vast majority of firms pay lip service to training young lawyers. Given the cost of hiring, the cost of training and the high cost of turnover, most law firms should limit their hiring directly from law school because they’re losing a lot of money and they’re expending too much time and energy.” However, that’s not the entire picture, Conlon says. “If you were to adopt a primary hiring approach through the lateral market, you’re faced with the uncertainties of the quality you’re getting,” he says. “There’s a risk associated with someone two to three years out of law school. You don’t know all the circumstances of their work product and why they left their previous firm. Also, when you want to compete for top people coming out of law school, many of those people remain with the law firm they started with or don’t come onto the lateral market, so you would lose access to that pool of talent.” But some firms would still rather devote their resources to the lateral market. “We’re actively looking for people with a book of business,” says Vial, Hamilton’s Pullman. While lateral hiring is an important strategy, it’s imperative that firms don’t make lateral hiring decisions purely as a response to a down economy, says Conlon. “I think a consistent approach to lateral hiring throughout the entire economic cycle is more important,” he says. “It reflects a stable approach to providing a full array of legal services to your clients as opposed to knee-jerk reactions to short-term trends or fads. When you’re planning for the future over the long-term, a consistent, stable approach is in our best interests.” Joe Dilg, managing partner of Houston-based Vinson & Elkins agrees. “Our approach has been to fill particular needs. We’ve never pursued lateral hiring simply for numbers. � We’ve never looked at lateral hiring as a way of acquiring clients. We’ve looked at it as a way of augmenting our expertise – to be able to offer a greater amount of services to our current and prospective clients.” Lateral hiring is cost-effective for mid-sized firms, says Mike McKool, managing partner of Dallas-based McKool Smith. “We do a lot of lateral hiring,” he says. “The bigger firms would like to depend more on hiring out of law school and keeping them from making lateral moves. We have very little attrition and are very growth-oriented. We have immediate needs and big cases — up to 20 attorneys on a case. We’re really cognizant of good lawyers who do what we do.” Mike Gruber, managing partner of Dallas-based Godwin Gruber agrees. “We’re primarily taking people who want their first move from a law firm and know what they want,” he says. “The real sticking point with clients is that they’re concerned about what firms are paying first- and second-year associates. We avoid that by not having many people in those categories. We feel like we can get a good solid billing rate on third- and fourth-year attorneys. “If you get someone who wants to move after two to three years, we find they know what they want and are more stable after they made that first move. That’s the real secret to our almost complete lack of turnover,” says Gruber, which was 2.1 percent for 2001, according to the Lateral Hiring Survey. Other firms, like Dallas-based Bickel & Brewer, recently began focusing on the lateral market, says the firm’s co-managing partner Bill Brewer. “I think we’re at a point where we feel like this is something we should be doing,” he says. “For many years we were skeptical about it. We thought long-term practicing with people we trained was more important. Now, we’ve been doing this long enough where we think there are many talented young men and women who spent two to three years at quality firms who can come in and hit the ground running. We probably should have looked at this years ago and saved some turnover.” Firms have specific targets in mind when approaching lateral hiring, Conlon says. “We have two strategies, specific geographic areas or practice areas where we’re looking for lateral opportunities, which can range from large numbers down to single individuals. We also take advantage of opportunistic situations that would present growth opportunities for us, such as someone with a complimentary practice.” As the economy changes, hot practice areas change, meaning firms look at hiring in litigation and bankruptcy, Baggett says. “A down economy is a good time to look for longer-term opportunities laterally,” he says. “We’ve gone from the transactional side to the controversy side.” Lateral hiring produces client opportunities, says Kirk Sniff, managing partner of Dallas-based Strasburger & Price. “Lateral hiring is the best opportunity you have to get new business,” he says. “A lateral hire generally produces that.” Currently, lateral hiring prospects for associates are slimmer, says Jenkens’ Durbin, who attended a Chicago conference for the National Association of Legal Search Consultants on May 3. “Talk is that the market for associates in general is much softer than the market for partners,” he says. “The demand for legal services in the corporate area has declined somewhat. It affects lawyers in general and associates in particular. Less work generated by partners means less work for associates. “Lateral hiring is here to stay,” Durbin says. “I believe the consolidation within law firms is accelerating. While I doubt you’ll see an increase in lateral hiring year after year after year, the trend toward consolidation is clear. Time will tell.” Related chart: Lateral Hiring at Texas Firms: By the Numbers

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