In 2011, pundits proclaimed that the goal of increased profits was largely being reached by competitive lateral hiring—the practice of wooing lawyers, and their clients, to new law firms.
These predictions continued through early 2012 as even The Wall Street Journal cited “poaching” partners as the prevalent growth strategy. The Dewey & LeBoeuf drama then unfolded on center stage, and highlighted the cost of lateral hires on firm culture, firm profits and even the viability of formerly venerable law firms. From all reports, there is no denying that aggressive lateral hires—and the concomitant compensation variables—played a part in the demise of such giants as Dewey & LeBoeuf, Howrey, Heller Ehrman and many other firms that failed to recognize the downside of lateral hires.
A law firm seeks growth through lateral hiring for many reasons. It may be looking to fulfill a specific client’s need, to expand into a practice area or geographic location previously lacking, or to meet future continuity or succession issues. Without a defined strategy, however, lateral hires may end up costing the firm rather than promoting increased profits.
IDENTIFY THE FIRM’S NEEDS
Growth through laterally hiring for the sake of numbers alone rarely works. In the first instance, the firm should identify its needs and determine that the services lacking cannot be met with existing personnel. Only after the law firm has thoroughly assessed its requirements should the search for a likely candidate begin. The goal is to find the lateral hire who meshes with the law firm’s cultural, professional and financial structure.
While many law firms may not be subject to the economic rollercoaster attributed to lateral hires in the now-defunct law firms noted above, the damage to a law firm’s culture has the capacity to be equally devastating. Culture is an amorphous concept. The law firm should quiz the candidate—and independently research the responses—on such diverse topics as compensation, partnership and equity expectations; management style; time and billing expectations (and procedures); rate structure; views toward law firm administration; associate mentoring; outside professional associations and activities; and client satisfaction goals.
Too often, firm decision-makers are blinded by representations of profitable books of business and fail to consider whether the incoming lateral hire will mesh with the firm’s existing culture or will impact the law firm’s current attorneys. In an effort to garner acceptance, too often law firm management overstates the value of the lateral hire, leading to resentment among the ranks and inevitable disappointment when unrealistic targets are not met. Candidates must take care to provide realistic expectations as to the portability and growth of expected business. When the former firm competes for the book of business, a client tug-of-war ensues. The end result is usually an unhappy client.
Background checks are in order. A law firm should search Google, Facebook, LinkedIn, Westlaw, Lexis, PACER and other Internet resources to verify the prospective candidate’s proffered credentials and good standing with the bar. In the event the candidate had a partnership or employment agreement, potential noncompete clauses must be evaluated. Where the candidate is bringing work from a dissolved or economically troubled law firm, careful analysis of the exposure to “unfinished business” claims is warranted. Try to talk to other former attorneys from the lateral hire’s current firm to ascertain the reasons the candidate is looking to move, whether the former firm lost business due to the potential lateral hire, or whether the candidate has been the subject of a professional liability or disciplinary claim.
The existence and extent of conflicts must be fully explored before an offer is made to the lateral hire candidate. Conflict searches must be performed to identify not just the existence of any issues between the new engagements accompanying the lateral hire and the law firm’s existing clients, but also between the clients of the former firm and the new firm. While screening may be permitted in some jurisdictions, many states do not recognize screening as an acceptable means of avoiding a conflict due to a lateral hire absent the informed consent of the involved clients.
And while most jurisdictions place the burden on the new law firm to affirmatively vet the lateral hire’s prior engagements, little guidance is given in how to obtain the necessary information, particularly where a candidate has not yet given notice to his or her former firm. As a result, the law firm often relies on its own records and unverifiable information provided by the candidate. An inadequate conflict analysis can cause the loss of a significant client—not a propitious beginning to the relationship.
Alternatively, a belatedly discovered conflict may result in the retraction of the lateral hire’s employment offer. The decision in Ogden Allied Abatement & Decontamination Services, Inc. v. ConEd, 800 N.Y.S.2d 351 (N.Y. Sup. 2000) presents a factual scenario that constitutes the ultimate nightmare for any lateral hire. After making an offer to an associate from an adverse law firm during a pending litigation, the new law firm withdrew the offer when the adverse law firm made a motion to disqualify after the associate gave notice. While the Ogden court did not disqualify the law firm that had made—and withdrawn—the offer to the associate because the associate did not actually start employment, the court soundly criticized the law firm’s conduct in continuing the interview process while the litigation was pending with knowledge of the associate’s involvement in the representation.
PROFESSIONAL LIABILITY CONSIDERATIONS
A lateral hire may increase the new law firm’s professional liability exposure in several ways. Angry former law firms may impede the transfer of files and adversely impact the clients. If the prior firm dissolved or its fate is uncertain, the lateral hire may seek, or the new firm may offer, prior acts coverage for its attorneys. In this event, the lateral hire will be covered for suits arising before joining the new firm. While such coverage may keep a valuable lateral hire from being distracted by a potentially uncovered claim emanating from the prior law firm, the obvious downside is that the new law firm’s deductible and policy limits may be eroded by claims stemming from the conduct of clients not selected by the firm and lawyers unknown to the firm. In any event, before a lateral hire comes on board, the details of prior professional liability coverage should be obtained.
During the due diligence process, the compatibility of the lateral hire with the firm’s existing culture should be aggressively addressed. But even if it appears that the cultures mesh, the relationship can go awry if efforts are not made to assimilate the attorney into the fabric of the firm after his or her arrival. The manner in which a lateral hire is integrated into the firm can make all the difference. The firm should designate a transition point person. Coordination with existing attorneys within the same practice area should be a priority. Introductory events should be conducted, designed to educate both the existing firm members and the lateral hire about each others’ strengths and to explore opportunities for cross-marketing.
Navigating the intricacies of successful lateral hiring is difficult. An unsatisfactory lateral hire may have consequences beyond the significant monetary expense associated with the hire. Nevertheless, with the ever-increasing reluctance of clients to pay for entry-level associate services, lateral hires are often a necessity. Detailed attention to the hiring process will increase the chances that the lateral hire will enhance the reputation, capabilities and profitability of his or her new home.