January 13, 2021 Legal Rebels

Law firms should not rush lateral hiring, due diligence expert says

By Lyle Moran

With the shift to virtual recruitment amid the COVID-19 crisis, the speed at which law firms vet and hire lateral partners has increased, according to Michael Ellenhorn, the founder and CEO of Decipher. But Ellenhorn, whose company helps legal industry clients evaluate potential hires, says law firms would be wise not to quicken the hiring process too much.

One reason he offers that caution is he says the failure rate for lateral partner hires typically hovers at about 50%. His firm has also seen partner candidates’ disclosed books of business almost double since March 2020, rising from an average of $1.2 million in claimed portables to nearly $2.4 million.

This uptick, along with the transition to a remote working environment, has made it even more challenging for firms in hiring mode “to distinguish a nonperforming partner leaving a high-performing firm [from] a high-performing partner leaving a nonperforming firm,” according to Ellenhorn.

He says assessing the financial viability of a potential legal hire is one of the key areas in which Decipher, which Ellenhorn founded in 2015, assists legal industry clients with their due diligence work.

Decipher does so in part by contacting market peers, clients, former colleagues and opposing counsel to “get a full understanding of what the individual’s standing in the market is and what their relationship with their purported clients is like,” Ellenhorn says.

“By asking the right people, the right questions, you’d be surprised how thorough an understanding of someone’s business case you can get,” Ellenhorn says.

He mentions the example of a lawyer who had a senior leadership role at a large law firm in the United States and was seeking to move relatively quickly to one of Decipher’s clients.

The lawyer claimed to have a sizable book of business that they would bring with them, but Decipher discovered through its due diligence work that many of the candidate’s purported clients did not have a current relationship with the lawyer, Ellenhorn says.

“And other former colleagues had indicated that this particular individual had actually recently been removed from the leadership position and had been asked to leave the current partnership,” he says.

Decipher also reviews publicly available documents to determine whether a candidate for hire has a criminal history, has faced malpractice suits, and has remained a good standing of the bars where they are licensed, among other issues.

This information helps law firms and legal departments get a full understanding of the person they are considering hiring, according to Ellenhorn.

“What Decipher does is we remove the risk associated with lateral partner and senior lawyer hires by conducting extensive external due diligence on these folks before they are hired,” he says.

Prior to COVID-19, Ellenhorn says 30% to 35% of Decipher’s due diligence projects produced red flags about a candidate, with 10% to 15% of those red flags being very serious.

Amid the pandemic, there has been a 57% increase in red flag rates for partner candidates, he says.

“As the market has become more challenging for lawyers and law firms alike, greater numbers of partners with more challenging backgrounds have likely been forced on to the market,” Ellenhorn says.

As for those lateral partner candidates whose overall viability is established by a due diligence review, Ellenhorn recommends that firms proceed with a thorough interview, even if it must be conducted in a remote fashion.

He also says firms should involve their business professionals in the recruitment and candidate evaluation process.

“You would be surprised at the number of large firms who still have only lawyers involved in the recruiting process,” Ellenhorn says.

In This Podcast

Michael Ellenhorn

Michael Ellenhorn is the founder and CEO of Decipher, a competitive intelligence company launched in 2015. He leads an experienced team of intelligence and data analysts who deliver actionable prehire due diligence to law firms and legal departments to support their key hiring decisions. Ellenhorn is also a trusted adviser to law firms, assisting them with the design of their lateral hiring programs and strategies.