We are working with one of the fastest growing law firms in the Midlands to help them achieve their ambitious growth plans of doubling in size within 2 years. This is a firm that despite being established only 4 years ago, has a turnover of more than £1 million with a target to more than double this by the end of 2021. The firm has invested heavily in marketing and as result, now has a brand that really makes them stand out in the market. We are working with them to find a senior employment lawyer who will take the lead role for the respondent arm of the employment practice. This firm offers complete flexibility with many senior lawyers in the firm working from home 3 days a week.
If you are considering appointing somebody to join the partnership at your firm, it should go without saying that this person is ambitious and talented, otherwise you would not be considering them. However, there is a myriad of factors beyond technical ability and fee earning potential that need to be considered in making such an important decision, both for the firm and the individual concerned. The final decision is likely to be made based on the answers to these key questions:
- How long until they are profitable (how much are we prepared to invest and over what time period)?
- Will they add value in ways beyond pure financial contribution?
- Will your fellow partners in unrelated practice areas support the appointment?
- What factors will make them likely to stay with the firm in the long term?
- Is the culture of the firm well suited to the individual and vice versa?
Bear in mind the average lateral appointment made in the UK has approximately a 50% chance of being considered a success after three years, how can we analyse these key factors more critically to make sure you increase your chances of getting it right?
1. The Economics of a Lateral Move
‘Cherry picking’ partners from other firms is no longer the social faux pas it once was and is increasingly practiced across the board, from Magic Circle to small regional firms. The undeniable benefits of building stronger networks by hiring partners with an affluent client base or strong commercial following speaks for itself. However, when looking at a potential lateral partner appointment, how clued up is the individual about the economics of private practice and the contributions they need to make beyond their dowry, and to what degree has the hiring practice analysed the returns required to make sure the investment will be considered a success? It is tempting to work with the ‘rule of three’ but this is too simplistic in today’s market unless your sole interest is acquiring turnover. There is nothing intrinsically wrong with this approach, but it is likely to be no more sophisticated than a partner making a move purely for a salary increase. It could work out, but this sort of arrangement is the most likely to result in one or both parties becoming dissatisfied with the other and someone else will inevitably come along and nudge this transient relationship along to its next stop.
1.1 Your Business Plan
The dowry is very important but it is much more important to consider what the purpose of the appointment is. What can you achieve together that neither of you can achieve so well separately? Can £1 + £1 = £3? If so, how? How long will the partnership tolerate a new appointment as an investment before profit is required? A long-term appointment could be allowed to operate in the red for two years if the long term purpose is agreed and there are clear milestones agreed with the lateral but this needs partnership buy-in from the start. Bearing in mind post termination restrictions, it is sensible to plan for the first year to be underwater even if you are talking to a classic rainmaker!
1.2 Their Business Plan
How do we test the individual partner adequately on the viability of their business plan and just as importantly, their ability to afford to live the first twelve months on a reduced income if there is a degree of risk share? A good executive search agent is critical in working through the business case with the prospective lateral partner. A good approach is to help the individual partner visualise themselves as a standalone business with a profit and loss account so investment capital requirements can be projected along with milestones to measure success along the way. Profit is your focus (although timeline for profit is a strategic question) which needs answering and communicating. Equally, your prospective new partner must be aware of the implications of a lateral move, both upside and downside. Have they been tested on the question, “can they afford the move?” Quite often partner candidates will fail to educate themselves early on of what financial state they are in and the market the firm they are interviewing for is in and what the market will bear later. It is an exercise in futility to interview for a market position they cannot afford to work in. The least damaging outcome of getting this part wrong is still incredibly frustrating and costly because of the time it takes. If the economics do not support the remuneration sought by the individual. This should be identified early on as backing a losing candidate to the finish line can put your business plan back six months or more.
2. Client Compatibility
Client retention is every business’ priority and making sure clients feel content with the level of service provided is of paramount importance. Statistically speaking however, the most common reason for a lateral hire failing is the inability of the new partner to retain their clients post move. This is not always because they underestimated their relationship (although this can certainly be true); compatibility needs to be tested and measured before resignation. Again, a good executive search agent will work through strategies to mitigate this risk and work out the likelihood of clients supporting the potential move. The largest client following is worthless if one client is responsible for half of that turnover and they are incompatible with your firm for reasons you cannot know without doing adequate due diligence.
3. Relationship Origins
Understanding how the original client relationship has been secured is essential to calculating how circumspect one can afford to be when faced with a major client loss. Consider the parallel with how one may assume the entrepreneurial nature of a person made wealthy through inheritance versus one self-made. If both of these people were to fall on financial hardship, we would naturally back the self-made person to be able to bounce back sooner and more effectively than the one with inherited wealth. Has this partner worked hard for these relationships and able to create new ones based on a track record or have they inherited most from other partners retiring and handing over their dowry? Every new recruit is a gamble but some come at higher stakes so make sure you research the form before making the appointment.
4. Secondary Opportunities
Assuming a partner can bring in business for themselves and the team; how can they also add value to the firm on a much wider basis? This may be introducing client opportunities into departments outside of their own specialism, bringing non-discipline related skills that can help your business make a step change or even being a recognised character in unrelated areas of business that add credibility beyond the obvious. A great question to ask is, “What can we do together that neither of us can do apart?”. Building stronger networks and a larger client base is a great start, but what can the new partner do in terms of alternative opportunity generation? What value can they add that your firm cannot do so well without them? Are they bringing in expertise in a different industry or market sector?
5. The Right Fit
Ultimately, selecting a law firm partner comes down to ensuring the right fit for you, your team and your firm, in order to make it the strongest it can be. Don’t be afraid to pursue a collaboration that is a little out of your comfort zone – as long as all parties are aligned on the overall goals and objectives, and the partnership combines a range of skills that are going to benefit your clients, embracing a new partnership can be a great business move.