Diligent when hiring

By Pablo Fuchs November-December 2013

Law firms are not always diligent in screening lateral hires. That’s risky business.

Diligent when hiring

Illustration by Pierre-Paul Pariseau

There is little that attracts as much buzz within legal circles as a law firm bringing in a major partner from a competitor. Of course, money is often involved, as are big personalities. It’s also a way for the winning firm to make the statement that it is intent on growing its expertise and its business in a given practice area.

No wonder lateral hires are usually seen as a coup for the hiring firm. And yet recent data suggest that this may not always be the case. What’s more, there are many risks firms need to take into account when hiring a lateral to ensure they don’t get burned.

"The biggest mistake firms make, says Simon Chester, a partner with Heenan Blaikie LLP in Toronto is “falling in love too fast."

Recent data from the U.S. and the U.K. suggests this growth strategy may not be putting firms ahead. American Lawyer’s 2013 Lateral Report reveals that the most profitable of the top 200 law firms in the U.S. have the lowest rates of lateral hiring — at about one per cent a year. And even though 96 per cent of managing partners say they expect to hire a lateral within the next two years, only 28 per cent say this has been a highly effective strategy in the past. In the U.K., The Lawyer recently conducted an analysis of 1,944 lateral moves and found that within three years, a third of laterals left the firm; after five years, the figure jumps to 44 per cent.

Why is it that so many lateral hires don’t work out? For the most part, firms are either unaware of the risks involved or they aren’t looking closely enough at whether the potential recruit is a right fit both professionally and personally.

“Some of the biggest mistakes are made when laterals are rushed in and there’s inadequate due diligence, integration and supervision,” says Anthony Davis, a partner at Hinshaw & Culbertson LLP in New York. The biggest mistake firms make, says Simon Chester, a partner with Heenan Blaikie LLP in Toronto, is “falling in love too fast.”

On the business side of the equation, there is of course the classic oversight of poor conflict-checking.  But there is much more, says Davis. “You can certainly get people with fewer credentials than they claim they have if you don’t check it out; you can get people who are in the disciplinary system, who’ve been sued or are being sued for malpractice; and you can get people who haven’t paid their taxes — or [who could cause] any other significant human resource problems.”

"Equally important — but often neglected — is the significant damage a wrong fit can cause to your firm or its culture."

Equally important — but often neglected — is the significant damage a wrong fit can cause to your firm or its culture. According to Warren Smith, a managing partner with The Counsel Network in Vancouver, lateral hires can upset the internal chemistry at a law firm. “And two or three years down the road, you could see some strong associates make the jump across the street because of that — and those associates combined may be bringing in more than double the revenue of the partner,” he says.

Also, firms ought to be wary of serial laterals who reveal a pattern of changing firms with shameless regularity. “You seriously have to question whether your firm is the last place for them or whether it’s just another bus stop,” says Mitch Kowalski, a lawyer in Toronto and author of the acclaimed book Avoiding Extinction: Reimagining Legal Services for the 21st Century. “And you have to assess what the damage could be down the line. They may take assistants with them and revenue. These are pretty real issues you need to consider.”

It helps too if the hiring firm’s partners show some introspection. For example the Vancouver office of Blake, Cassels & Graydon LLP has grown significantly because of lateral hires. Within the past decade alone, the firm has seen its ranks swell to about 100 lawyers from about 50 because the firm itself was open to lateral hiring, says Bill Maclagan, the firm’s managing partner in Vancouver: “You have to have a group of existing partners and lawyers who are more than prepared to say, ‘No matter how strong we are and how good we feel about ourselves, there are others who could join us and make us stronger.’ You need to have everyone on that page and you need to make sure that when you look at a lateral, your existing lawyers are going to be onside, welcoming and prepared to help them grow.”

Ultimately though, it’s the potential hire’s “judgment, integrity, intelligence and cultural values” that must be consistent with the firm’s, Chester says. To do that well requires thorough due diligence on the lateral.

On the professional side, start by asking the lawyer to provide all types of important information, Smith says: “Most firms use a lateral partner questionnaire that includes three to five years of statements, productivity, write-downs, collections and the percentage of business coming from the lawyer’s clients.” For his part, Davis recommends that the questionnaire be “extensive, verified by your firm’s labour and employment lawyers, and it should be presented to the laterals very early on to show them that the firm is dead serious about this and the process won’t go forward unless all the questions are answered.”

"Don’t forget the basics. Look carefully at the lawyer’s resumé, his pattern of movement and reputation in the legal community."

“Have a candid discussion to identify potential conflicts of interest,” Chester says. “Make sure you’re getting a full list of clients so that it can be run against the firm’s database to identify overlaps because you absolutely need to know this ahead of time.”

And don’t forget the basics. Look carefully at the lawyer’s resumé, his pattern of movement and reputation in the legal community. “You would be surprised to see how many firms get so excited about a partner with a $3-million book of business that the blinders go on and all they can focus on is just getting this guy over,” Smith says.

As for the lawyer’s personality, it’s best to rely on experience, Maclagan says: “If you know the marketplace very well and the people in it, you usually would have come up against the lawyer and know what type of person he or she is.”

Or do what the corporate world has done for many years now. “It’s very rare, but it’s becoming more common to do a full-fledged personality test,” Davis says. “Laterals and firms are more likely to succeed if the lateral is a ‘sharer.’ And no major company would hire a senior executive without doing a personality check.”

Chester further recommends firms take a team-based approach to lateral hiring. “[Migrating] lawyers need to be interviewed extensively by all sorts of people, including those who will be working with the lawyers,” he says. “Some firms have a distinct split between those who are in charge of welcoming the lawyer to the firm and a different team that talks about money-related issues.”

Finally, Davis recommends centralizing the hiring process. That way, “the responsibility is not solely on the practice leader or the lawyer who referred the lateral, but through one person who handles all lateral hirings,” Davis says.

“These are tough things to do, no question,” Kowalski says.  No one wants a potential hire to think he or she is being put through the wringer and lose interest in joining the firm. But to minimize the risks of hiring a lateral, firms have little choice in the matter. “If you’re dealing with an individual unwilling to provide good information, then you have to consider whether that’s the type of person you should bring into your firm,” says Kowalski. “You really have to know everything you need to about this person. If not, you’re the author of your own misfortune.”

Going the extra mile

When law firms hire a lawyer from another firm, they are generally aware of the key risks involved and ensure they take the appropriate steps to mitigate them. Yet there are issues which may not be so obvious at first that law firms also need to take into account when going through such a process. Here’s a closer look at some of these risks:

Financials

Although the value of lawyers’ books of business and their annual billings are of paramount importance, their individual financial circumstances should not be ignored.

For one, you should “ensure lawyers are fully paid up with their obligations to the [Canada Revenue Agency],” says Simon Chester, a partner with Heenan Blaikie LLP in Toronto. “You also don’t want someone coming in who’s close to being insolvent.”

Adds Anthony Davis, a partner and member of the lawyers for the profession practice group at Hinshaw & Culbertson LLP in New York: “I want to know if people have a large amount of debt because if they do, they will be under financial pressure. And if they’re under financial pressure, I worry about them abiding by my client intake rules, ignoring my firm’s conflicts rule or doing anything that they can to generate revenue, regardless of the risks.”

Clients

Examining a migrating lawyer’s client roster to look for potential conflicts of interest is critical, but so is making sure those clients fit in well with the image the firm is aiming to convey.

“You should be looking at the client list to ensure the lawyer has the sort of clients your firm is happy representing,” Chester says. “This is not merely a book of business, but the clients need to be compatible with a firm’s approach and its selectivity with the types of clients with which it deals.”

“You need to know whether these clients will fit into the firm’s national or regional structure,” says Bill Maclagan, managing partner of Blake, Cassels & Graydon LLP’s Vancouver, “whether for business conflicts or whatever other reasons.”

Data

One of the newest and emerging sets of risks relates to the electronic digital data that the migrating lawyer will be bringing into the firm, as this is something you need to be very careful about.

“Lawyers could be introducing information that neither they, or your firm, are entitled to have,” says Davis, “such as client and precedent information that’s proprietary to their previous firms or to the clients who haven’t moved over to your firm. This could be a serious breach of confidentiality rules — and you’ve assisted them because you’ve accepted the data.”

Productivity

Most firms assume an incoming lawyer with a large book of business will come in and start producing at the same rate right away. However, this is unlikely.

“You need to realize that in almost every move, all lawyers lose a step when they shut down and restart their businesses elsewhere,” says Warren Smith, a managing partner with The Counsel Network in Vancouver. “You usually see a dip of 20 per cent to 30 per cent in their businesses because of the logistics involved. So, firms need to be realistic and manage their expectations.”

Pablo Fuchs is a journalist based in Toronto.

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