Maximizing Your Firm's Success in Lateral Hiring

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1 Maximizing Your Firm's Success in Lateral Hiring Presented by Alan R. Olson HR11 4/3/ :00 AM - 12:30 PM The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 Cultural Due Diligence for Lateral Hires By Alan R. Olson Alan R. Olson Lateral hiring of lawyers is nearly universal in law firms of all sizes, and movement of lawyers between law firms has become commonplace. Many law firms have turned to hiring laterals as their primary growth strategy, attracted by potential benefits which include more immediate impact on particular client and firm needs, less need for training, faster economic break-even, greater economic return and, possibly, reduced likelihood of turnover. Lateral hiring, however, is not a panacea, and carries its own set of complexities. The costs of poor hiring decisions actually increase with lateral lawyers, due to higher compensation. Unsuccessful lateral hires can also dampen or damage morale, sap management time and energy, disrupt working groups, and create other organizational costs. In addition to strategic and financial due diligence, 1 it is critical for law firms to understand and deploy cultural due diligence in advance of lateral hiring. By definition, lateral lawyers have experience with other organizations. This provides a track record to help facilitate a law firm s due diligence in advance of hiring. It also means that the lateral lawyer has been exposed to one or more previous law firm cultures, which, to the hiring law firm, may present advantages, disadvantages, or both. Manifestations of Culture Cultural due diligence is usually neglected, sometimes completely, in recruiting and evaluating lateral lawyers. The following definitions will help provide a bridge from concept to effective implementation. 1. The simple, practical definition for culture in this context, borrowed from anthropology, is that culture includes shared values, customs and beliefs. To help shape the due diligence inquiry, we can add that culture is who we are, and who we want to be. 2. Culture is a window or gateway to understanding a law firm its personality, goals, traditions and attitudes. 3. Since culture can appear esoteric, it is useful to think in terms of, and to apply, the manifestations of culture. The manifestations of culture are identifiable, often concrete, and can be meaningfully assessed. Following are some important manifestations of culture, with accompanying questions and sub-topics, that can enhance a law firm s cultural due diligence in lateral hiring. Each of the factors might not apply in every instance, depending on the position and the individual. The cumulative importance of the subjective factors should also to be put in context of the individual lateral. For example, the enculturation level of a third-year associate would likely be substantially less than that of a 20-year partner, or of a former managing partner. Note that a different background or cultural experience might not mean incompatibility. A lateral coming from a different cultural environment is not automatically incompatible with the hiring firm s environment, just like coming from a compatible environment does not automatically make a candidate the right candidate for your firm. These factors should be interpreted and weighed. For example, an individual coming from a large firm might be seeking a small firm environment. Management Philosophy Assess the candidates familiarity with, and attitudes toward, management structure, processes and procedures. Is the lateral candidate used to an environment characterized by: close supervision or laissez faire? continued on page 4 Many law firms have turned to hiring laterals as their primary growth strategy Report to Legal Management May

Lateral Hires continued from page 3 management as a high priority or as we manage when we find the time? centralized or de-centralized? advocacy of procedures or antired tape?

3 Lateral Hires continued from page 3 management as a high priority or as we manage when we find the time? centralized or de-centralized? advocacy of procedures or antired tape? Meetings frequently or infrequently? Leadership What are the roles of leaders? - Benevolent dictator? (strong, centralized in one person) - Town meeting democracy? (diffused, expectation of participation in most/every decision) - Corporate style? (roles, function and authority are defined; reporting relationships established; leaders move in and out of leadership roles) Experience and compatibility with leadership styles - Top-down? - Participative? - By example? Expectations about following leaders - Will I be told to do things, or can I make it up as I go along? - If I am told to do something, am I expected to comply? Administration What is the role of administration? - A non-lawyer is not going to tell me what to do! Reporting relationships - Chain of command or a cast of thousands? Are the economics owned by the law firm? Timekeeping, billing, billing follow-up - I just record time at the end of the month. - I bill my clients when I want to not when some policy says I should. Technology Management of staff - I manage my secretary. Economics and Performance Expectations Experience with lawyer performance expectations Degree of focus on individual performance Prioritization of performance - Individual billable hours - Origination - Team, practice group, firm performance What is a great year? A solid year? An acceptable year? Lifestyle and economics - Minimal vacations versus mandatory sabbaticals Partnership track - What does it take to become a partner? An equity partner? Compensation Systems Are a critical manifestation of culture Gauge similarities and differences: - Formulaic or subjective systems? - Team or confederation? - Seniority-based? - Who decides? Level of satisfaction/dissatisfaction with previous compensation system(s) Client Service Client base - A select client base; one-onone attention - High-volume; standardization; consistency Client service factors - Responsiveness; timeliness - Communication priorities Has the individual developed client service plans? - Have these plans involved joint participation by other practice groups? Marketing Compatibility of marketing background, philosophy and approaches - Advertising; publicity - Styles of business development Experience with firm-wide and practice area marketing planning and strategic planning Experience with developing annual, personal marketing plans Worked with marketing directors Associate Development Sink or swim? Feeling of entitlement? At my former firm, we used the mushroom principle for our associates. Firm Size and Growth Large firm to small firm Small firm to large firm No-growth environment to rapid growth Conclusion Conducting cultural due diligence takes time and skill. The factors being considered must not only be identified, but weighed independently, and also balanced together. A lateral who is hired mainly for new business development strengths must also, ultimately, be compatible with respect to client service standards, performance expectations and the hiring firm s compensation system. Otherwise, problems will emerge that may or may not be resolvable. While some factors might well be deemed as more important, intensely divergent views in a single area can hamstring an otherwise synergistic match: e.g. the great lawyer that won t keep time or bill; the high-producer that goes through associates, etc. To many, culture appears amorphous, touchy feely or insignificant. Its impact can range from low to high and its visibility, from hidden continued on page 12 4 May 2008 Report to Legal Management

4 Lateral Hires continued from page 4 to obvious. As illustrated by the topics and questions listed above, however, culture can be a very powerful force within law firms, and cut across numerous substantive, operational and procedural vectors. By focusing on the manifestations of culture, the conceptual can be translated into concrete questions and evaluation, and readily applied to lateral hiring decisions. 1 Please see article Lateral Hires and Due Diligence Strategic and Financial Review, by Alan R. Olson, in the April 2008 issue of this newsletter. Alan R. Olson is a principal of Altman Weil, Inc., working out of the firm s Midwest Office in Milwaukee, Wisconsin. He can be reached at (414) or arolson@altmanweil.com. William F. Brennan is a principal of, Inc., working out of the firm s offices in Newtown Square, Pennsylvania. He can be reached at (610) or bbrennan@altmanweil.com. Report to Legal Management published by:, Inc. Two Campus Boulevard, Suite 200 Newtown Square, PA Telephone (610) FAX (610) C O P Y R I G H T N O T I C E Copyright 2008 by, Inc. Authorization to photocopy items for the internal or personal use of the subscriber or the internal or personal use of specific individuals in the subscriber s organization is granted by, Inc. provided that the source and, Inc. s copyright is noted on the reproduction and the fee of $1.00 per page is paid to, Inc., Two Campus Boulevard, Suite 200, Newtown Square, PA Copying for purposes other than internal or personal reference requires the express permission of, Inc. For permission, contact at the above address. 12 May 2008 Report to Legal Management

EDITOR James Wilber Report to April 2008 Volume 35, Number 7 Legal Management O U R 3 4 T H Y E A R CONTRIBUTING EDITORS Ward Bower William F. Brennan Thomas S. Clay By Alan R.

5 EDITOR James Wilber Report to April 2008 Volume 35, Number 7 Legal Management O U R 3 4 T H Y E A R CONTRIBUTING EDITORS Ward Bower William F. Brennan Thomas S. Clay By Alan R. Olson Lateral Hires and Due Diligence Strategic and Financial Review Alan R. Olson James D. Cotterman Daniel J. DiLucchio, Jr. Virginia G. Essandoh Senior Consultant Marci M. Krufka Charles A. Maddock Alan R. Olson Eric Seeger Senior Consultant Pamela H. Woldow MANAGING EDITOR Susan D. Sjostrom Lateral hiring by law firms has been increasing over the last two decades, to a point where it has become many law firms primary strategy for growth. In a 2005 survey of the largest U.S. law firms, 100% of respondents cited lateral growth as one of their primary management strategies. 1 In part, lateral hiring is being fueled by external market forces: The legal market has long been characterized by significant lawyer mobility. Movement between firms has become a common, ongoing feature of the legal landscape. As firms have expanded regionally, nationally and internationally, acquired other firms or been acquired, several options for lateral lawyer movement exist. Strategic choices by firms create increased, or decreased, opportunities for particular practices and specialties, prompting movement. Economic differentials among law firms foster movement for increased compensation (and sometimes, the perception that the grass will be greener ). The number of executive recruiters engaged in recruiting lawyers has grown from a relative handful in the 1970s, to literally hundreds. Law firms also have internally-inspired reasons for engaging in lateral hiring, which can be understood in terms of potential strategic, financial, and managerial advantages. Many law firms want lawyers with experience who can fit their firm s and clients needs right away. Similarly, many law firms want to hire lateral lawyers because they are pre-trained and better able to contribute economically than recently graduated lawyers. Clients who insist that junior lawyers not be trained on their matters reinforce this factor. Training lawyers does require law firms to invest substantial time, supervisory skill, money and other resources. As starting salaries for newly graduated lawyers have increased, so have these investments. Financial analyses undertaken by have demonstrated that three years are required to reach economic break-even on a lawyer recruited from law school. 2 In addition, law firms are concerned that hiring lawyers out of law school carries heightened risks that some recruits will find they don t like practicing law, or don t like practicing law in the continued on page 8 Inside This Issue Publications, Leading Source of Legal Industry Surveys, Sold to ALM Leadership Dimension Understanding and Working with Narcissistic Leaders New Online Service Tracks Law Firm Mergers and Acquisitions Staffing Global Legal Departments Building a Core Team for International Operations...6 Sponsors Legal Transformation Study...10 News From

6 Lateral Hires continued from cover challenging modern law firm environment. Due Diligence Defined From a practical, managerial perspective, due diligence applied to lateral hiring can be divided into three categories strategic, financial and cultural. These categories facilitate an expanded, rational, and potentially in-depth review of prospective candidates. Although the categories are interconnected and elements overlap, consideration of each category builds a comprehensive, more effective, due diligence process. (Cultural due diligence is a topic that will be explored separately in a companion article, Cultural Due Diligence in Lateral Hiring, next month in this newsletter.) Strategic Due Diligence There are many valid strategic reasons for growth, and for lateral recruiting for a particular skill set. But growth should be derived from a strategic plan and a plan to grow is not necessarily strategic. Adding lawyers is not a plan. Adding the right lawyers is a means to achieve your plan and goals. Strategic reasons for adding lawyers include: Added depth in core specialties Filling age or experience gaps Replacing or transitioning expertise Adding other skills - business development - management - leadership Improving diversity Providing new services to existing clients Adding new clients Geographic expansion Bolstering or achieving a dominant market position Adding to profitability growth should be derived from a strategic plan and a plan to grow is not necessarily strategic. An important benefit of strategic due diligence is that the law firm including subsets of the firm such as a department, practice group, work team or office can develop goals, parameters and ideal candidate profiles in advance. The firm s strategic planning can be channeled into preestablished criteria for reviewing candidates, in advance of an affirmative recruiting process, and in anticipation of unsolicited overtures. Application of strategic due diligence enhances objectivity in reviewing unsolicited candidates who approach the firm. In consulting with hundreds of law firms, the author has seen some firms grant a halo effect to candidates who make the first contact ( The candidate must really think highly of us. ). Often, the candidate is, in fact, approaching the firm because he or she is impressed with the firm, knows someone in the firm, or is otherwise favorably disposed. This could be an indicator of a match made in heaven but a complimentary overture is not a substitute for due diligence. Nevertheless, some firms have cut corners in their review of candidates because of a halo effect. Questions and topics falling under strategic due diligence, suggested by the valid strategic reasons for growth listed above, are illustrated by the following. Practice areas and specialties - Legal services provided by the lateral - Previous and current specialties Reasons for transition Perceived trends in specialties - Which are increasing/decreasing? Experience Particular practice skills Other skills training, business development, etc. Client base or following - Length of time as clients - Who manages the clients? - Has the candidate cross-sold others to the clients? - Trends growth, static, episodic, etc. Client service philosophy and accomplishments - What is most important to the clients, in the candidate s view? Marketing track record, activities, accomplishments Financial/Economic Due Diligence A candidate s past economic performance is obviously a critical factor in considering a lateral hire, verified by history (to the extent it can be made available or ascertained). 3 For less experienced candidates, questions will likely focus on billable hours, billing rates and realization. For lawyers with client management responsibilities, questions will likely be more extensive, such as hours, billings and collections; billing rates; realization for different types of work; billing cycles; trends in collections, billing rates and realization. Candidates case administration and economic hygiene are also important. Does the candidate keep time contemporaneously? If the candidate does not bill by the hour, does he or she still keep time? Use other metrics? Can profitability be estimated? How often does the candidate bill clients? 8 April 2008 Report to Legal Management

7 firm, different technology and procedures, new working relationships, gaining knowledge for cross-selling (or being cross-sold), etc. Especially with more experienced laterals, it is helpful to employ a planning approach, whereby the candidate develops a business plan than a firm operating on an ad hoc basis, or a firm that does not connect its strategy to anticipated client, service and staffing needs. A firm that engages in financial planning and due diligence, globally and connected to expectations for specific positions, is more likely to achieve greater financial return, and to reduce the incidence of unanticipated costs. Financial or economic due diligence should be conducted in concert with strategic due diligence 1, Inc., Survey of Major Law Firm Management Techniques, Cotterman, James D., Compensation Plans for Law Firms - Fourth Edition, American Bar Association, Law Practice Management Section, 2004 What comments does the candidate make regarding WIP, A/R, billing follow-up and collections? If there have been delays in billing or in payment, how was it handled? Financial or economic due diligence should be conducted in concert with strategic due diligence and the two categories can complement each other in assessing a candidate s background, expertise, performance and other assets. For example, a candidate s characterization of a complex or high-end practice, combined with information on billing rates, pricing and fixed fees, provides complementary information and a more complete picture. Strategic information-gathering can also augment what might be anecdotal financial or performance information. For example, determining how many lawyers or FTEs a rainmaker has kept busy can be cross-referenced with estimates of annual billable hours or collections. As with strategic due diligence, a key benefit of financial due diligence is advance planning and budgeting. Before recruiting, what are the law firm s financial and performance expectations for the position? Over what timeframe? In most cases, the firm will need to anticipate and budget for a short-term profit dip, since the new hire will generally be paid upon joining the firm, while collections will lag the start date. In addition, there may be ramp-up time while the new hire becomes fully acclimated to the new and (if appropriate) a pro forma budget, with anticipated billable hours, billings, collections and other performance projections. In some circumstances, use of best case, worst case and medium case scenarios will add valuable insights. In addition to the substantive benefits of the business plan and pro forma, the process encourages a planning and problem-solving relationship between the candidate and the firm. Conclusion Recruiting can be made much more effective by categorizing information-gathering practical due diligence into strategic and financial categories, and using it as a basis for a series of questions or topical checklists. Moreover, both strategic and financial due diligence readily lend themselves to advance planning, which helps a firm both in its affirmative recruiting initiatives, and in anticipating and assessing candidates that approach the firm on an unsolicited basis. A law firm that plans its staffing, projected staffing needs and recruiting based on strategic planning, has much greater likelihood of maximizing success, and minimizing the number of poor hiring decisions, 3 Please note that the information and processes of gathering information should be undertaken only after review and understanding of applicable agreements, codes of professional responsibility and employment law. The information identified in this article as being beneficial to review, is not a blanket recommendation, and might not be attainable in some circumstances. For example, identifying a lateral lawyer s history of billable hours, collections and originations as being desirable under financial due diligence is not intended to recommend asking for confidential client information or firm documents. One reason for the comprehensive checkliststyle approach described in this article is to help build a solid understanding of a candidate and his or her background, when some information will likely be anecdotal, or will simply not be available. Alan Olson is a principal with Altman Weil, Inc. in Milwaukee, Wisconsin. He can be reached at (414) or arolson@altmanweil.com. Report to Legal Management April

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