Defining Firm Risk: Demystifying Lateral Partner Moves

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Who Still Believes Firms are Flipping a Coin When Hiring Lateral Partners?

Why do I ask this?  Because from time to time there’s a headline in the legal press exclaiming that lateral partner hiring is risky business. The perception offered is firms fail as often as they succeed; that these lateral hires are a 50/50 proposition.

This is a fiction.

There is significant evidence that successes far outweigh the failures for both firms and the partners making the transitions.

My former partner Jon Lindsey of Major Lindsey & Africa (MLA), made this point in an American Lawyer article published earlier this year. Lindsey offers a detailed and cogent analysis, with high-level interviews of firms and plenty of lateral partner data, all of which supports the premise that lateral partner hiring “succeeds” at a healthy percentage, certainly significantly better than a coin flip. The article further confirms that lateral partner hiring remains a top priority for law firms, commanding significant resources, people and time. Pursuing partner hires with a meager 50% success rate would not make economic sense for any well run law firm.

Besides merger, lateral partner hiring is the only real-time growth vehicle that exists for a law firm, and the exponential growth of the AmLaw 200 firms cannot be explained by internal growth and development of young lawyers alone. I made these points a while back in my Law360 article, “6 Common Lateral Partner Myths Debunked.”

Lindsey smartly identifies the need to define “success” for any reasonable take on the issue (i.e., one can use retention rates, meeting expectations, etc.). My summary of lateral partner success at the firms mentioned in his article is as follows (see article for more context):

  • Orrick: Essentially, the lateral partners hired over the last five years have met their quantifiable expectations in the aggregate.
  • Morgan Lewis: Looking at lateral partners’ performance for the first two years, results have exceeded expectations.
  • Mayer Brown: Sharing their retention rate reveals that 81% of lateral partners are still with the firm after five years (and 85% saw a compensation increase since joining the firm).
  • Perkins Coie reported a partner retention rate of 88% five years after hiring.
  • Proskauer reported an overwhelming majority of lateral partners hired in the last five years had met their highly strategic definition of “success.”
  • McDermott strives for 80% success, is not satisfied with a lower percentage, and continues to seek and hire lateral partners. I’d say it’s safe to assume they meet or come close to their 80% goal.
  • Goodwin reported an 83% success rate over the last 10-year period.

Just look at the impressive growth rates over the last 10 years in all the above firms, in profits per partner, revenue per lawyer, and other financial metrics reported by the American Lawyer. These are AmLaw 50 firms, and the financial growth of this particular sector has been extremely robust. If I had statistical training, unlimited time, and access to lots of data, I would try to connect firms’ financial success to the significant lateral partners they hired over the last 10 years. However, that kind of causal relationship would be difficult to prove out as there are numerous reasons law firms have performed so well. That said, I do believe lateral partner growth has played a significant role.

No doubt I am biased, considering my profession. I respect there are different perspectives and experiences (i.e., your mileage may vary). This is not relevant to any particular partner’s situation, and whether anyone can or should move now (or ever) is situational. I simply found the data and observations in Lindsey’s interviews with managing partners to coincide with my experiences in 17 years of recruiting partners.

It’s also worth noting that the amount of lateral partner movement is relatively new.  If one goes back a couple decades, there were serious questions raised about partners moving firms. But there has been a full sea change from the ’80s and early 90’s when big firm partners rarely left their firm for another peer firm. There are still many lawyers from that generation in the industry (many I count as close friends). I have found some do not like the cultural shifts that come with increased partner mobility, often carrying particular distaste for the decrease in loyalty from firms towards their legacy partners. While I always respect those who have seen more than me, I believe these changes are a net positive for the industry, for reasons that are hopefully obvious. I won’t ever buy that an industry is best for all by limiting an individual’s ability to get a new job.

Ultimately, the stats don’t lie.

Lateral partner hiring is currently the fundamental growth strategy employed by major law firms, even if the amount of risk in this undertaking can be debated. I’ll note here that law firms, as a rule, are extremely financially conservative. Most I talk to are fiercely proud to boast that they “out careful” their peers in running their firms. I have yet to meet a law firm that employs high-risk strategies of any kind, so will never believe they throw that mentality away when it comes to adding partners. And investing millions year after year in a coin flip strategy would be exactly that. In a mythical betting market on the amount of risk law firms will take in lateral partner hiring, I would always bet the under.

Want to discuss? Call me.

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Author: Dan Hatch

Dan Hatch is a founding member of Hatch Gamble Brown LLC, and one of the top partner recruiters in California. He has handled the most significant lateral partner transactions in the industry, including numerous signature office openings in major markets for AmLaw50 firms, as well as numerous placements on The American Lawyer’s annual list of top lateral partner moves worldwide. Prior to recruiting, Dan headed up Home Depot’s West Coast legal department where he was named one of California’s “Top 20 Lawyers under 40” by the California Daily Journal. Follow him on Twitter @DanHatchHGB, connect with him on LinkedIn Linkedin.com/danhatchhgb, or email him at Dan@hatchgamblebrown.com.