By Mark Masson

Lateral hiring, in concept, is a key driver of a profitable growth strategy – yet, in practice, it fails more often than it succeeds, costing firms and the industry billions every year.  Firms have revolutionized how they approach client growth – most notably by leveraging advanced analytics to mine the massive amount of data available on client needs and buying proclivities.

But stunningly, despite the lateral hiring failure rate that plagues professional services firms, most firms have followed the same general approach for decades: search firm engaged, a dozen partner interviews to test that the candidate is “one of us,” and leaders trying to validate if a self-touted book of business is real.  Some firms have evolved the process over time (e.g., adding a leadership role in charge of lateral partner hiring), but none appear to have the disciplined and comprehensive approach that decisions of this magnitude require.

It’s clear that firm leaders need to think differently to maximize the potential of lateral hiring and turn it into a successful part of a profitable growth agenda.  Though law firms suffer most given the inability to legally enforce non-competes, accounting, consulting and other firms struggle mightily as well.  As a provocative example, let’s consider the legal industry:

  • 1,000    laterals per year (note there are well over 2,000 annually in the top 200)
  • 46%    failure rate [1]
  • $1,160 k    average annual partner compensation [2]
  • 300%    typical cost of attrition [3]

 

= $1.6 billion  potential annual cost associated with failed lateral hires

 

And this doesn’t even include the hidden costs such as increased cost of defending malpractice that is elevated with lateral hiring[4]. With results like this, you might reasonably think “Why bother?”  While ideally a firm disproportionately hires at junior levels and develops a significant percentage into productive and accretive partners, it just isn’t possible to get this right all of the time.  There are also situational reasons why a lateral strategy is important, namely:

  • Entering a new market without an option to acquire or merge in a firm or office
  • Entering a new industry or practice area when developing depth would take too long and put a firm at risk for lagging in the market opportunity
  • Shoring up a practice, industry or office after unexpected attrition

Even when lateral partner hiring is approached for these reasons, and not just to add “star power,” creating a successful lateral growth platform requires the strength of four critical building blocks.

1.  Align your lateral program directly with firm strategy
Obvious, right?  Perhaps, but the opportunity to hire big names, especially from a close competitor, is tempting, even if the link to your strategy is weak or nonexistent.  Consider a strategy focused on two prominent private sector industries and deep technical expertise in several areas.  Suddenly, a well-known federal government official with a completely different set of capabilities calls to say she’s interested in joining the firm.  The scenario is all too common and becomes a high-stakes chase that often ends without bettering anyone involved.  Not reconciling your lateral hiring activities with your strategy, jeopardizes the entire value of pursuing laterals at all – and therefore this must be where the process starts.

To ensure a strong link with strategy, it is important to build a type of alignment “check” into the process for every potential candidate. A dispassionate and credible partner should lead the vetting by seeking answers to such questions as:

What strategic objective would we accomplish if this hire were successful?  What options are we foregoing by investing resources in making them successful?  Are there other ways we can achieve the same outcome without the cost and risk of a lateral hire (e.g., developing current talent, implementing a strategic client initiative)?

What’s more, such questions should be considered very early in the process – doing so late risks biased thinking as supportive voices have put their credibility on the line and naturally will seek to confirm their perspectives.

2. Leverage analytics to predict successes and failures
Assuming a candidate’s capabilities, experiences and interest are strongly aligned with the stated strategy, much can be learned from a broader data set.  What characteristics form the profile of lateral hire successes and failures at your firm?

  • Undergrad and law schools attended?
  • Previous firms worked for?
  • Come in on their own or as a group with team members?
  • Practice areas and specialties?
  • Match of leverage model in current firm relative to yours?

There are hundreds of potential variables that can form a fact base which advanced analytics (e.g., predictive algorithms) can translate to insights to predict which laterals are more likely to succeed and even where to find the next ones, dramatically improving your success rate. (And, by the way, a large, portable book of business doesn’t need to be one of them.)  Yet, despite the tremendous potential upside, seemingly no one is using data and analytics like this to help solve the lateral hiring equation.  They certainly should be.

3. Evaluate four critical areas for every candidate (and do it efficiently)
Despite the power of predictive analytics, there will be parts of the picture where data is incomplete or nonexistent.  If you want a complete picture of a potential lateral hire, you’ll need to leverage a streamlined process where every interview peels back a layer of understanding in four areas – General athleticism, client relationship development, developing others, and alignment of firm and candidate interests.  Unstructured interviews are highly biased and often point to the wrong candidates (evidenced by the low lateral hiring success rate).  Interviews need to be structured around specific areas and competencies, and complement and build on one another.  The interviews themselves won’t be enough though.  You will be much more successful if you pair the interviews with an effective assessment tool.  The right unbiased assessment can highlight proclivities in new environments and challenging situations much better than traditional interviews and can add significantly to understanding a candidate’s “general athleticism.”

General athleticism:  A candidate’s book of business will likely be meaningfully less once they join. Clients can love individual lawyers, consultants and accountants, only to hesitate at the moment of truth when considering the challenge of dealing with the bureaucracy of a new firm.  It is helpful to know if a candidate is entrepreneurial, has the ability to be insightful and think on their feet in front of a client, and can commercialize new relationships effectively.  Assessments can better identify these characteristics and prepare you to probe even further in interviews and reference checking, lessening the burden on verifying the touted book of business.

Client delivery and business development relationship building:  Traditional vetting of technical skills and a business generation track record should still be a focus, yet with a twist.  Rather than look to vet sales numbers and revenue crediting (which is self-professed and impossible to fully check), vet their client relationship building skills.  Rather than raw revenue numbers, understand how they collaborated with other partners to broaden and deepen client relationships over years.  Find out how the individual went about introducing colleagues, if they involved associates, and whether they were successful in delivering an institutional client relationship.

Ability to develop others:  Isn’t this about the individual’s capabilities?  Yes, but properly leveraging others and the proclivity to do so in service to developing stronger capabilities of their team indicates an ability to focus on highest and best use.  Once a partner, it is more difficult to get someone to change their behavior on leverage and development – doing so with a lateral partner hire is usually near impossible.  Often a candidate who is disinclined toward development attempts to do lower value-added work themselves and focuses inward rather than out to the market often underperforming on business generation expectations.

Alignment of candidate’s – and firm’s – wants:  It is easy to get so focused on whether the candidate is right for your firm that you plain forget to consider whether your firm is right for them.  This is a two-way contract – literally and figuratively.  Everyone loses when there isn’t a realistic preview of the culture, systems and expectations.  Have a direct and open conversation about what a lateral candidate is looking for and be sure you can provide enough of it before bringing them aboard.

4. Onboard with purpose
Too many firms spend significant time, money and effort to hire high-potential laterals only to let them languish for months on end without formal guidance or support.  Some may hold the “trial by fire” method up as the way they learned or the best way to pay your dues, but such an approach makes little sense when so much is at stake and simple actions can lead directly to growth.

Drive accountability for productivity and affiliation through expectations of Partner Sponsors.  This means someone familiar with firm processes, people, and resources has skin in the game and, if nothing more, shortens the timeframe over which a lateral becomes productive.  Six, 12, and 18-month evaluations should be directly linked to the business case the sponsors of the lateral hire put forward, and the sponsors should be evaluated on the individual’s success as well as their own.

Getting new laterals immediately involved in a client project where they have expertise helps – nothing like learning through doing, and doing so in an area of strength makes it more likely the individual will win deserved respect from colleagues.  Additionally, getting the individual involved in firm-building activities (such as marketing, developing new technical approaches, or firm strategy discussions) speeds integration.  Many argue that new hires wouldn’t have much to add, but the fresh perspective is often critical to such discussions.  More importantly, the lateral connects to another set of colleagues and collaborators on a meaningful endeavor.

Focusing on only one or two of these areas is certain to significantly diminish the benefits and may leave you losing more than you win in the lateral market.  True success (profitable firm growth) comes when every part of the endeavor is linked to executing the stated strategy; data and analytics are thoughtfully leveraged; every candidate is thoroughly considered across the four critical areas.  The work isn’t finished when a hire is made – productive laterals are onboarded with purpose.

Lateral hiring can be an important part of a firm’s growth agenda, but it must be executed with focus, discipline and stamina, just as any other core part of the strategy.  Getting lateral hiring right is within reach and there’s opportunity to lead the market by thinking differently.

Contact Mark Masson.

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