Lateral Integration: The Real Elephant in the Room

by Pamela Woldow

In our last few posts, we’ve  been discussing topics and insights that arose in a recent Managing Partners Forum sponsored by Edge International. One concern the MPs cited as a major area of management concern was: 

Law firms’ frequent and unacceptable failure to successfully integrate lateral hires.

Uh, Oh…

Looking past the failure of entire law firm mergers for the moment to concentrate on the failure of individual lateral partner hires to thrive, the numbers are shocking: all research suggests that about 50% of lateral hires crater badly. The MPs  were not talking about situations where lateral partner performance falls somewhat short of the high hopes and lofty promises of profitable portables that begat the firm’s decision to take an outsider aboard. They were talking about total busts, misbegotten collaborations that failed so badly – either at a financial level, a personal “fit” level, or both – that either the firm or the lateral hire was compelled to part ways.

Three Ways to Fail

All concluded that the blanket phrase “lateral integration” only suggests part of the problem.  “Bad fit” actually derives and escalates from three distinct causes:

1) poor strategic thinking about what kinds of practices will bolster the firm’s footprint, bench strength or profits

2) poor due diligence, screening, vetting and negotiations with prospective laterals

3) poor assimilation and integration of laterals once they actually join the firm.

Bad Ideas Make Bad Hires

Lateral hiring has become indiscriminate, yet it’s still regarded as today’s hottest growth strategy. The legal profession’s rush both to consolidate and to specialize has triggered a feeding frenzy: hundreds, if not thousands, of lawyers who believe themselves and their practices highly-marketable are casting their resumes upon the waters. And the firms of all sizes are biting, enticed by magical visions of instantly-enhanced profitability. Firms looking to boost their revenues are stretching their budgets and offering enticing deals, and these lucrative packages are often funded by giving lower performing practices or “service lawyers” the gate.  In notorious cases, these sweetheart deals with guaranteed draws have busted the bank when the economic benefit of the bargain fell short or the “strategic leverage” of bringing aboard a Big Dog proved illusory.

Lesson: strategic lateral hiring needs to become both more discriminating and more disciplined; as a vehicle for firm expansion and greater profitability, lateral hiring is not a surefire silver bullet.

Lookin’ at the Sunny Side

When the prospect of big bucks waves in their faces, law firm leaders – the ones spearheading and/or negotiating lateral deals – often fall victim to what can be called “OPB” – Optimistic Planning Bias. That is, they overestimate the probability and the potency of the upside, and they motor blithely past warning signals of deals too good to be true – of portables that won’t in fact import to a new setting, of past glories that don’t in fact predict future performance. Understandably, most lateral hiring discussions focus on economic prospects, but due diligence often suffers in the face of well-intentioned representations about the benefits of the bargain, as well as firms’ frequent shocking failure to put lateral hire candidates to their proofs.  Why? Because everyone wants to make it work soooo badly.  As risk reducers, lawyers fall lamentably short when it comes to putting their own money, organization and culture at risk.

The problem is compounded at the negotiation stage by a frequent failure to discuss tactical implementation, that is, to talk specifically about the nuts-and-bolts of integration.  Everyone just assumes that this wonderful new relationship will be self-executing. Implementation planning should start with discussions of business development and marketing tactics that will put the new hire on a firm and visible footing with both clients (who must be informed of the firm’s expanded potential) and colleagues (who must be reassured that the newbie does not represent a threat to their turf and their compensation). Scared partners frequently “orphan” or sabotage lateral hires, particularly when they are hired by firm leadership without input from partners in those in practices that must support or complement the new talent.

A lot of lateral hiring situations also blow up because insufficient attention was paid to the impact of the lateral’s arrival on the firm’s power structure and existing client relationships. Laterals with lots of clout often push hard for instrumental leadership roles, confounding existing firm plans for succession – both client succession and firm leadership succession. That push – which they see simply as getting what they think they were promised – often creates pushback that leads them directly to the door.

Lesson: More due diligence and tactical integration planning up front will save a lot of damage control or disappointment later on.

The People Part

Last, but not least, the MPs acknowledged, was the problem of the firm’s failure to welcome new partners, ease their abruction from their prior culture, and introduce them thoughtfully and thoroughly into their new firm’s culture. As hyper-businesslike as they have become, law firms still operate as social organisms as well, and many laterals report receiving a cold, or at least indifferent, shoulder from their new partners. “Because of ‘space constraints,’” said one MP, “we actually put a very promising young lateral on a different floor – corner office, but different floor – from the rest of her practice group.  In six months, she was gone. No evil intent.  We were just thoughtless and, perhaps conflict averse.”

Lesson: Don’t give the interpersonal dimension short shrift.  The firm should plan an assimilation agenda that includes cultural mentoring and compassionate contact with strangers who find themselves in a strange land. A high percentage of laterals leave because no one paid adequate attention to “all those soft things” like culture, “fit” and friendship.

Written by:

Pamela Woldow

Legal Leadership on:

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