4 Tips For Evaluating A Lateral’s Book Of Business

March 2, 2016

Law360

By Juan Carlos Rodriguez

Hiring lateral partners can benefit both firms and attorneys, but experts say ensuring the relationship works means minimizing surprises with regard to a potential hire’s book of business, so firms should dedicate themselves to developing as accurate a picture as possible of that aspect before sealing any deal.

Most law firms give potential lateral hires a lateral partner questionnaire, which asks candidates to disclose some of their past earnings, their current billings and an estimate of future earnings. But it’s important to look beyond the numbers on the page, said Larry Watanabe, founder of legal recruitment firm Watanabe Nason LLC.

“The key issue in evaluating a lateral’s book of business relates to portability and assessing known or perceived risks in the movement of that practice to another firm,” Watanabe said. “Numbers on a form are often misleading, and understanding the quality of the data is vital.”

Here are four tips for evaluating a lateral’s book of business.

Understand the Depth of the Lateral’s Client Relationships

Once an attorney submits a questionnaire, Watanabe said, most firms designate a partner to review and vet the data with the prospective lateral hire. He said the interview process helps firms identify deeper questions and issues that are sometimes unrelated to the data in the form.

A key component of that process for firms should be developing an understanding of each client relationship and the types of work handled for each client, he said. For example, Watanabe said firms should find out how long the client and attorney have been working together, what the current state of the client’s business is and whether the client is a potential acquisition target, among other details.

Alexandra Duran of Duran Consulting, a career coach based in New York City, said firms can gain a lot of valuable insight from probing a little deeper behind the answers on the questionnaire, including the strength of the potential hire’s contact within the client’s organization.

“You have to work very hard to build a relationship with a client. And if the contact is only going to be with the client is for a year or two, or three or four, that means you have start developing the second level of client contact in that organization,” Duran said.

Quantify the True Cost of the Lateral’s Business

Watanabe said it’s important to analyze a breakdown of how the potential lateral hire’s work is being handled and distributed among other lawyers in his or her current firm.

“That’s key in evaluating portability and the cost/expense of the practice,” he said. “While a partner may project a $15 million practice, it is important to understand how that practice is supported. What percentage of those billings are actually being handled by the prospective lateral candidate?”

If, for example, the lateral works with four other partners and needs to move with them to successfully port the practice, the expense of the acquisition may not be profitable and compatible with the acquiring firm’s economic model, Watanabe said. He also said understanding net effective billing rates and any discounts for timekeepers is key in understanding the profitability of the practice.

“How work is being handled and distributed within the lateral’s current firm can also help to assess the portability of the practice,” Watanabe said. “If work originated by the lateral is embedded within their current firm and handled by other partners and/or associates, it is not likely portable. While new matters generated may go with another firm, this economic analysis could affect the lateral’s first-year projections.”

Learn How the Lateral Won the Business

The question of who is the true source of the client work is also an important factor in hiring a lateral partner, Duran said. Again, an inquiry of this nature goes beyond the black-and-white answers on the questionnaire and requires some analysis of the potential lateral hire’s personality.

“How was the business won by the lateral? Was it a passive act? Was it a personal introduction by a friend from school? Or was it because this person writes all the time and is public speaking? Are they on committees at the bar association? Are they on committees in the business community?” Duran said.

Depending on the nature of their work, she said, some attorneys never get business referred by other attorneys — they only get it from business clients. So hiring firms should research to find out if a potential hire is seen as an expert in the business community, as opposed to only among fellow attorneys on bar association committees.

“You have to look at the person in a context,” she said. “It’s a quid pro quo. You’re giving them a platform, and they’re giving you what? The money is just a quick fix. You’re really building a culture.”

Determine How Realistic a Lateral’s Business Predictions Are

Frank Michael D’Amore, founder of legal recruiting and consulting firm Attorney Career Catalysts, said while firms are eager to get an idea of how much business a potential lateral hire will bring in the first year or two of his or her employment with the new firm, it’s notoriously hard to get an accurate reading.

There are some instances when it’s fairly easy because the attorney has repetitious types of cases or deals, D’Amore said, but for the vast majority of lawyers reading the future for their own business is a very difficult.

“One of the things firms can do is really take a look at try and divine how much time the lateral put into their projections, based on the interviews. Because you can tell people who just kind of wing it — you see rounded-off numbers at really high levels, and you may only see a couple of clients,” he said. “And you see others where it’s apparent they’ve put a great deal of thought into it.”

He said a thorough candidate may report hypothetical past-year business of $125,717, while others may just write $100,000.

“Somebody who has that level of precision — unless they’re a skilled liar, and they’re trying to use subterfuge — 99 out of 100 times, that’s a pretty good sign that somebody’s spent time and has a greater degree of reliability,” D’Amore said.

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