Law firms use data to judge lateral hires' potential success
When it comes to lateral partner hiring, it’s clear that an arms race is going on. Lateral hiring has been booming over the last several years, according to The American Lawyer (sub. req.), and 2015 saw the largest partner migration since the Great Recession. Moreover, virtually all law firm leaders think increased lateral hiring is here to stay, and they would pursue laterals as a means to grow their firms, according to law firm consultancy Altman Weil.
But does the weaponry all work? ALM, an information and intelligence company, released a 2016 study that found that most lateral partner hires don’t meet expectations, and a majority bring in less business than they promised.
“All firms will fail at lateral hiring at some point,” says report author Steve Kovalan, a senior industry analyst in ALM’s intelligence division, in a statement. “Unfortunately, these are extremely costly failures, impacting firm finances, cultural stability, brand and client relationships.”
Yet firms will continue to hire lateral partners. As a result, many are turning to statistics and performance analytics to help them determine which of their laterals are delivering and which are not.
One of the more widely used business intelligence tools comes from legal software company Aderant. According to Derek Schutz, product manager of business intelligence at Aderant, more than 100 law firm clients use the company’s analytics programs—not just to evaluate lateral partners but to analyze the entire firm. Aderant’s program allows firms to track a range of metrics, including profitability, revenue, expenses, hours and billings. Using a firm’s data, Aderant can determine how many hours certain types of cases and clients are worth, who did the work and how long it all took.
“Probably the most important aspect is that firms can see what they do well and what they don’t,” Schutz says. “That gives firms an idea of what they need to focus on for future matters.”
That keen sense of understanding is what many firms lack, Schutz says, and having a better grasp of it could help with the lateral recruitment process.
“Most laterals don’t meet their short-term goals, and it’s more an issue of expectations than anything else,” Schutz says. “A lot of firms don’t know what their goals are, what they do well and where they want to go. There should be a reason for bringing in someone from outside, like ‘We want to grow this area,’ or ‘They have work we want.’ ”
Employment and labor law firm Littler Mendelson decided to go in a different direction and create its own software. When it comes to lateral partners, Littler’s Big Data Initiative tracks data from many different sources to predict the firm’s likely return on investment and whether laterals will remain with the firm or leave for other opportunities.
“The goal for all the work we do is to identify data sources that we can use to help improve decision-making with the use of prediction modeling,” says Zev Eigen, a data scientist with a PhD from the Massachusetts Institute of Technology and Littler’s global director of data analytics.
Eigen notes that it can be difficult to apply blanket rules to lateral hiring because many unique factors are at play. He points out that data science can’t quite predict how much business a partner will come in with. Nevertheless, firms can set up a model in which they assume the best- and worst-case scenarios and determine the lowest number that a partner can walk in with and still be profitable for the firm.
Eigen is especially interested in looking at relational data as a means to predict how likely an attorney is to fit in with Littler’s culture. “ONA [organizational network analysis] and SNA [social network analysis] are good ways to figure out whether someone will work well with others within a firm,” Eigen says.
Ultimately, Eigen says, firms will be able to use this data to weed through the vast pool of potential laterals and focus on the ones more likely to integrate successfully into the firm.
But legal recruiter Karen Kaplowitz, president of the New Ellis Group, a business development consulting firm, worries that firms might rely too much on the numbers and forget that it often takes a while for laterals to ramp up and become profitable.
“My impression is most of the big law firms look very carefully at metrics to evaluate all their lawyers,” Kaplowitz says. “For laterals, the information can be much more damaging because they are on a much shorter leash.”
She says most firms have an 18- to 24- month contract with lateral partners that gives the firm the right to cut ties if the partner doesn’t perform to certain standards.
If a partner is back on the market within two years of a prior move, there’s a good chance that the firm chose to part ways with the partner. “It can become a downward spiral,” she says.
Instead, Kaplowitz argues that law firms should focus more on successful integration. She says very often it simply comes down to better communication.
“There might be a business plan in place where the firm promises to introduce the lateral to existing clients as a means of growing the lateral’s business,” Kaplowitz says. “Very often that doesn’t happen, and the firm doesn’t follow up to make sure it happens.”
Law Scribbler Online: Victor Li shares his reporter’s notebook at ABAJournal.com/lawbythenumbers and on Twitter at @LawScribbler.
This article originally appeared in the April 2017 issue of the ABA Journal with this headline: "Value Proposition: Firms use data to judge laterals' potential success."