Better Due Diligence and Integration Strategies the Keys to Improving ROI
Sacramento, California, March 25, 2016 (Newswire.com) - A shrinking legal services market and increased competition has caused law firms to get more aggressive in hiring partners away from their competitors. But that strategy may actually be shaving as much as six percent off of law firm profits. That’s according to Eric Dewey, co-author with ALM Legal Intelligence of a new study on lateral hiring performance. Dewey will present highlights of the study along with strategies to improve the selection and integration of lateral partners at the upcoming Legal Marketing Association’s (LMA) annual conference April 11-13 in Austin, Texas.
“Only 28% of lateral partners bring all of the clients that they expected to bring to the firm and more than a third bring less than 50% of their clients,” says Dewey, a principal of Group Dewey Consulting, which provides business development training and coaching along with lateral partner due diligence services to law firms. “This is the first study to track the actual performance of laterals. With the break-even hovering around 70% of the book of business, it’s increasingly clear that firms need to get better at forecasting client portables before cutting these deals. Too many partners simply don’t work out as expected,” Dewey said.
"Partners, who are courting practicing together, are hesitant to ask the tough, probing questions about a candidate's client relationships," Eric Dewey observed. "But that rigorous analysis is the only way to reduce the drain on profits that occurs when clients don't follow the attorney to the new firm."
Eric Dewey, Principal, Group Dewey Consulting
The statistics come from a survey released by ALM Legal Intelligence and Group Dewey Consulting which tracked the performance of more than 80 lateral partner moves among the 350 largest law firms in the U.S. The appeal of laterals as a growth strategy seems to be nearly universal among large law firms. In fact, 96 percent of those surveyed reported that lateral acquisitions are a very important or moderately important growth strategy for the firm.
“We think law firms are falling short in three key areas of the partner acquisition process,” Dewey explained. “First, the majority of law firms are not being strategic in their recruitment of laterals choosing instead to seize opportunities whether or not that acquisition makes strategic sense for the firm. Second, law firms are not conducting thorough due diligence on candidate client books and frequently overestimate the number of clients that will move with the candidate. And third, once on board, firms are not providing the additional investment and support necessary to ensure the attorney’s success in the new platform.”
Conducting the due diligence is the most vexing challenge since approaching the client presents significant ethics and fiduciary risks for both the candidate and the firm. So the firm must rely on the candidate’s estimates of client movement. Candidates, however, may have an incentive to paint a rosy picture of their client relationships.
Dewey’s analysis of the study and experience in legal services purchasing proposes new tools in the analysis of the candidate’s book of business and a process to gain more insights into the partner’s client relationships. His presentation will detail these new methods.
Despite the lackluster results, law firm partner movement has risen steadily. Data from ALM’s RivalEdge shows partner movement among the largest U.S. law firms has increased an average of 8% annually since 2010. The industry’s investment in lateral acquisitions now tops more than $2 billion a year. Clearly, the law firms have embraced lateral acquisitions as a key growth strategy even though actual results appear mixed. In making this presentation, Dewey urges law firm leaders to adopt the disciplines of their corporate clients and focus on improving the selection, due diligence and integration of partners into their firms.
Group Dewey Consulting (GDC) provides business development training and coaching, market and client research and lateral attorney due diligence services to law firms, practice groups and lawyers. Our business development training teaches lawyers at all levels how to create 'gravitational pull' of clients by building powerful connections and promoting their specialized knowledge. Our coaching focuses on advising senior level attorneys in practice specialty transitions, client book rebuilds, lateral integration and retiring attorney client succession.