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Senior lawyers: making sure the face fits
When the cost of recruiting a top-flight partner or a team of senior lawyers can run into six figures, it is crucial to get it right. In London, the partner lateral hire market has recovered to pre-recession levels, according to Motive Legal Consulting’s London Lateral Hiring Trends Bulletin. In the first quarter of 2012, there were 130 partner moves - a level not seen since 2008 and a 12% increase on the same quarter in 2011.
Team moves in the capital are also at their highest level for five years, says Mark Brandon, managing director of Motive Legal, accounting for 16% of all partner hires announced between January and March. Hiring was strongest in the finance arena, representing nearly a fifth of all hires. Litigation (17%) accounted for the next biggest proportion, while real estate was responsible for 15% of hires. Corporate put in a flat performance, accounting for just 11% of hires compared with a five-year average of 16%.
When it comes to partner movement outside London, recruiters say the market is picking up in Birmingham, Leeds, Edinburgh and Glasgow, though it is slower in Manchester. However, there are question marks over some firms’ recruitment strategies after research by Brandon, a former recruitment consultant, found that only half of lateral hires into UK, US and merged US-UK firms in London between 2005 and 2011 lasted more than four years. In an extreme example, Dewey & LeBoeuf’s collapse has been attributed in part to its aggressive hiring spree, using huge pay guarantees to attract big-ticket partners and their clients.
So what are the dos and don’ts both for lawyers making the jump and for firms taking them on?
Recruitment consultants offer two options - one being contingency recruitment, where the agency is paid between 20% and 30% of the candidate’s first-year salary when one of the senior associates or partners it puts forward is placed with the firm. The second is a ‘search’ option where a headhunter will map the sector and target key figures who may not actively be looking to move. The percentage is similar but the fees are generally spread a third upfront, a third on presentation of a shortlist and a third when the person is placed. If the partner leaves within the first six months, the firm may get some form of rebate.
Herbert Smith is looking to recruit several new partners as part of its Project Blue Sky initiative, which includes expanding into New York and Germany, increasing profitability, taking a tougher stance on underperforming partners, as well as ‘business-as-usual’ hires across its practice. After confirming 3% cuts to its London head count in April, the firm announced last week that it is merging with Australian firm Freehills to create Herbert Smith Freehills. Subject to regulatory approval, the combined firm will launch on 1 October, with 2,800 lawyers, including 460 partners worldwide. Pete Chater, head of resourcing, says the firm is ‘actively out in the market’, looking to recruit partners in ‘low double figures’. Herbert Smith hopes that some of its senior hires will come in the shape of teams, particularly in Germany and New York. It is looking for senior associates in the areas of dispute resolution, regulation, litigation and arbitration.
Chater explains that the firm largely recruits through agencies, although it has a referral scheme to encourage staff to suggest people from their own networks. Marie Guest is HR director of Optima Legal, a national commercial law firm that provides property and recoveries services for UK businesses, from offices in Bradford, Newcastle and Glasgow. There is not a ‘magic formula’, she says. ‘We use headhunters, particularly for a new role. They act as ambassadors for the firm when talking to prospective candidates, particularly those who aren’t actively looking - they have one shot in that first conversation to engage their interest. The benefit is they may bring someone into the mix whom you wouldn’t have identified yourself.’
Eversheds’ HR director Angus MacGregor says the firm tries to recruit senior associates through direct network referrals, alumni and social media such as LinkedIn rather than going to recruitment agencies, which can cut average costs per hire from five figures to £2,000/£3,000. For more senior hires, the firm works closely with a small number of recruiters who act as their ‘advocates’ in the market. They will use a research company such as Write Research to map the talent base around a particular need. ‘We may then contact those identified ourselves,’ he says. ‘It is most powerful if the relevant partner rings the person up but, while some partners are very good at that, others are less willing to do it.’
TLT Solicitors, with offices in London, Bristol and Piraeus in Greece, has recently announced several senior hires. Senior partner Robert Bourns says: ‘The fundamental issue when recruiting is not to go for the “scalp” but for the person who makes sense in terms of building your practice around your client offering.’ Jonathan Kay is head of Parabis Resourcing, the six-strong in-house recruitment team for the Parabis Group, which includes defendant professional indemnity and insurance litigation firm Plexus Law.
'Firms also expect recruiters to share the risk when a hire is made'
His aim is to control costs. ‘The more junior the vacancy, the more we would go direct to market,’ he says. ‘While our intention is always to recruit ourselves, we will use recruitment consultancies for senior hires because we know there are great candidates who... don’t actively search for openings themselves.’ Parabis Resourcing will make ‘educated direct approaches’ based on who their partners rate. ‘It is very expensive using agencies, so you want a good relationship with a few so that you can trade off exclusivity in fee negotiations,’ he says. ‘I can’t think of a recent situation where we have done the conventional “third, third, third” headhunt brief. They are fraught with frustration if they don’t go well as you can end up spending two-thirds with no return. You have to be confident the agency has even better market connections and knowledge than you do.’
Kay says standard agency terms are tied to baseline remuneration, which can include ‘golden hellos’, car allowances and pension contributions. ‘We certainly wouldn’t do it as a percentage of billings as that would be too open. Some law firms are starting to set their own terms and conditions. From my perspective, we always seek to reduce fee levels.’ First Counsel director Chris Cayley says firms want to do more direct resourcing. ‘They come to us with a very strategic need, or because they want an intermediary proactively sourcing people for a role,’ he says.
Firms also expect recruiters to share the risk when a hire is made. ‘In some cases, we are being asked to accept our fee based to some extent on the success of the person hired,’ he explains. ‘This could be in terms of their fee performance, or being asked not to have our entire fee upfront but in stages based on that person’s integration into the firm.’ Virtual law firm Keystone Law, the largest dispersed law firm in the UK with over 107 senior lawyers, has started a recruitment round for about 50 additional senior solicitors.
Managing partner James Knight says the firm does not use recruitment agencies because it would be ‘prohibitively expensive’ for that number, and the firm can do it itself through advertising and word of mouth. Keystone Law expects to receive about 200 applications, interview 100, and have the 50 in place over about six months. The firm is now set up to take teams of lawyers.
‘We look for a good CV - everyone is allowed to make one or two mistakes but a lot of chopping and changing without a discernible rationale is very damaging,’ he says. ‘We recruit from national and London West End medium-sized commercial firms and, if the person has been in that world for 20 years, you would expect them to have developed a client following or a realistic expectation of generating one.’
In a twist on the virtual law firm model, legal sector recruitment agency IV League Talent aims to match client-bearing lawyers on a revenue-sharing consultant basis with firms keen to generate bottomline income with limited risks. So far, nearly 30 large City law firms have said they are willing to see candidates supplied by IV League Talent, which promises to deliver senior, successful lawyers and their revenues, with ‘no recruitment fees, no guaranteed salaries and no joining fees’. It makes its cut by sharing in the on-going revenue share - the lawyer gets to keep up to 70% of their own billings - so it only gets paid if the consultant lawyer generates work.
IV League Talent was launched in January. Chief executive Mike Jones says three consultants are in place, nine are in the final throes of negotiating terms and a further 20 are in the initial stages of selecting a host firm. ‘The attraction for the firm is that it gets a senior partner with a good following with no financial risk if they don’t come through with the work - if they have overpromised, it is only themselves they are fooling.’
And that raises key issues in senior hires - can partners follow through with promises to bring clients with them, and how rigorous are their former firms in enforcing non-solicit or gardening leave clauses to protect their client relationships? The rule of thumb on client promises, says Alan Hodgart, managing partner of the Huron Consulting Group, is ‘cut what they say they can bring by two, cut that by 50%, divide that by two and you might be somewhere near what they might produce in the first year’.
Juliet Carp, employment partner with City firm Speechly Bircham, says partnership agreements nearly always contain post-termination restrictive covenants to protect client relationships for a period of time - and lawyers are often held to their agreements. In practice, she says, covenant disputes rarely get to injunction stage. But, ‘if the current firm doesn’t want to release the individual and the covenants are clearly enforceable, then most lawyers will simply comply with their contractual obligations and the new firm is obliged to wait’.
Legal disputes over enforcing covenants can be very expensive, and potentially damaging to reputation. As Carp notes: ‘The recruiting firm has a strong incentive to ensure the recruit complies with their obligations. A new firm that induces a lawyer to breach their contract may be exposed to claims itself.’ Dominique Pengelly, director of search consultancy Pengelly O’Neill, says it is seeing an ‘unusual’ trend among bigger London firms which are seeking high-quality partners without necessarily requiring a following. ‘The rationale,’ she says, ‘is that the firms are doing so well they don’t need someone to bring in a book of business. Two or three years ago, new partners had to promise to bring work to justify their salary. Now firms are confident in their own ability to generate the work.’
However, Cayley argues there is still much emphasis on client following. ‘Firms may say it is all about calibre but they are being pretty forensic about whether the person can build a practice or has marketable business skills.’ Knight maintains that the UK is moving towards the ‘more relaxed US approach that you let the client decide. Generally, if you arrive with a client, you can leave with them and you negotiate over the rest.’ MacGregor says Eversheds would respect anybody who came with a non-solicit/non-poach clause. ‘We don’t put them on our partners,’ he says, ‘though we debate it regularly as they can have benefits. But we haven’t lost clients when partners go because they are pretty institutionalised.’
Kay points out that firms cannot use a non-solicit clause against an exiting partner if the firm they are going to already has a relationship with the client, for instance through a panel. While a client following is clearly one attraction behind a lateral hire, says Guest, the new partner may have to start without being able to work with a particular client. ‘However, most firms take a realistic view when someone leaves.’
TLT’s Bourns agrees. ‘It is interesting how many solicitors are oblivious to the covenants in their employment contracts - they are only lawyers after all! Unless you are in a turf war, most firms will take the pragmatic view that clients have a freedom to instruct who they want and there is nothing likely to turn them off more than getting embroiled in someone’s domestic argument.’
Some firms have a reputation for keeping people to garden leave rather than using covenants, he adds, which can be effective in giving the firm ‘room to manoeuvre’ to try to maintain/develop client relationships. Kay says one way a hiring firm can protect itself is to structure a ‘success-based’ deal, so that the incoming partner shares the risk. ‘You want someone who is prepared to back themselves,’ he says. ‘If you offer part of their package as a baseline and part on delivery and they back away, alarm bells should start ringing.’
There is an elite group of multi-million-pound corporate lawyers and if someone wants them they will have to pay, says Cayley. For others, success-based deals are an ‘upshot of downturn. Partner offers are less generous in terms of the upfront amount than they were pre-credit crunch’. For firms losing a good partner, the temptation is to make a counter-offer, says Pengelly.
‘Partners can use a job offer as leverage to stay but it almost always backfires,’ she says. ‘Their firm feels a gun has been put to their head; it may make promises but a year down the line nothing has changed. We always ask people how serious they are about moving at the beginning of the process.’
Key to any hire is due diligence, with some firms using investigative agencies such as Kroll to check a person’s background and reasons for moving. Questions should focus on why they are leaving, says Hodgart: ‘Are they jumping or were they pushed? You need to get behind that, so some firms will commission research on the firm they are leaving to see if the candidate’s reasons stack up.’
Pengelly says due diligence is a big part of their work. ‘We research each individual, their department and their firm. We have a very good idea of the internal politics at a firm and have a lot of off-market knowledge because we have been doing this for 20 years. We also work closely with in-house lawyers who will give candid appraisals and indicate if they will continue to instruct someone if they move.’
Bourns says TLT only occasionally commissions investigative work. ‘We did in one case a year ago which proved very informative and helped us avoid a risk. In an age where people give very factual references, you sometimes need to dig a bit deeper.’ Kay says Parabis takes soundings with clients, with the individual’s consent, to make sure what is being promised is deliverable. ‘But due diligence works both ways,’ he notes. ‘Partners will investigate the hiring firm because they don’t want to make a move which could jeopardise their relationship with their clients.’
At Keystone Law, the concept of client ownership is integral to its business model because it is a basis on which different percentages are paid to individual lawyers, explains Knight. ‘So while this is sorted out on exit in a conventional firm, with us it is pre-determined when every single client arrives at the firm,’ he says. Once hired, the focus must be on integration, he adds. ‘With half our lawyers working from home, serviced offices or clients in London and half spread around the country, we take immense trouble to ensure everyone meets up at social events and CPD training.’
When it comes to team hires, integration is even more vital, so they do not turn into a Trojan horse. ‘You could be talking six figures in recruitment fees, plus the cost of the team, so the stakes are high,’ says Hodgart. ‘You need to do your homework and then, if they come over, focus hard on integrating them into the firm - you don’t want them sitting there with their packed suitcases under the desk.’
Taking a team can also be seen by their former firm as a breach of the partners’ fiduciary duties to their former partnership. ‘The firm may put a writ on the team and use that to negotiate a bigger payment than otherwise for the work in progress being moved,’ he warns. The hiring firm also needs to be careful that it does not alter the economics of the practice by overpaying the new team or making it top heavy with senior people.
MacGregor agrees: ‘We prefer people coming with teams as long as they don’t come in and create an island within an island. But it can help you bring the client across, plus it is a softer landing for them.’ The positive, says Herbert Smith’s Chater, is that ‘a team is more likely to make money on day one if you are pulling all the infrastructure with them and you can scale up a new product or location more quickly. The downside is if their loyalty is to each other rather than to the firm, so induction and integration are very important.’
It is also crucial with any lateral hires, he says, that ‘you don’t alienate loyal staff, perhaps because you can no longer make up a senior associate to partner as promised, when it will become a pyrrhic victory. Unless they are washing their face and bringing in lots of fees in year one, it can cause bad blood. It is a challenge. Most partners are business-savvy enough to know the business case has to stack up but also that it does take time to make money’. Fit is absolutely crucial, says MacGregor: ‘Where we haven’t been successful is where we have compromised on that because we wanted their revenue.’
Some lateral hires involve partners going to firms with lower profitability than their original firm. While some may be choosing to go to a different model of firm, such as a smaller boutique, Brandon argues: ‘It could indicate some firms are shedding unprofitable partners who are moving to firms lower down the food chain, whereas more profitable firms are starting to cherry-pick the best partners from smaller or less profitable firms.’
There are definitely people on the market who are not there by choice, says Cayley. ‘But we have also noticed a growing polarisation in the market. When a partner is moving on from a big firm, they are often enthused by the idea of going to a boutique because it is different. This is symptomatic of changes in the profession following on from the Legal Services Act and ABSs. For some, the idea of being part of a huge corporatised law firm isn’t for them.’
The recruitment market is certainly changing, says Kay. ‘In the boom time, it was all about big bucks. Now candidates are very cautious and they are doing their own due diligence on the hiring firm to make sure there are no skeletons in the cupboard. It has to make sense on every level so there is a lot more wooing to be done.’
Grania Langdon-Down is a freelance journalist