“One of the risks of growth primarily by lateral acquisition is that money is the only glue,” says Tom Sharbaugh, a Penn State Law professor and former Morgan Lewis managing partner. “If people come for money, they’ll leave for money.”
In the first six months of 2022 and 2021 combined, the 350 largest law firms made more than 10,000 lateral hires in an effort to keep up with a swell in demand for legal services. This was double the pace of just five years ago, according to data from the research firm Decipher Investigative Intelligence. Historically, however, about half of lateral hires move again within five years.
The possibility of top talent leaving is “a very real concern for certain firms,” especially smaller operations being raided by big firms, said Dan Binstock, a Washington-based recruiter. “We’ll hear from partners not because they’re unhappy with the firm but because they’re receiving opportunities too good to turn down,” he said.
The struggle for talent has become increasingly competitive, with some law firms offering more than $10 million a year to certain so-called “rainmakers” who bring in the most new business to firms.
After seeing rival law firms poach top partners with these large sums, many firms have found it necessary to do away with their long-standing “lockstep” compensation model, in which partners are rewarded strictly based on tenure.
The U.K.-based Freshfields, Paul Hastings, Greenberg Traurig, and Gordon Rees have been among the most active in lateral hiring, with Gordon Rees alone bringing on 425 lateral hires, including 60 partners, since 2021, according to Leopard Solutions.
However, Gordon Rees chair Dion Cominos says that while money is a “magnet” in recruiting, it can’t be the glue. Money “needs to be backed up with shared purpose and culture, and it’s incumbent on firm leadership to instill that in laterals.”
Cominos, for one, has tried to give his attorneys autonomy, for instance by not making any mandatory return-to-work policies.
But creating a truly “thick” culture, in which employees feel at home at a firm and fully incorporated into it, is essential to retaining new hires.
Retaining lawyers may just be the first hurdle these firms will face, though. More than 20 law firms have made 200-plus lateral hires since 2021, including partners, associates, and counsel, again according to Leopard Solutions. The downside to this lateral hiring frenzy, of course, is that firms that dramatically increased their investments in lateral hiring and salaries during the legal work boom could be at risk if the economy declines, said Bruce MacEwen, a law firm management consultant at Adam Smith, Esq. Only time will tell if they made the right investments.