Failed Partner Hires: Why Do Firms Fail to Keep Their Partners?

For most of the larger firms, lateral partner hiring is part of a balanced growth and recruitment strategy. However, for many of the smaller and less established London offices, it is their only source of senior lawyers.

What is rarely, if ever, analysed or openly discussed is how successful these hires turn out to be.

Law firms readily announce the addition of new partners, but are much quieter when they leave, tending to say very little beyond “we wish them well”. One Firm whose US Managing Partner went further and was recently reported as saying, “if our partners weren’t being headhunted then I would be worried. That particular firm has since lost about a third of its London partners, 10 in a year, in fact.

When I first started working in legal recruitment 20 years ago, having come from a non-legal business, commercial and engineering background, three things immediately stood out when considering law firm recruitment:

1. The sums of money paid to recruiters were enormous with fees typically at a third of a lawyer’s first year’s salary and uncapped.
2. On mandated searches, two-thirds of the recruitment fee was paid before the candidate had even accepted an offer.
3. Even some of the leading firms struggled to hire lawyers.

How law firms allowed this status quo to develop and thrive is before my time and beyond the scope of this piece.

Since then, there has been downward pressure on recruitment fees, especially at the junior end, although some branded firms can still get away with charging over 30% for senior hires. Capping is more common now and firms generally only pay the recruitment fee once the candidate has joined. There has been an increase in the availability of candidate due diligence and vetting tools. Some of the larger firms now employ, as part of their HR teams, lateral hiring specialists with recruitment industry experience. Some Managing Partners continue to use their own networks to attract senior lawyers to their firms, something which I discuss in my published article “Why do Law Firms use HeadHunters?” Some of the largest firms still struggle to hire lawyers.

My assumption before writing this piece is that over the past 20 years, law firms, in general, must be doing a better job today at lateral hiring and retention. They must have learnt from their own mistakes and/or from others. They must have adopted more modern and newly developed techniques to help improve their knowledge and understanding of who they are about to hire. However, recent reports I have read about lateral partner hiring in the US, albeit sponsored by due diligence companies promoting their wares, suggest that retention rates over five years for lateral hires amongst the AmLaw200 Firms is poor and remains an expensive problem for law firms.

The revolving door image must be one of the most used by the legal press.

Methodology

One of the long-standing comparative metrics of partner success is how much you are contributing to the partnership by way of total billable hours recovered. This is clearly a function of the number of years spent at any one firm.

Any partner leaving within three years of joining a law firm generally results in a financial loss for that firm and it isn’t too much of a stretch, therefore, to call them failed lateral hires.  Other commentators have argued that many partners leaving within five years make very little profit contribution and that between 20% and 45% of all lateral hires fall into this category. However, I have edged on the side of caution.

There are also large opportunities and sunk costs to consider, as a significant amount of time and resources are usually spent delivering these hires.

I have analysed over 150 partner lateral hires in London by the Top 50 UK and US law firms last year by revenue (so 100 Firms in total) since 2013, which fall into this category. If you’re interested in a more complete picture about some of these firms, you should also read my recently published articles on Partner Churn and Retention at US Law Firms in London and US Law Firm London Profits: A Reality Check.

I have also summarised the most common reasons why lateral hires end sooner than intended.

I have only considered partners who continue to work full-time after their departures. I have tried to exclude exits from law firms a year before or after a major merger with another firm (of which there have been several during this period) or a year before a firm collapses (principally KWM which accounted for close to 100 lateral partner hires between 2016 and 2017).

Findings

Of the 100 firms analysed, at least 70% have experienced a failed hire over the past five years. As with partner churn, losing partners before time is unavoidable and part of the natural business cycle. It’s when these issues become too frequent or numerous that alarm bells should start ringing.

Of the 30 firms that appear not to have experienced failed hires, as you would expect the Magic Circle plus Macfarlanes and Travers Smith are included, as well as US heavyweights like Debevoise, Simpson Thacher, Skadden Arps and Sullivan & Cromwell. Of course, these firms make very few lateral partner hires for any given year compared to their competitors. Whether these Firms are better at or take more time over lateral hiring is a subject for another day.

Over six out of 10 (64%) failed hires were made by US Law Firms (54%) and Swiss Verein Firms (10%), principally Dentons and DLA Piper

The Swiss Verein firms are very large, seemingly amorphous, organisations which struggle to create a common culture and identity. They’re also far less profitable than many of their competitors, which can mean that their highest billers or most promising talent are vulnerable to being bought out.This is not a surprise, to me at least, even though there are a much smaller number of lawyers working here for the Top 50 US firms compared to their UK equivalents. As you will read below, several US firms in London experience cultural and organisational issues, such as satellite office syndrome, which do not apply to UK firms. US firms have also been more aggressive over billing targets and quicker to remove partners that are underperforming.

Dentons is unique in that it seems to be in a constant state of growth via merger and acquisition. For example, it was founded in 2013 by the merger of SNR Denton (itself a result of a merger between a UK Firm and US Firm in 2010), Fraser Milner Casgrain and Salans. Following its merger with another US firm and Chinese law firm, Dacheng, in 2015, Dentons became the largest law firm in the world by number of lawyers. Based on my own criteria for failed hires, most of their partner exits since 2013 should not technically be included in my analysis. However, most lawyers joining them over the past five years should have been well aware of what type of organisation they were joining.

Just over one in 10 (11%) failed hires moved to a better law firm

See the sections below.

Over six out of 10 failed hires were in the product areas of Corporate & Finance (40%), Real Estate and Disputes/Litigation (22%)

Corporate and Finance (and their subsets) are the two largest transactional product areas at most of the leading firms. They account for the most fee earners and the most lateral hires, so it makes sense that they produce the largest number of failed hires. Real Estate and Litigation have traditionally been regarded as cyclical product areas, so again it makes sense to see their numbers higher than other product areas.

Leading UK and US Firms with four or more failed London partner hires:

• Ashurst (4) - Shaun Lascelles, Darren Rogers, Patrick Williams and James Wood.
• Chadbourne & Parke (4) (merged with Norton Rose Fulbright in June 2017) - Ben Donovan, Kevin Atkins, Partha Pal and Irina Tymczyszyn.
• DWF (7) - Tim Barr, Richard Brittain, Howard Cartlidge, Chong Cao, Timothy Leeson, Rehman Noormohamed and Alan Owens.
• Dentons (8) - Sylvain Dhennin, Carolyn Jones, David Moore, Tracey Sheehan, Anju Suneja, Mark Tempest, Roger Tynan and Wendy Wilks.
• DLA (5) - Tom Calnan, Richard Hopkinson-Woolley, Patrick Somers, Justin Conway and David Farmer.
• K&L Gates (4) - Paul Feldberg, Jacob Ghanty, John Gilbert and Mike Stewart.
• Mayer Brown (5) - Tom Eldridge, Matthew Kidwell, Stefan Martin, Richard Todd and Guy Wilkes.
• McDermott Will & Emery (4) - David Adler, Alan Gar, Jean-Marc Tirard and Damian Watkin.
• Paul Hastings (4) - Neil Hamilton, Mark Shepherd, James Taylor and Ashley Winton.
• Reed Smith (4) - Andrei Baev, Ben Davis, Angus Finnegan and Robert Porter.
• Shoosmiths (5) - Adam Chamberlain, Edward John, Andrew Lockerbie and Juliette Peters.

Career Path after a Failed Hire

I am assuming that most lawyers must consider, to varying degrees, how a move to another organisation might affect their career path. Whilst no one can predict the future, choices do have consequences.

The pie chart below depicts what effect a failed hire has had on the future career path of these partners.

For example, just under a quarter of partners decided either to leave private practice or start their own account (yellow and red pies). For those partners that stayed in PP, I have made my own judgements whether they have moved onto another Law Firm with a higher, lower or equal market reputation.

For 43% of failed hires, the immediate result of leaving within three years has had no negative effect on their careers within private practice (dark blue pie). 24% moved onto smaller firms with an inferior reputation (light blue pie). This may have been a personal career choice for some.

Some partners (11%) did manage to trade up to higher ranked firms (green pie). See the table below.

London Partners Trading  Up

Note: * Candidates moved to these firms as a junior partner for the first time. ** Candidate, who was a partner, joined as an of counsel.

The three moves highlighted with a * were senior associates who moved to smaller firms to become partner, and within three years had left and leveraged up to better firms (or in one case back to the same Magic Circle Firm he had left). This remains a career strategy for some associates who are either passed over or who can’t wait to progress at their current firms.

London Partner Lateral Hires Lasting 12 Months or Less

Notes:Matthew Gerber rejoined Kirkland in 2014 after DMC closed down. Towerbrook was a Kirkland client. Sava Savov rejoined Kirkland in 2015 having spent the previous two and a half years as a VP at the client, Oaktree Capital. His move to Sideys was part of a seven partner move. Mark Heaney appears twice. Having spent 14 years at Bird & Bird as a partner, he then had two short-lived stints at Baker Botts and then Simmons & Simmons before moving to Allen & Overy in 2016 where he remains. 

Most Common Causes for Failed Lateral Partner Hires

Many of the issues below are inter-related and on their own not sufficiently compelling to force a partner departure.

Satellite Office Syndrome

This applies to the London offices of international law firms (principally US-based). Problems can arise when the partners are left to feel isolated and decision-making is too distant and centralised.

Lack of Effective Leadership and Management

Having the right leader in any organisation seems obvious, but it’s easier said than done. Its importance should never be underestimated. By way of example, for those of you who can remember, Latham & Watkins’ London office, now one of the most professional, successful and highly regarded in the City, was not always so. David Miles was appointed Managing Partner of their London office in 2002 and the rest is history. Conversely, there are plenty of examples of Managing Partners who haven’t done as well and some who have even managed to put off partners from joining their firm. Partner exits can also be due to a lack of direction, lack of leadership and mismanagement.

Money

Clearly, money will always play an important part in attracting talent to a firm but also in retaining it. This particular carrot can be very difficult to ignore if it comes dangling and if it’s considerably larger than your current package. This is one reason why some US law firms have been successful in tempting away some of the best local legal talent.

However, buying out partners, especially with salary guarantees, comes with risks attached, both for the law firm and partner if the numbers don’t match up. It can lead to shortcuts in the recruitment process. Further, doing so can cause discontent and displacement amongst some of the existing or other recently-hired partners.

The lack of transparency about partners’ pay, often called “Black Box Remuneration”, used principally by some US Firms also appears to be another contributing factor, as recently highlighted by the Ropes & Gray exits.

HR and Recruitment Issues

• Lack of investment - Partners can become disaffected if their firms don’t provide them with the tools that they need to win and retain clients. For example, sales and marketing budgets per fee earner will vary from firm to firm. Just being given a desk and a phone doesn’t work for everyone.
• Team building & spirit - This is often designated as an HR matter and to a degree is investment-related, but the culture and working environment are also heavily influenced by the leadership and management of the firm. On its own, it’s unlikely to lead partner departures, but a lack of team spirit and/or a non-collaborative way of working can be contributing factors.
• HR’s importance - In some firms, the Head of HR will be a member of senior management and have almost complete control of the lateral hiring process. In other firms, HR is more of a support function and the Managing Partners have greater influence and control. It’s more likely that the former will produce better outcomes than the latter.
• Due diligence - A lot has been written about this over the years. New tools ranging from searching the dark web to interviews with a psychologist have appeared. Several commentators have argued that the main reason for failed partner laterals is inadequate due diligence and vetting of candidates. On its own, spending more time and money improving this aspect of the recruitment cycle will achieve very little. As this article demonstrates, there are so many different reasons why partner laterals fail. Further, by making this part of the recruitment process too onerous, intrusive and lengthy, it may put off some candidates and push them towards other competitor firms.

There are many obvious changes in personal circumstances which can cause partners to leave their firms sooner than planned, (health and family reasons, for example).

Cultural and Personality Fit

For some firms which have grown and grown beyond recognition, holding onto or creating a global common culture or identity must be extremely difficult. For those firms who have grown more gradually and organically over the years, there is still a “type of lawyer” that would best fit in.

There are various questionnaires, tests and vetting tools available to help firms better understand the character and mindset of candidates. For the smaller offices, you could argue that personality fit is more critical. The larger offices with, say, more than 200 fee earners will clearly house a variety of different personality types. Further, a Private Equity lawyer is a different animal to a Tax or TMT lawyer.

I still think it’s difficult to test for how candidates will react and respond in the moment when under extreme pressure. Word of mouth and speaking to ex-colleagues will be just as effective here. Further, multi-partner interviews and a social meet appear as good a method as any in determining for both law firm and candidate, whether there is a good enough fit.

Change in Circumstances

It’s common to see partner fallout pre- and post-merger. This may result in a firm’s change in direction or strategy, which may not suit some. Some jump or are pushed before the two firms become one. Some wait to see how it turns out in practice. I have tried to exclude as many exits as possible from my analysis which fall a year either side of these events.

There are many obvious changes in personal circumstances which can cause partners to leave their firms sooner than planned, (health and family reasons, for example).

Despite being the most obvious caveat, some firms continue to hire lawyers that have had several previous positions, often for short periods. It’s no surprise when these hires fail.

The Economy and Business Downturns

As with any business, law firms have to respond to business downturns which can result in cost-cutting and a reduction in the number of fee earners. Typically, associates bear the brunt but it can also lead to partner losses. Some product areas have historically been more cyclical than others. I have referred to Litigation and Real Estate in a previous section above.

Hiring from In-house

Most lawyers that leave private practice do so because they’ve had it with fee earning, the long hours, the territorial culture and the law firm politics. For many, it’s also a lifestyle choice. One of the reasons why firms hire senior lawyers back from in-house roles is that they weren’t able to find, or couldn’t afford, who they wanted in private practice. It’s no surprise to see that these hires don’t cut it in PP for the 2^nd or in some cases a 3^rd time.

Employment History

Despite being the most obvious caveat, some firms continue to hire lawyers that have had several previous positions, often for short periods. It’s no surprise when these hires fail.

Around a third of the failed hires analysed had previously worked at four or more different organisations.

Candidate Responsibility

Whilst most of the issues listed here are firm-related, candidates must also take some responsibility when a hire goes wrong. For example:

• They should do more of their own due diligence on the hiring firm, such as looking at their recruitment track record and general wellbeing of the firm and office. They should also be aware of issues which have previously caused conflict and partner exists. Working with a headhunter can help in this regard.
• They should avoid being too creative with their business plan.

Bringing Overseas Partners Back

The main problems being that 1) the partner will generally have no local clients or portable business and 2) returning to a much larger London office from the comparative calm of a much smaller overseas office.

Promoting Senior Associates to Partner

Around a quarter of the failed hires analysed represent lawyers moving to a law firm as a partner for the first time.

Offering the carrot of partnership to high-quality senior associates passed over at their current firms has only been a recruitment strategy of the last 15-20 years, when locksteps used to be more rigid (equity only) and salaried partners weren’t so common. Often, it is used when a firm either can’t afford or doesn’t want to pay top dollar for existing partners. Plenty of these hires are successful, but it is worth noting that two things can go wrong for the hiring firm:

• The lawyer uses the firm as a stepping stone principally to gain the title of partner and leverage their standing in the marketplace. See section above, “Failed Partner Hires Trading up”.
• There is less evidence available regarding business and client development, so the candidate’s fee-earning ability hire is based more on potential than fact.

The negative impact of losing partners before time is not just borne by the law firms but also by the candidates, as my research shows.

Team Moves

If a partner arrived at their current firm as part of a team, or had developed a strong working relationship with other partners, then there would be an added pressure to consider moving if other partners in the team were keen to do so, even though you may not have been long onside.

To Summarise

Partners exit law firms prematurely for many different reasons as listed above. Some are pushed and some leave on their own terms. The negative impact of losing partners before time is not just borne by the law firms but also by the candidates, as my research shows.

What hasn’t changed in 20 years of working in legal recruitment is that partner churn, above and beyond that which is expected, remains an expensive problem for many law firms.

Most of the reasons for partner hires failing are law firm-related, down to market forces or both. However, candidates should also share some of the blame. They have a responsibility to do their own due diligence. One advantage of working with an experienced headhunter, who is not tied to a specific law firm, is that he/she should be able to provide an honest and independent assessment of each firm under consideration.

Further, many partners over-inflate their business plans. It should be no surprise to anyone when they don’t produce the numbers. This practice has been going on for years. If this is the main reason for a partner being shown the door, then clearly the law firm must share much of the blame, either for being too gullible, for a lack of scrutiny or both.

There are many parts and people involved in making a lateral partner hire a success. There is no one solution to improving your churn. It’s too simplistic to suggest that more due diligence will improve matters. All it takes is one weak link to frustrate any progress made in other areas.

If you are a partner at a law firm that prefers honest, informed, fact-based recruitment advice and you are considering your next career move in private practice, then in the first instance, you should contact my colleague Mairi MacLean by email at mm@macleanlegalsearch.com.

Fraser MacLean first started working in legal recruitment in 1999. His background is atypical for this sector; he has an Engineering degree, he trained as a Chartered Accountant, worked as an analyst for a French multi-national, partnered with his father on various commercial ventures and studied for an MBA. He believes in an analytical, collaborative, plain-speaking and jargon free approach to recruitment and business in general.