A recent report from Wolters Kluwer ELM Solutions has gone largely unnoticed in the recent hubbub over The American Lawyer’s AmLaw 100 results published last week. That report indicated that 90% of corporate legal departments (CLDs) reduced their active provider relationships in 2020, and 16% of attorney-client relationships that existed in 2019 were paused in 2020.
According to Nathan Cemenska, ELM Solutions’ Director of Legal Operations and Industry Insight, legal work that disappeared will resume, “but it won’t always be by the firms that lost the business,” said Cemenska. “Alternative legal service providers, the Big Four, and competing law firms are hungry for that business, as are in-house legal teams, which continue to get better at doing the work themselves.” The report indicated that these trends are likely to continue even after the pandemic ends.
The increasing instability of client relationships has a particular impact on the lateral partner market. During the due diligence process for lateral candidates, the preeminent focus of most firms is on a candidate’s existing clients and their portability. But this report confirms other industry trends that conclude that client relationships are becoming more volatile. Law firm recruiters are telling us that the reliability of a candidate’s projected book of business transitioning is becoming progressively more uncertain. Considering that there is a strong probability that laterals will lose some of their existing clients in the first few years at their new firms makes the typical focus on a lateral’s “book of business” a risky proposition at best.
Instead, due diligence should focus more on the business development ability of the candidate, with greater emphasis on how clients were developed and maintained. Firms should use their business development professionals to help make determinations on the candidate’s business development acumen. Indeed, the key to a successful lateral is the development of new business, as opposed to simply the maintenance of existing clients.
These trends also illustrate the importance of unearthing and analyzing historical data on previous laterals. The ability to determine the attributes that led to the long-term success of certain laterals versus those that resulted in the failure of others is paramount. That might involve analysis of such things as a lateral’s social media profile, speaking and writing activities, and an after-the-fact review of their practice summaries and business plans. As Winston Churchill once said, “Those that fail to learn from history are doomed to repeat it.”
TMG’s Take is a regular e-mail advisory produced by The McCormick Group. The company’s Legal, Government Affairs, and Law Firm Management groups help law firms fulfill their lawyer and management recruiting needs. TMG also provides consulting advice to law firms on their lateral hiring needs, including its Lateral Audit program. For more information, please contact Steve Nelson, Executive Principal, at (703) 312-6744 or snelson@tmg-dc.com.
