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Calculating Your Value As A Lateral Partner

Ed. note: This is the latest installment in a series of posts on lateral partner moves from Lateral Link’s team of expert contributors. Today’s post is written by Michael Allen, the Managing Principal of Lateral Link, who focuses exclusively on partner placements with Am Law 200 clients.

Lateral matchmaking is hardly ever “love at first sight, at last sight, at ever and ever sight.” It is a rigorous process that requires a multifaceted approach to satisfy a multitude of criteria. If you are questioning the degree of your lateral attractiveness, allow me to explicate this below.

Each firm has a unique culture and looks for different traits in lateral partners. Nonetheless, most firms have a baseline, a minimum threshold a lawyer must meet in order to seem attractive, at least at first glance. There are always exceptions to these rules, but in general this threshold is encompassed by the following: profitability (e.g., portable business, bill rates, hours, and leverage); pedigree (e.g., law school); vintage; and for some firms, even GPA.

The first criteria is profitability. I will walk you through a quick example to explain the difference between two partners, then share with you a game that will let you assess your value as a lateral in today’s market….

Say Fred Jones (not a real person) has portable business of $2 million. If Fred’s rates are $500 an hour, and his annual hours are 1,200, then out of the $2 million, Fred brings in $600,000. The remaining $1.4 million comes from several others who service the work that he is responsible for originating. The more attorneys servicing the work, the more costs associated with Fred’s practice. Therefore, Fred should expect to earn close to $400,000 annually on his $2 million practice.

On the other hand, Jane Fredericks (not a real person) also has a portable practice of $2 million. But Jane’s rates are $1,000 an hour given her expertise, and her annual hours are 2,000 since she is in high demand, so Jane is a working attorney without much leverage. Jane should expect to earn somewhere close to $600,000 on her $2 million practice. The main difference between Fred and Jane is based on the direct and associated costs incurred to generate their respective $2 million practices.

The importance of a prospective lateral’s law school is not overstated; multiple and linear regressions of our placement history demonstrates that a lateral’s law school highly correlates with the likelihood of their acceptance by any firm (and the correlation grows even stronger within the top 50 Am Law firms). This observation can be gleaned even without complex mathematics. If you look at all the partners in Paul Hastings’s national offices, you will notice that 83 partners or 34 percent of partners come from top ten law schools, and 54 percent come from the top 20 law schools in the nation. Outside of the top 20 law schools, there are increasingly diminished returns to law school rank. Furthermore, of the partners who have laterally moved to Paul Hastings over the last two years, 57 percent attended top ten law schools.

Congratulations, you passed the baseline — now what else does the firm want? Firms expect younger partners — about fifteen years out of school — to have smaller books, but most want to see a junior partner with at least a demonstrable showing of portable business. Furthermore, they want to see a book that is growing every year. When a partner reaches senior status, a firm would like to see a book of business double or triple what the firm would require of a young buck. This standard changes firm to firm, but generally firms with profits per partner of about $2 million expect lateral partners to have about $3 million to $4 million in business. Firms with much lower profits per partner will often take younger partners with less than a million in portable business.

Maybe even above conflicts, bill rates present difficulties for lateral partners. A material difference in bill rates between a firm and a lateral partner candidate is often a non-starter for both sides. Fred from above, along with his current $500 an hour, may not survive in another platform that does not allow for bill rate flexibility, which limits Fred’s choices to the bucket of firms who would allow him to peg his current rate. That said, firms may consider lateral partners who are coming down in bill rate, but they seldom accept partners who bill significantly lower amounts, since prices are oftentimes sticky with clients. Imagine Fred telling his main client: the good news is I am now with a much bigger firm that can service your needs in Mexico City; the bad news is that my bill rate is now $750 an hour. Fred would most likely lose the business that made him profitable at his current firm, as his clients would likely balk at the price increase. To get even more into the trees, if your associates bill significantly lower than the prospective firm’s associates, this can also kill a deal, as the blended bill rates may not meet the new firm’s floor.

One of the first things firms look at is a lateral’s client list to determine if there are any conflicts. Substantial conflicts can make a lateral application DOA, which is why we heavily investigate our clients’ history to avoid conflicts. Firms also look at prospective lateral’s clients to ascertain if there is any overlap between the lateral and one of their own partners. In most cases, a firm will eschew a lateral if they feel there is too much overlap between one of their own partners and the prospective lateral, unless capturing the client outweighs cannibalizing current business. However, there are certain circumstances in which an overlap can be beneficial. For example, if a partner is retiring or slowly being transitioned to retirement, then a lateral with significant overlap can be valuable to the firm. A prospective lateral’s clientele is also vital in determining a fit in practices.

We put together a little game for you below. Please fill out the form — using a nickname, not your real name — and see what your grade is as a lateral partner in today’s market. Obviously, the game is just a game, albeit based on fairly elaborate regression analysis and facts that more often than not hold true in our historical experience. Give it a try, then look for your nickname below for your results:

Disclosure: This series is sponsored by Lateral Link, which is an ATL advertiser.

Lateral Link LLP is one of the largest legal recruiting agencies in the world, with 13 offices in the United States and Asia. Lateral Link has been recognized by the Wall Street Journal, The American Lawyer, the ABA Journal, the Daily Journal, and the National Law Journal for its innovative approach to legal placement. Lateral Link recruiters are former practicing attorneys who have consistently succeeded in placing partners, associates, general and corporate counsel into some of the most reputable law firms and organizations in the world.