Delusions of Crowds

Friday, February 14, 2014

When a large number of smart, accomplished, ambitious people seem to be behaving in a way that makes no rational sense, there has to be an irrational explanation.

I’ve written and spoken before about my overall attitude towards aggressive lateral partner recruitment. As Calvin Coolidge reportedly said, leaving church and asked by a reporter what the minister said in his sermon about sin, “he’s agin it.”

So with me and lateral partner recruitment as a “strategy.” As far as I’m concerned, the burden of proof is decidedly on the advocate to show why this lateral hire can beat the odds, and steep odds they are. (See Our Arms’ Race 1 and Our Arms’ Race 2.) And when I say “burden of proof on the advocate,” I also mean accountability: As in $$.

Rare is the lateral who doesn’t have one or more “sponsor” in the recruiting firm: “We absolutely positively have to have Dick; now! He’s the greatest [trial lawyer/M&A guru/tax genius] I’ve ever seen.” Well then, if Dick is so great, we’re sure you wouldn’t mind agreeing to have, say 10% of your compensation, plus or minus, over the next three years depend on how Dick works out. Lawyers, however, positively recoil at the mention of accountability, so you may file this advice under imaginary if you like. But think about how Sponsor A and Sponsor B would be far more invested in Dick’s success if you struck this deal.

Now we have Bill Henderson and Chris Zorn’s cover story in The American Lawyer, “Is Reliance on Lateral Hiring Destabilizing Firms.” (Disclosure: Bill and Chris are both friends, but their work is their work and we haven’t discussed my writing this column; they’ll see it when you do.)

Their article’s “hook” is a spectacular and nuanced analogy to evolutionary theory, invoking the concept of “Fisher’s runaway,” where a trait that makes an individual more attractive for mating can work to reduce the species’ survival rate overall—the classic example being the peacock’s tail, which attracts peahens, but also absorbs disproportionate nutritional resources, attracts predators both large (it’s conspicuous, to say the least) and small (mites, fungi, bacteria), and makes flight, on the ground or in the air, laborious and slow.

The analogy is simple: Law firms can perhaps increase their own attractiveness in the marketplace in the short run by aggressive lateral recruitment, but it seems to be making most large firms worse or no better off in the long run.

The baseline facts are not in dispute:

  • lateral partner hiring has increased ever since American Lawyer Media began tracking it in 2000: from 70% of firms to 90%, with from 1,900 to 3,500 lateral moves every year—the peak years were 2007 and 2008, which should surprise no one;
  • to the extent there’s any discernible pattern to all this Brownian motion, lawyers seem to be sorting themselves out into higher- and lower- intrinsic value practice areas, with specialists in M&A, white collar, private equity, and securities enforcement (areas “in close proximity to the C-Suite,” as Bill and Chris nicely put it) generally migrating from lower to higher RPL firms, and those in labor and employment, T&E, and regulatory compliance moving to lower RPL firms; and
  • “churn” is highest at large, geographically distributed firms—close to 10% at some firms in some years—as compared with the most profitable firms, where it’s ~1% among the top 20 firms in profitability.

They also describe a change in the overall dynamic of the market for laterals since 2000: Originally it resembled major league baseball’s farm system, where lawyers from firms outside the AmLaw 200 or in the second hundred firms tended to move “upstream” to larger firms, but recently it far more closely resembles the free-agency market within MLB, as partners move between firms with comparable profitability.

So what has all this churn accomplished?

Related Articles

One Comment


  1. JOSEPH B HUDSON JR, 4 months ago Reply

    AS A FORMER EQUITY PARTNER WITH BAKER & McKENZIE DURING THE “GLORIOUS YEARS” OF THE EARLY TO MIDDLE 1990s, I REMEMBER THE FIRM, NOW, WITH BOTH NOSTGALGIA AND ADMIRATION.

    ON THE ONE HAND, THERE WAS A STRICT ACCOUNTABILITY SYSTEM OF COMPENSATION, WHICH RAN STRAIGHT TO THE DESK OF EACH AND EVERY SINGLE LAWYER. (AS ‘MARTHA AND THE VANDELLAS’ USED TO SING, THERE WAS “NOWHERE TO RUN, NOWHERE TO HIDE.)

    YOU EITHER … AS THE OLD MARINE CORPS SAYING HAD IT … “HACKED IT, OR PACKED IT.”

    BY THE USE OF ITS COMPENSATION METHOD … KNOWN AS “THE FORMULA” … YOU EITHER PROSPERED, OR YOU WITHERED AWAY TOWARDS “THE EXIT DOOR.”

    WHETHER THIS WAS “SOCIAL DARWINISM” ON A BUSINESS LEVEL, OR THE SMARTEST MODEL OF LAW FIRM ECONOMICS … WAS UP TO WHO WAS HOLDING THE DICTIONARY.

    THAT SAID, THE SYSTEM … HEARTLESSLY OR NOT (THERE WAS SOME LATITUDE FOR OFFICES OF THE FIRM WHICH WERE IN “DOWN ECONOMIC” TIMES, BUT NOT MUCH) …WAS, AS ONE OF THE GERMAN PARTNERS PUT IT AT AN ANNUAL PARTNERS MEETING: “BOTH HYGENIC AND ‘SELF-CLEANSING’.”

    CHILLING WORDS, FROM SUCH A NATIONAL SOURCE.
    HOWEVER, “TRUE TO THE LAST SYLLABLE.”

    IT WAS NEITHER THE “DONNER PASS” NOR WAS IT THE “SURVIVAL IN THE ONE LIFEBOAT” SITUATION … BUT IT WAS, AS THE LATE GENERAL JAMES GAVIN ONCE CALLED HIS ALMA MATTER, THE UNITED STATES MILITARY ACADEMY AT WEST POINT, A
    “SPARTAN MOTHER.”

    MY TIME AT THE FIRM WAS EXHILARATING, AND ONE WHICH PRODUCED LIFELONG, INTERNATIONAL FRIENDS AND A SENSE OF BELONGING TO SOMETHING VERY SPECIAL.

    ONE MANAGING PARTNER OF ANOTHER “AMLAW 20″ FIRM REMARKED, AT A CONFERENCE SOME YEARS AGO, WHEN THE PROBLEMS OF TODAY WERE JUST STARTING TO SURFACE: “YOU KNOW, MAYBE BAKER & McKENZIE GOT IT RIGHT.”

    I DO NOT KNOW IF IT’S SYSTEMS WOULD WORK FOR EVERYBODY … BUT, FOR THOSE WHO COULD AND STILL DO SUCCEED UNDER IT … IT WORKED, AND WORKS, VERY WELL.

    BRUCE, YOUR COLUMNS AND COMMENTS ARE, AS WAS SAID OF THE LATE POET W.H. AUDEN, “A SEARCHLIGHT OF INTELLIGENCE.”

    JBH JR – SAN DIEGO COUNTY, CALIFORNIA


Leave a Reply