By Mat Martin, Managing Partner
Recruiting and retaining top legal talent is a strategic priority for every law firm. For decades, top firms have followed the recruit-train-retain formula to protect their brand and increase billable hours. However, as competition pushes more firms to segment their services and re-think their billing models, the traditional hiring model is also evolving. Today’s firms must be careful not to retain associates simply for retention’s sake. The same goes for hiring new associates: hiring elite talent solely for status without any consideration for long-term fit is shortsighted. To remain competitive, your firm must recruit and retain the right attorneys to serve your firm’s unique market position both now and in the future.
Is your firm’s talent roster in sync with your firm’s long-term goals? Retaining a partner whose practice is incongruous with your firm’s priorities or onboarding the wrong personnel can have costly financial and strategic consequences. Not only will your firm be paying top dollar for talent that is failing to grow billable hours, but you also risk hurting firm morale. It is no longer enough to recruit from the top law schools or even entice a rainmaker to join the practice with a hefty salary. You need to carefully consider how each of these hires aligns with your firm’s current position within the marketplace. Failing to do so can adversely impact revenue and shrink future growth potential.
A successful recruitment process must now begin with in-depth planning and analysis long before you review a resume or conduct an interview. Doing so is essential to assembling the right legal team that will best serve your current clients and advance long-term strategic goals.
How Changing Market Dynamics are Impacting Legal Recruitment
Historically, law firms have followed the “Cravath Model”, which emphasizes the importance of recruitment, rigorous training and internal promotion. Associates joined a firm right out of law school and stuck with that firm for life with the singular goal of making partner. While many firms continue to follow this model, shifting market dynamics are changing the rules of the game.
The legal marketplace has changed dramatically over the last decade in response to the Recession of 2008. Prominent law firms either failed or merged, and new, lower cost legal service providers emerged. Competition intensified for elite law school talent, while graduates from second and third-tier law schools struggled to land offers. Most recently, the firm Cravath, Swaine & Moore LLP made headlines with the news that they would begin paying first-year associates $180,000 for starting salaries. The dramatic 12.5 percent salary increase sparked an immediate backlash. Corporate clients feared they would be left footing the bill for the salary hike by paying top dollar for transactional services that required minimal specialization and experience. Already dealing with tight budgets, corporations that don’t receive efficient, effective and transparent counsel from their legal providers are considering alternative cost structures and sources for mid and low-service tier work.
With corporations pushing for greater billing transparency and competition offering lower cost alternatives, firms are finding it difficult to maintain existing cost structures. Your firm may be feeling the pressure to deliver top value, justify pricing and continue maintaining the traditional partner model. Or, your firm may be on the flip side – streamlining offerings and adding niche bench strength to better meet mid-market demand. Regardless of where your firm finds itself in the marketplace, you must understand your current position prior to beginning recruitment.
Conducting a Market Analysis
In order to recruit and retain the right talent for your firm, your hiring manager needs a clear understanding of your firm’s place within the existing legal marketplace. This starts with an in-depth analysis of marketplace perception, client relationships and your firm’s current approach to rates, size and specialty.
Marketplace perception and alignment
- How does the current marketplace view your firm?
Are you considered to be a prestige firm or a value firm? Does this perception align with your services and talent roster?
- How do you view your firm?
Is your perception of your firm aligned with the marketplace, and if not, is this misalignment adversely impacting your clients and attorneys? Perhaps you consider your firm to be among the elite Bergdorf Goodmans of the world, but the market thinks of your firm as a middle-of-the-road Macy’s. In this case, you can’t charge Bergdorf-pricing or assume you can attract Bergdorf-level clients (or elite talent, for that matter). A misalignment between your perception and the marketplace’s perception can hinder growth and handicap your recruitment and retention efforts.
- Where does your firm want to be in the marketplace?
Has your firm achieved its marketplace positioning objectives or is this still a work-in-progress? Are those positioning objectives realistic? For example, if you do want to be amongst the elite firms of the world, is that an achievable goal, or should your firm focus instead on targeting a different segment that could ultimately be more profitable in the long run?
Client needs, challenges and relationships
- Who are your clients?
Your clients may be Fortune 500 companies, small or medium-sized businesses, non-profits, startups or individuals. Do you have a mixed client base or a clear specialty?
- What is your relationship like with your clients?
Evaluate your client relationship strength and how these relationships are nurtured. Do clients consistently seek your legal counsel on a range of issues or do they only turn to you sporadically for more nuanced advice or transactional needs?
- What is the average client tenure?
Are these long-term clients carefully cultivated and maintained by your partners over the years? Or, are they new clients with short-term transactional needs who are less likely to require repeat services?
- What challenges/opportunities are your clients facing within their industries?
Consider your clients’ challenges. Are they being squeezed by the competition or constantly under threat of legal action? How is their industry evolving and how will this evolution impact their need for legal services in the future? Can you add bench strength now in anticipation of these future needs?
- What billing structure do your clients prefer?
Are your clients resisting rate increases, pushing for lower rates or requesting for alternative billing structures, such as fixed, flat or capped fees rather than a traditional billable hour structure? Is your current billing structure consistent with your clients’ needs and marketplace expectations? You can’t market your firm as value-based but charge high-end prices.
Internal pressures: firm rates, specialty, size and rainmakers
- What direction is your billing going?
Clients who once agreed to standard rates are increasingly asking to adapt rate structures to their internal budgets. When evaluating your current client roster, consider whether your rates are consistent with your goals and structure. If so, you may be poised to gain market share. If not, you should be prepared for the possibility that your clients demand new rate structures. Finally, if only a small percentage of your business is done for rate-sensitive clients, you may decide that those clients are inconsistent with your firm’s strategic goals. Can your current billing structure continue to support your firm’s growth and recruitment goals, or will existing elite talent ultimately be too costly to keep on board if billable hours decline?
- What are your current practice specialties?
As demand for legal services evolves, firms are increasingly segmenting into specialized practices. Practices with niche specialties like healthcare law, intellectual property rights, insurance defense and employment practices are all growing. If your firm is in the process of specializing its offerings, does your current talent roster align with these specialties?
- How sustainable is your firm’s current growth trajectory?
The recent trend towards firm consolidation through mergers and lateral acquisitions is resulting in larger firms. Firm size directly impacts profitability and bigger isn’t always better. Law firms don’t enjoy economies of scale like manufacturers or wholesale distributors. The larger the firm, the higher the level of non-revenue-generating administrative support required for the firm to operate successfully.Firm growth can also raise more conflict-of-interest issues. While client conflict waivers have increased, not all can be waived. Growth-focused firms must be prepared to address conflicts-of-interest and anticipate the increased costs to address them.
- How does your firm balance rainmakers versus non-rainmakers?
A highly successful attorney can generate sufficient work to keep several other attorneys busy. If he or she is your only rainmaker – or one of a few in your firm – you may go to considerable lengths to keep that attorney content. But what about other attorneys in your firm who bring in less business individually but still account for the majority of your revenue?
If you only incentivize rainmakers, you may sharply restrict the field of lateral candidates who would be interested in joining your firm. Or, should your star rainmaker decide to leave, you may find yourself facing a serious gap in billable hours without any viable talent ready to fill this gap. Carefully consider your firm’s internal dynamics and structure in comparison to the broader marketplace when developing your recruitment and retention strategy.
Next Steps: Positioning Your Firm for Smart Recruitment and Retention
Profitability pressures, the emergence of alternative service providers, and shifting elite talent demands are changing the rules of the recruitment and retention game. By completing a comprehensive marketplace analysis, you will be better positioned to develop an effective talent recruitment and retention strategy.
Every new hire or current associate must align with your firm’s marketplace niche and long-term strategic growth goals. Before hiring or promoting anyone, ask these questions:
- Does my current talent roster align with our core service offerings, or are we paying top dollar for prestige talent that doesn’t match our growth direction?
- How will a new hire add to our niche bench strength and position the firm to best serve our clients’ future needs?
Do not wait until an offer is on the table to consider the bigger picture and ask these tough questions. Avoid recruitment and retention pitfalls by completing a comprehensive market analysis first. Only then will your firm be positioned for long-term growth.
I’m interested in your experiences and perspectives on this topic. Please send your ideas and comments to me at firstname.lastname@example.org.