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From Reactive to Proactive: Is Your Firm Investing in the Future?

Jan 10, 2024 | Lateral Partner, Lateral Partner Recruiting, News, Uncategorized

By Patrick Moya (January 9th, 2024)

As previously published on

The ups and downs of the last few years have been a lesson on the importance of contingency planning across all industries, particularly legal. 

Businesses have had to pivot and rethink staffing to survive and thrive. While the COVID-19 pandemic may have been an extreme event that lasted for several years, successful companies have always known that the best protection against changing market conditions is to regularly analyze their business and industry and proactively invest for the future. 

Unfortunately, in my experience, many law firms fail in this area and tend to be reactionary in their planning and hiring strategies. 

What Happens When Law Firms Don’t Plan Appropriately for Hiring or Make Bad Hires? 

In virtually every industry, human capital is the cornerstone of success. For a business to prosper, it must analyze its operations and make informed investments in its workforce. This is especially true of law firms that deal primarily in human expertise rather than tangible products. 

Many law firms base their hiring and firing decisions on the volume of current work and react to market conditions as they unfold. This reactive approach can lead to instability, inefficiency, and even resentment among attorneys. A prime example of this was the COVID-19 pandemic, which left law firms grappling with economic fluctuations and inflation as they happened instead of anticipating and planning for them. By considering the dramatic shifts in hiring over the past few years, law firms can learn to be more prepared to face future unexpected challenges. Additionally, they can predict swings in market conditions where there is historical data to support alternative planning/staffing strategies. 

In times of crisis, firms could consider tapping into their partners’ expertise to pick up slack rather than immediately resorting to hiring new people and/or laying off others. Furthermore, incentivizing and leading with a “carrot” approach, rather than relying on the “stick,” can promote a culture of innovation and collaboration within law firms. Consider Google’s approach, which dedicates 20% of employees’ time to brainstorming innovative ideas, as detailed in Daniel Pink’s book “Drive.” Employees have the autonomy to decide what they want to work on during that time to encourage creative thinking. By promoting this type of productivity, employers create an environment that encourages staff to think outside the box, take ownership beyond their delegated day-to-day tasks, and provide intrinsic value to the firm.

One shining example of forward-thinking in the legal industry is Sheppard Mullin; they have had a highly successful lateral partner recruiting program for decades. 

As Jon Newby, Sheppard Mullin’s Vice Chair, aptly puts it, “While there will always be an opportunistic element to partner lateral recruiting, we have successfully focused on lateral hires who further our various strategic goals. We also make it a priority to integrate every lateral which we find significantly increases the likelihood that they will be successful and remain with us for the balance of their career. We take a team approach to integration, but the integration of each lateral is ultimately the responsibility of myself or one of our two managing partners.” 

Law firms can undoubtedly benefit from adopting such a perspective because Sheppard Mullin does one of the best jobs in the industry. In 2017, The American Lawyer conducted a Global Lateral Hiring study which showed that only 53% of lateral partners are with their new firm after five years. Sheppard Mullin’s retention rate for the rolling five years ended August 2023 is well over 90%. 

How Do Law Firms Make Hiring and Firing Decisions? 

A critical aspect of this discussion is understanding how law firms traditionally make personnel decisions. Typically, firms base their staffing on the work they receive from clients and the economic conditions facing those clients. 

However, this approach often leads to hasty decisions. When a sudden surge in a specific practice area occurs, law firms find themselves competing fiercely with others for talent, often resulting in top-dollar salaries. This “hire at all costs” mentality can lead to instability and a suboptimal cost-benefit ratio, as new hires ramp up while existing attorneys in hot practice areas become overburdened. Conversely, when practice areas cool down, law firms may resort to layoffs, affecting morale within the firm and potentially alienating talented lawyers who could be re-tooled for other roles. 

Clients are also affected by these reactive decisions, as firms may raise their rates to cover high personnel costs. This can create dissatisfaction and strain client relationships. 

Law firms suffer financially from these cyclical hiring and firing practices. Money is wasted on over-hiring, high salaries, and lost business opportunities during the ramp-up phase. The broader legal industry is also impacted, as it perpetuates a perception of attorneys as replaceable. 

How Can Firms Proactively Plan for Their Staffing Needs? 

The only way out of this is for firms to do a cost-benefit analysis that shows them how much this situation is really costing them, so they are incentivized to change how they are hiring and firing. How much is it costing the firm to pivot on the fly and then deal with the repercussions later? Are there better solutions like having partners pick up the slack in the short term rather than relying on associates? Can attorneys in slow practice areas be retrained instead of laying them off? Firms need to take a gamble and make investments now to prepare their firm for the future. 

Next, firms must be prepared to gather and analyze data. “What gets measured gets improved,” as recognized by management theorist, Peter Drucker. In other industries, companies hire experienced business and financial analysts who use data to make projections and assess where to make changes and invest in the future. Analysts look at factors like the firm’s natural business cycle (when revenue comes in during the year); legal, business, and economic trends affecting the firm and its clients; and the return on investment of prior decisions. 

Before deciding on staffing levels, firms must use the data to evaluate where they are likely to need more associates, partners to bring in business, and complementary practices. They also need to measure the productivity of their attorneys to determine the ROI on hires and how reallocation/retraining of attorneys to other practice areas may benefit the firm. 

How Can Law Firms Shift from Reactive to Proactive?

To shift from a reactive to a proactive approach, law firms should adopt several strategies: 

1. Client Engagement: Engage with clients to understand their anticipated challenges and build trust. Open communication can provide insights into future legal needs. Then, measure the results to move forward or double down on what’s working, and move away from what is not. 

2. Risk-Taking: Take calculated risks, such as investing in areas with potential for growth and hiring attorneys that align with long-term goals even before immediate demand arises. 

3. Partner Perspective: Consider and communicate with partners on how they may view the firm’s hiring and firing strategies to create innovative solutions. By being proactive, firms may get the feedback needed to attract the best candidates willing to take risks moving to firms that align with their long-term goals, rather than settling for short-term. 

4. Data-Driven Decisions: Measure the return on investment (ROI) of hires and consider the cyclical and seasonal nature of the firm’s business. Analyze data to anticipate staffing needs during peak times, such as the fourth quarter or a major national election year, particularly with transactional practices. 

5. Strategic Analysis: Employ experienced business and financial analysts to better understand legal and business trends and make long-term projections. This can guide decisions about hiring, complementary practice areas, and reallocating or retraining attorneys. 

In conclusion, law firms must annually assess their business, strategically plan their investments in talent, consider re tooling their workforce, and reserve layoffs for extreme unproductive instances. It is imperative to consider the bigger picture when making hiring and firing decisions. As Jack Welch put it, “You can’t grow long-term if you can’t eat short term. Anybody can manage short. Anybody can manage long. Balancing these two things is what management is.” 

By aligning their personnel strategies with client-centric thinking and adopting proactive approaches, law firms can better serve their clients, enhance their own success and profitability, and foster a more stable and fulfilling work environment for their attorneys. Learn more from Quaero Group.



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