By Mark Brandon, Motive Consulting
One of the least-seen phenomena of recent times in the legal industry is the growing tendency by law firms to undertake independent due diligence on their lateral partner hires.
It works like this; at offer stage, the firm will pay an outside organisation, usually but not always a recruiter, to go off and discreetly talk to a number of clients and former colleagues of the putative lateral partner hire by way of ‘due diligence’ on the hire.
Law firms part with somewhere between £2,000 and £20,000 for this, and in return, get a report – usually written but sometimes oral – on the individual or team. Sometimes they tell the candidate this is happening, sometimes they won’t.
Having usually spent a hefty sum on the hire already, why do some firms want to spend more on this? And why do some firms set their face against it entirely? And where they do it, does it work?
Over the summer, I spoke to heads of HR, recruitment managers and managing partners at 26 leading firms about these issues, on behalf of legal recruitment boutique Fox Rodney. The firms were chosen at random from The Lawyer Top 50 and the AmLaw100, and featured a balance of UK, US and ‘hybrid’ (merged) firms, and all responses were confidential.
A surprising number of the sample – 68% – had used independent due diligence on lateral partner hires, with a further 16% considering it. UK and hybrid firms were much more likely to have used it than US firms. Interestingly, none of the firms which had used it said that they were going to discontinue it. On the contrary, despite the obvious costs involved, a number of ‘ad hoc’ users said they were going to join the minority who said they did it as a matter of policy for every hire.
The vast majority of users said they found the results “useful” or “very useful”, with 40% reporting that the independent due diligence had been responsible for halting at least one hiring process. Users estimate the savings could run into several hundred thousand pounds per hire, or more.
Growth of an industry
Despite this kind of thing being pretty run-of-the-mill in executive search outside the law, its use in law has exploded since the financial crisis. Given that most firms don’t use it as a matter of policy, what triggers the decision to spend the extra cash on getting an independent report is either the level of investment involved – for instance where a partner is earning in excess of £250,000 a year – or where the investment is in a new or unfamiliar practice area or foreign jurisdiction. As one respondent said: “£5,000 strikes me as a small amount of money to save you from taking on an idiot.”
Another trigger for many firms might be termed “behavioural”.
Behavioural issues are often the most difficult to tie down but can be the most destructive. As one managing partner put it: “I need to know the stuff that doesn’t come out in the market, the stuff partnerships are really good at keeping close to their chests…everyone may know if someone’s a complete jerk, but there may be very few who know the person is an alcoholic or has a drug problem or a history of sexual harassment.”
That also raises the issue of whether you tell the candidate or not. While 42% of users do tell the candidate, 33% do not, and the remainder only “sometimes”. This clearly makes firms uncomfortable. “You could lose a good lateral for no other reason than he/she found out you were doing this and didn’t like it,” said one head of HR whose firm does not notify the candidate but who feels they probably should.
US firms were least likely to use the service, a nuance one respondent, who had worked in several US firms, put down to self-confidence. “They like to think they have such a good network that will, in itself, be enough”, a view echoed by several managing partners of US firms in London who rely solely on their own contacts to vet a hire.
Of course the sceptic might say that you’re never going to be able to be sure about a hire until you take them on, and it was clear from the study that independent due diligence is only part of a holistic risk management exercise around hiring, including more robust interviewing and better analysis of business plans.
However, in a world where the traditional reference has been devalued, the need for the service seems clear. As one head of HR said: “references are not worth the paper they’re written on; people are always going to give you referees who’ll give you positive stuff. We wanted to get a real idea of whether the people we were thinking of hiring were fit for purpose or not.”
Mark Brandon is managing director of Motive Legal Consulting Ltd. The report – ‘Lateral Partner Hiring: the value of independent due diligence’ is available from FRS on request.