48SMART COLLABORATION
worse for the first two years of their employment than workers
who were promoted to the same job from within the organization.
Furthermore, he discovered that lateral hires were far more likely
than internal workers to leave their job—either because they quit
or were fired. At the same time, Bidwell concluded, external hires
cost the firm 18 percent more in salaries than did their internally
promoted colleagues.
3
Most firms recognize that it takes several years to bring an expe-
rienced hire up to speed—even to reach the level of performance
they displayed in their old firm, let alone to become still more pro-
ductive.
4
Yet in the legal sector, for example, the chance of a lat-
erally hired partner staying more than three years is generally no
better than a coin toss.
5
One study of leading law firms in London
yielded some truly abysmal statistics: fully 20 percent of lateral
hires were no longer with their firms one year after joining, and
50 percent had left within five years. The reported average cost of
each of these failed hires was something north of $150,000, but
most experts in the field suggest that the actual cost of those failed
hires—consider, for example, the opportunity costs of partners’
time spent interviewing and onboarding them—to be double that
figure.
6
Another problem is the bad assessment of, and an overempha-
sis on, a candidate’s existing book of business. Many firms use a
lateral partner questionnaire to gauge the size and value of such
a portfolio—and most of them know that they have to discount
that book by some percentage. The problem is, what percentage?
Again, experts—both recruiting professionals and senior leaders
who have been burnt in the hiring game—advise that a realistic
discount rate applied to a portfolio might be as high as 60 percent!
7
So what are you really buying?
Even successes don’t come quickly. Compelling data demon-
strates that professionals who switch firms are likely to fall off quite
significantly in terms of performance, and that it takes them three
to five years to climb back to their former level of productivity.
8
The risks of lateral hiring extend far beyond payroll hits.
Obviously, the arrival of a new player on the scene creates a poten-
tial threat to the existing partners or would-be partners. Imagine
Chapter_02.indd 48 05/10/16 11:38 pm
The People Case for Collaboration49
the reaction of the rock-star senior associate coming up through
the ranks with expertise A who fully expects to make partner—
and then learns that the firm has decided it’s more expedient to
hire an outsider with expertise A and an existing book of business.
That internal rock star can be forgiven for concluding that his or
her chances of promotion just plummeted. And is that internal star
going to be in a collaborative frame of mind, vis-à-vis the new-
comer? Not likely!
In addition, lateral hiring can cause tremendous upheavals in the
compensation system, given that the acquiring organization gen-
erally needs to pay much more for an individual brought in from
the outside in order to compensate them for the risk of changing
employers. In US law firms, for example, the pressures associated
with lateral hiring are often what lies behind the enormous dis-
parity in compensation between partners within the same firm:
although the median spread between the highest- and lowest-paid
partners inside a US firm is ten to one (already quite a gap), that
ratio swelled as high as a staggering twenty-three to one in one
firm where lateral hiring was rampant.
Finally, the biggest risk might be the watering down—or
worse—of an organization’s culture.
9
Sometimes the addition of
employees with different perspectives can be hugely beneficial for
firms by opening up new ways of thinking, which in turn open up
new opportunities.
10
But unless you’re deliberately seeking and hir-
ing candidates with a specific, diverse set of characteristics, you’re
leaving the evolution of your culture to chance by hiring people
who come from firms with cultures radically different from your
own. One boutique consulting firm, for instance, added five part-
ners to its existing fifteen during a boom year, but within a year the
firm’s leader and most of its partners were worrying about emerg-
ing fissures and infighting within the formerly harmonious group.
What’s the answer? Some industry leaders, such as the law
firm of Wachtell, Lipton, Rosen & Katz, have nearly prohibited
lateral hiring in an effort to husband their resources and pre-
serve their unique culture (although even that venerable firm has
made a few notable exceptions, such as hiring ninety-year-old
Robert Morgenthau, whom the New York Times has described as
Chapter_02.indd 49 05/10/16 11:38 pm
50SMART COLLABORATION
“a legendary former prosecutor with a Rolodex as extensive as the
Dead Sea Scrolls”).
11
Executive search firm Egon Zehnder has a
limited ban: it hires from other leading professional service firms,
but not from the other executive search consultancies that are its
direct competitors. At one point, for instance, forty out of Egon
Zehnder’s 270 client-facing staff were McKinsey alumni.
12
Assuming that your firm concludes that the potential upsides
to hiring laterals outweigh the downsides, there are a number of
steps you can take to better your odds with laterals. They fall into
three categories: analyzing data and preparing the firm, assessing
the candidate, and posthire mentoring and accountability (see the
summary in figure 2-2). Let’s consider each in turn.
Analyzing data and preparing the firm
First things first: you need a robust, data-based analysis that forms
the business case for each lateral hire. Many firms kid themselves
that they’ve already got such a system in place, but most of the plans
• Calculate
projected
ROI
Analyze
prior hiring
outcomes
Decide if
external hire
is necessary
Create
account-
level
business
plans
•
•
•
• Coordinate
interviews:
Assign focus
areas and
mandate
structured
review forms
•
Use behavioral
questions,
probing
collaboration
experience and
attitude
•
Talk explicitly
about firm’s
collaboration
expectations
• Lateral hire:
Create
business plan
• Hiring
advocate:
Introduce
lateral to
client and
other partners
• Leader: Hold
hiring practice
group
accountable
for lateral’s
success, and
provide
budget and
support
Analyze,
decide, and
prepare
Assess
candidate’s
collaborative
capacity
Integrate,
with
accountability
and support
FIGURE 2-2
Three-stage process for hiring and integrating laterals
Chapter_02.indd 50 05/10/16 11:38 pm
The People Case for Collaboration51
I’ve reviewed were more about arguments than analyses—which is
not surprising, given that they were written by time-pressed part-
ners who hadn’t been supplied the relevant data. Instead, engage
your financial and business development experts to collect and dis-
sect both internal and market data to calculate anticipated returns
on investment (ROI) for each proposed candidate. More specifi-
cally, analysts should work with partners in both the proposing
practice group and adjacent ones to understand a range of realistic
scenarios, and then calculate how sensitive the initial projected
ROI is to these differing assumptions.
Whether to hire and how many to hire should be based not only
on these financial models, but also on strategic factors, such as
expanding business opportunities, new offices in specific geographic
markets, partner turnover, and newly developed (or growing) prac-
tice or sector-focused groups. For each of these factors, you need to
analyze current capacity and utilization to reveal whether the emerg-
ing market needs can be covered by an existing internal resource. Set
the bar high to convince yourself that a lateral is the only option.
As the COO of a US-based consulting firm phrased it:
In at least 80 percent of the cases where a partner requests
a lateral hire, our analysis of staffing and utilization data
shows that we have spare capacity somewhere in the firm to
do exactly that role. Occasionally it requires a slight retool-
ing of a senior associate’s skills, but that’s a much more cer-
tain investment than seeking an external candidate.
When I push the requesting partner, he or she usually
thinks that a lateral hire will either be quicker than retool-
ing, or they want to have the individual sitting in their
own office for the convenience of communication.
We have now implemented a more formal process for
requesting a lateral. In the course of writing up the required
business case, the partner often solves his own problem:
by conferring with colleagues and gathering data about
the request, he often uncovers the necessary expert already
in-house. Now our requests are based strictly on specialized
expertise that truly doesn’t exist here, or on strategic issues
Chapter_02.indd 51 05/10/16 11:38 pm
52SMART COLLABORATION
where the firm wants to grow—and the latter are typically
instigated by members of the Executive Committee.
So bottom-up requests have fallen enormously, and we
haven’t suffered at all. Quite the opposite.
13
Also scrutinize the organization’s readiness to absorb a new
partner. Is the practice group appropriately leveraged? If you hire
a lateral partner, will she have adequate associate support for her
business? Has that office or practice just hired a cohort of other
laterals who are taking up all the onboarding attention and energy?
Your ability to answer these questions ties directly to your ability
to help a newly hired partner succeed.
I also encourage firms to run the numbers in another way: Which
practice groups, or even individual partners, have successfully built
a team through lateral hiring? Gather and review your lateral hiring
data from the last five years or so, with a specific focus on (a) who
pushed for or sponsored the request, and (b) how well each of those
laterals fared, once hired. You may well find a strong correlation
between certain partners’ or practices’ attempts and success rates, in
which case you should reward them by giving their future requests
greater legitimacy. In contrast, your analysis might reveal pockets of
“churn and burn,” which strongly suggests that the offending groups
fail to strategically consider their hiring requests, use the wrong hir-
ing criteria, or lack the proper ways to integrate laterals once they
arrive—a subject that we’ll return to shortly.
If you do decide—based on convincing evidence and a sound stra-
tegic plan—that a lateral hire is the best option, then you should
require a business plan toward that end, as described by the COO
cited earlier. The plan should include specific client objectives, along
with a named individual who accepts accountability by agreeing to
specific deadlines for initiating and completing the actions.
Assessing the candidate for “collaborative capacity”
No doubt your firm already has well-established policies for assess-
ing the merits of a potential hire. So if they’re actually getting the
results you want, then don’t short-circuit the procedures that have
Chapter_02.indd 52 05/10/16 11:38 pm
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