Lateral hiring – totally disastrous (except when it’s a roaring success)

It's the most common tool law firms reach for to upgrade their practice - a fact underlined by a Legal Week article yesterday that showed that 2010 was the most active year yet for US law firms hiring partners in the UK. And, yet, there is surprisingly little research on the ups and downs of hiring shareholders into your business.

Partly plugging that gap, the consultant Motive Legal this month produced research tracking the retention of partners hired in the UK over the last five years, covering 1,944 moves. While the results confirmed what many already suspected, it is nevertheless striking to see it in data form: 44% of those partners hired in 2005 were no longer with the firm that hired them by 2010. Even looking at the figures over a three-year timeframe, 30% had quit between 2007 and 2010.

The figures also confirm that US law firms - proportionately the most active section of the UK partner recruitment market - are materially worse at partner retention than domestic practices. Again, no surprise, but interesting to see the numbers. The domestic firms have better market knowledge and less need to hire rare mobile talent in bulk - it would be a shocking indictment of UK law firms' management if they didn't outperform the Americans. (And if you looked at UK firms' hiring Stateside, I'd amazed if the outperformance of the home team wasn't even more striking).

The Motive research raises valid questions about the role of partner recruitment, strongly suggesting that lateral hiring largely doesn't 'work'. But then the virtues of growing your own are both so obvious and so frequently forgotten. Building a legal business organically will usually be a better option because:

• It's cheaper - the transfer market hikes the price for talent (even before you consider direct recruitment costs).

• Cultural alignment - homegrown staff are usually more in tune with the business.

• Retention, loyalty and business stability - partners that have moved once are statistically much more likely to move again. As such, laterally-built practices are inherently much less stable.

• Motivating the ranks - internal promotion sends out a better signal to your junior ranks than giving away their equity to outsiders.

• Clients - they either don't move or move too easy. For hiring firms, it's a problem either way.

• Finding good people - quality partners generally don't want to move. Finding exceptions to that rule that fit your needs is hard and high-risk.

But, irritatingly, it's not that simple. While firms should have a default bias towards organic growth, if you need to enter a new market or aggressively build a practice area you haven't got much choice but to start hiring. And here's the real nub: taken as a whole, lateral hiring achieves very little for the industry apart from helping Legal Week on a slow news week. Yet for some firms it's incredibly successful - the average masks a huge gap between those that make it deliver and the firms that it is actively damaging.

So if you believe that partner recruitment doesn't work, you may want to mention that to firms as diverse as Latham & Watkins, Clyde & Co, DLA Piper and Berwin Leighton Paisner, whose success over the last 10 years has been married to aggressive lateral hiring (the latter two have had problem recruits, but still have a good batting average). So I guess the real questions for law firm leaders are: what unites the success stories? And how do I copy it?

Trying to answer that one is outside the scope of this article, but there are some signs that firms are getting a little more sophisticated in this regard. I found an old Legal Week article from the summer of 2008 bemoaning the preponderance of underwhelming partner hires that were still getting made. Presumably the recession has forced firms to focus their efforts because the number of cringeworthy transfers has definitely shrunk in recent years in tandem with faltering Western economies. There's also more talk these days of firms putting in place structured hiring programmes and monitoring partner retention (it's bizarre the latter didn't become standard practice years ago).

But I suspect that the gap between the skilled partner recruiters and woeful assimilators of talent is still huge. In a few years some of those lateral-heavy US practices are going to be breathing right down the neck of the City's finest - I'm particularly liking the look of Latham's maturing London practice right now. Another group will be wondering what went so wrong.

• For more, see US firms in London push City partner hiring to record levels in 2010