Law firm growth over the last thirty years has been constant. Through economic ups and down law firms have pursued growth, by growing organically, hiring laterally, doing mergers. For all the effort by law firms to grow, it is surprising that the resulting law firms are not much larger today. Setting aside the franchise like Swiss Verein approach to growth, attempts to grow have failed to Super Size law firms for one major reason: attrition.
Lateral Hiring and Mergers and Their Uneven Track Records. Organic growth through the hiring of law students and grooming them to be the future generation still happens but takes a back seat to the more instant gratification forms of growth–lateral hiring and mergers. Yet as the American Lawyer has recently reported, lateral hiring is not nearly as effective at improving a law firm’s profits and thus must be understood for the other contributions they provide. Moreover, evidence exists that many lateral hires perform far short of what was promised or expected. Growth from mergers is disappointing as well. As I have reported previously, approximately fifty percent of all mergers turn out to be failures. In light of the American Lawyer study, and the poor track record from mergers, why do law firms continue to pursue these tactics over the organic method?
Non-Strategic Forces Behind Growth. The motivation of any firm in the pursuit of a particular growth strategy requires a study of the firm, its management’s challenges and its overall needs. But at the risk of generalizing, four non-strategic things prod law firm management into growth by non-organic methods. First, management wants to appear dynamic and aggressive rather than passive. A caretaker regime will lose support over time. Second, rank and file partners demand action. They want to be a part of a vibrant and exciting place and any shortfall by inaction can in itself be destabilizing. Third, non-organic growth helps defend a firm against unrestrained raiding by other firms. If a firm refuses to engage in the non-organic growth strategies, management may fear that a perceived lack of vibrancy may result in its best assets being picked off by other firms. Fourth, limiting itself to organic growth does not provide the firm with the more immediate results commonly desired.
Abandon Lateral Hiring or Mergers? Pursuing lateral hires or mergers for these reasons is not strategic. Even though few firms will cite one of those four reasons as the rationale for a non-organic strategy, these unspoken motivations behind growth can cause management to rationalize its actions that place an undue emphasis on non-strategic lateral hiring or mergers. And unfortunately, for most firms, these pressures can be found as a subtle influence in the growth strategy pursued. So given these dynamics, should a firm simply forego lateral hiring or mergers in favor of old-fashioned organic growth? As long as the lateral hiring and mergers are pursued rationally, the answer is ‘no.’ But, given the track record of most non-organic growth it does beg the question about whether firms would be better served in directing greater energy towards initiatives designed to strengthen the existing organization?
Even with these influences, a law firm can employ a number of sensible steps to minimize large scale attrition and make its lateral and merger strategies more effective. In next week’s blog, the sensible steps to make lateral hiring and merger tactics more effective will be reviewed.