Strategic Recruitment: What Lies Beneath

More law firms are formally vetting potential senior recruits. Legal Business investigates the growth – and controversies – of partner due diligence.

The legacy of failed lateral hires can damage reputations and even affect the finances of a firm, and this can be particularly galling when the failure is down to an absence of basic due diligence, or that process is flawed. Even the most established firms can get things badly wrong. One recruitment consultant recalls the time a Magic Circle partner called an old law school colleague for their opinion on a potential candidate. As it turned out, the old school chum was the potential recruit’s current boss.

The question firms now face is whether simple reference checking and sounding out a few relevant contacts is sufficient before allowing someone to own part of your firm. Should thorough due diligence be handled by a third party, such as a recruitment specialist?

Opinion is unsurprisingly polarised. Some firms claim to have already developed sophisticated due diligence processes internally, while others feel that turning to a recruitment consultant for this service doesn’t provide a return on investment.

Freshfields Bruckhaus Deringer, Clyde & Co and RPC are among those preferring to carry out all the due diligence they believe they need when hiring partners internally. Clyde & Co senior partner James Burns says the firm conducts an internal process at board level. When asked whether external recruiters are ever used, he says they are too expensive. ‘We are careful and practised in selecting partners and take things at our pace as much as possible. For example with regard to Dewey & LeBoeuf, in the end we only hired one partner in Paris,’ he says.

Stephenson Harwood does its basic due diligence in-house and then brings in recruitment specialists for a more comprehensive check, such as Melton Legal Search, Fox Rodney Search, Deacon Search and Shilton Sharpe Quarry.

Wim Dejonghe, managing partner at Allen & Overy, says external specialists can occasionally be useful when carrying out due diligence on a candidate. ‘We don’t always use recruiters for finding partners as they don’t always have credibility in every market we operate,’ he says. ‘We have first-hand experience of who we hire. However, we externally do due diligence on partners and have external validation for this.’

Similarly, Simmons & Simmons will only use external services to handle certain issues that cannot be addressed internally. ‘We do sometimes use due diligence agencies if there is a particular issue that we want to get to the bottom of,’ says managing partner Jeremy Hoyland. ‘It is controversial as some partners think it’s a complete waste of time, while others think it’s brilliant and we should always do it. Recruiters can be useful.’

One of Hoyland’s criticisms is that the process as a whole is far too time consuming. ‘I would like it to be quicker, but the problem is we’re not going to skimp on the due diligence,’ he adds.

Siobhán Lewington, managing director of Fox Rodney, which offers its own due diligence service, says: ‘The vetting process is time sensitive – clients generally want it done as quickly as possible. Ten working days is generally sufficient, but this depends on a number of factors, including the relevant market.’

She says Fox Rodney’s due diligence report is presented as a package, along with the partner proposal and the business plan, to the firm’s board and recruitment committee. Some firms use the service for all hires, some for equity partners only and others use it only when they are entering a new jurisdiction or a new practice area.

‘We will speak to credible sources in the market to build up a picture of the candidate, look at market perception, what management style is like, how billings are generated, etc, in order to obtain a balanced view from the market,’ she says.

Mark Brandon, managing director of Motive Legal, says there is now more formal due diligence being carried out in the legal market, which has led to more effective recruitment in recent years. However, he warns that law firms often get due diligence wrong when they try to do it themselves.

‘Firms can do their own due diligence, but there’s something to be said for getting an independent party to do it. If it’s going to save making a big mistake, it’s not that much money in the grand scheme of things,’ he comments.

But how effective is external due diligence and who is accountable when a lateral hire does not work out? Richard Ziegler, director at Kinsella & Ziegler, says some consultants openly tell firms that if they choose to carry out their own diligence, then the entire risk lies with the firm.

‘It’s the responsibility of the acquiring firm to perform necessary due diligence while conjoined with the lawyer’s professional integrity and honesty,’ says Colin Jones at Eximius Law. ‘Should a business plan written by a lateral not be delivered then, quite simply, the hire will fail. Blame can only be attributed to the failing of the due diligence process.’

However, he adds this general concern is diminishing and has seen signs of the due diligence process improving as a whole. ‘Any lateral trying to massage figures, hourly rates or actual hours delivered will get found out, because law firms have a very sophisticated matrix. On the due diligence level, the client [the acquiring law firm] will dry-run the lateral’s business plan to see what it will produce. Firms can do this directly, but for those firms that have a strategy and want a strong lawyer, they’ll employ the services of an agent, as a conduit, and I will go and do that for them.’

An added incentive to recruitment consultants to accept further accountability for candidate due diligence would be for them to work in some kind of longevity clause into contracts. This would trigger when a lateral hire remains with the firm for a certain period of time – provided they are earning fees of course – leading to a success fee for the recruiter. Unsurprisingly, recruiters say firms aren’t particularly sold on the idea – ultimately because it would involve paying out even more.

And, according to Frank Varela, founder of strategic recruitment firm V&P Global, while due diligence is a vital part of the recruitment process, it is far more important to get the business case and planning right for a lateral recruitment in the first place. ‘Too often this is fudged or overlooked and the wrong candidate gets through to the due diligence stage,’ he says. ‘No amount of due diligence at this point (even if it is all good feedback) is going to make the wrong person suitable for the specific role to be recruited. This does not mean that the candidate is not suitable for the firm, but it often means that the hire will not have the impact that was originally intended.’

But while there are certainly limits to partner due diligence, it is clear that formal vetting in partner recruitment is not only here to stay, it will be a growth business for years to come. LB

jaishree.kalia@legalease.co.uk