The legal landscape for lateral partner transitions in law firms in 2023 is still a complex and multi-faceted journey. It requires a comprehensive strategy that conforms to several legal industry norms and standards. If you’re a practicing attorney weighing your potential as a lateral partner, let’s delve deeper into this multifaceted process.
Each legal firm cultivates a unique culture and looks for specific traits in lateral partners. However, there is a universal baseline or a certain prerequisite that an attorney must meet to become an appealing candidate. This benchmark typically includes factors related to profitability (such as portable business, billable rates, working hours, and leverage), educational qualifications (such as law school attended), years of legal practice, and occasionally, even academic performance (GPA).
Profitability is a key determinant in the lateral move. We can understand its impact better by imagining two partners with equal portable businesses but differing in their earnings due to variations in their billable rates and hours.
Let’s say Partner X has a $3 million portable business. If their billable rate is $700 per hour and they clock in 1,500 hours annually, they contribute $1.05 million directly to the $3 million. The rest ($1.95 million) is handled by other attorneys who complete the tasks originated by Partner X. The larger the team involved in their practice, the higher the costs related to their business. As a result, Partner X may earn approximately $700,000 per year from their $3 million practice.
Now, consider Partner Y who also boasts a portable business of $3 million. Their niche expertise allows them to charge $1,400 per hour and their services are in high demand, logging 2,500 hours a year. As a hardworking attorney with minimal leverage, Partner Y can predict earnings nearing $1.2 million from their $3 million practice. The crucial difference between Partners X and Y lies in the direct and associated overheads needed to operate their respective practices.
The educational background of a potential lateral partner plays a significant role. Our extensive placement records indicate that the law school a lateral partner attended is strongly linked to their likelihood of acceptance by any firm (this link strengthens within the top 50 Am Law firms). A simple breakdown of the partner composition of national law firms will underscore the significance of a law school’s reputation. For instance, a considerable proportion of partners at nationally recognized law firms are alumni of top-tier law schools. Past these prestigious institutions, there’s a discernible drop in the returns on law school rank.
What’s the next step after meeting the baseline? Law firms usually expect younger partners — roughly fifteen years post-law school — to have smaller client portfolios. Nonetheless, they’re keen on seeing junior partners displaying growth in their portable business. As an attorney rises through the ranks, their client portfolio is expected to grow two or threefold compared to that of a less experienced partner. Although this expectation varies among firms, it is common for firms with profits per partner around $2 million to expect lateral partners to bring about $3 million to $4 million in business. Firms with lower profits per partner might accommodate junior partners with less than a million in portable business.
Billable rates often pose a greater challenge than conflicts for lateral partners. A substantial difference in the billable rates between a firm and a lateral partner candidate can lead to deadlock. For example, a partner with a lower hourly rate may find it difficult to adjust to a firm that doesn’t offer flexible billable rates. Firms might be more open to lateral partners who are willing to lower their rates. However, they seldom accept partners who charge considerably lower rates, as client rates are often inflexible. Envision a partner explaining a rate increase to a major client due to a switch to a larger firm; this could likely result in client loss, and subsequently, a drop in the profitability of their original firm.
Evaluating a potential lateral partner usually begins with a meticulous review of their client list to spot any conflicts. Major conflicts can instantly disqualify a lateral application, which is why we prioritize a thorough understanding of our clients’ histories to avoid such predicaments. Firms also examine the prospective lateral’s clients to identify any overlaps with their existing partners. A significant overlap can deter a firm from considering a lateral partner unless the new client provides a potential that compensates for any impact on the current business.
Successfully navigating the lateral partner market requires more than just knowledge—it demands a vast network, keen insights, and extensive experience. At Lateral Link, we pride ourselves on possessing all three. Our industry experts have their fingers on the pulse of the legal landscape, ensuring you’re always a step ahead. Why venture into this challenging terrain alone when you can have the industry’s best by your side? Connect with Lateral Link today, and let our seasoned professionals guide you through the complexities of the partner market with unparalleled expertise.
