Here are 10 factors to consider before a lawyer with a portable business makes a lateral move to a law firm. This should act as a guide for your decision-making process, as there are many moving parts in such a move and I can’t cover all the ground.
1. Law Firm Environment: Never underestimate the importance of the company environment. If you’re not happy with the company’s environment, you won’t stay long, regardless of the compensation you get. Some of the biggest reasons for unhappiness include an unapproachable group or practice leader; an out of touch practice leader; lack of cohesion within the group; the lack of participation of a lawyer in the management of the firm; firm’s failure to support a lawyer’s business development and a difference of opinion regarding billing rates for various clients. For example, in the field of intellectual property, some companies have little interest in supporting a patent prosecution practice. Patent prosecutors may find that the litigation group will not divert assets to their practice while increasing their billing fees to a point where they cannot compete. Before you make a lateral move, write down the reasons why you are dissatisfied with your current company, and be sure to address these issues with the potential new company.
2. Association: Lawyers and firms are more cautious than in the past in granting income or equity partner status to side counsel. Without the proper level of business, many companies will not provide a partner title. In these situations, some firms will take a year or more to first test you as an attorney, a pilot program if you prefer, before even trying to onboard you as a revenue partner. This can be a good option for those lawyers with a smaller book as a lawyer to see if the fit is right for both parties before investing in a partnership.
For those with a bigger book who become partners right away, there are a wide variety of ways companies appoint and compensate “partners.” The terms “Equity” and “Income” have a wide variety of definitions and formulas now, so be sure to perform your due diligence when carefully reviewing any offer letter or partnership agreement to determine your financial obligations and compensation. Part of your due diligence should also include reviewing the company’s relevant bylaws and recent financials before taking the plunge.
3. Laptop Business: It’s no surprise that your portable business is the key to almost every lateral partner move. I realize that the more business you have, the better chance you have of landing at one of the best firms with a partner’s degree. However, be conservative in the amount of business you expect to generate and develop. I like to use a range that is expected for each client. If you only list as many laptops as possible, you can act as an albatross for your time at that company. Whether you’re paid on an “eat what kills” formula or salary plus bonus, it’s best to choose a company that fits who you are and what you have. If not, it’s just a matter of time before it works. You really don’t need that pressure on your head every day.
The number of portable businesses will vary depending on the type of industry, customer base, their connections, and visibility in the legal marketplace. In general, for transactional lawyers, most good-sized firms would like partners to contribute at least $1.0 – $1.5 million in portable business, while more prestigious firms are looking for $3.5 million or more. Even with these amounts, some firms will want the lawyers to show up first.
There is a market for lawyers with $500K to $1.0 million for boutique firms and with some regional firms. It is more difficult to gauge the exact range needed for trial lawyers, but firms will need to see much more than transactional lawyers and will need to clearly see a good track record of consistent deals.
Billing Fee: An obvious problem for clients is how much your services will cost them. If you’re going from a small business to a large business, the billable rate can be an obstacle, especially for smaller clients or new businesses you’re developing. Find out if the potential new company is flexible in protecting its previous rates with existing customers. You will also want to determine if the rates will be too high for the type of industry you are in. For example, M&A clients are likely to be willing to pay premiums rather than workers’ compensation or insurance defense clients.
Most companies will ask you to complete a Lateral Pair Questionnaire (“LPQ”). This is typically a very long form that will ask you questions about your background, practice, clients, past, current, and future revenue and billables, any ethical issues, references, etc. If you are using a recruiter, I suggest you give it a read. Take care to have firm contact with current references that you don’t want contacted until after an offer is extended or, better yet, accepted.
4. Compensation: There are a variety of ways that firms compensate lawyers with laptops. For attorney type positions at smaller companies, you may see a “Eat What You Can Kill” compensation plan with origination fees and bonuses depending on who brings the business and provides the services (see #5 below). You have to be honest with yourself and take a very conservative approach to what you can actually do with your clients; are the bonuses actually achievable and will have the company overflow for you to make additional compensation.
If compensation is largely based on salary, get the particular details about bonuses, as well as the percentage of source collectibles you’ll receive when you do work at the company or the company performs your client’s work. It is best to get this in writing if possible. More typical of a larger firm is paying a salary to the lawyer with business and a bonus for reaching certain billing milestones. At the high end, base salaries can be 1/3 of the portable business (might even be better if you’re a practice leader or running the office), but much more typical is a ratio of 1/4 to 1/ 5 with a nice bonus for doing numbers.
5. Origination percentages: Find out the percentage you will receive if the firm works on your clients’ affairs and when you work on the firm’s affairs. I have conducted an informal survey and origination methods vary widely. Some companies will calculate a bonus at the end of the year, while others will provide specific percentages. Lately I’ve seen 50/50 to 60 (attorney)/40 (firm) splits with smaller firms.
6. Business Development/Cross Selling: You may want to move to a new firm to attract larger clients who have legal needs outside of your “specialty” or to expand your client base within your field. To achieve this goal, you will need a firm that is willing to commit to putting the right financial and human capital resources into the development of your business. Meet with the other attorneys in the practice area and the group leader to affirm that there is a similar motivation to cross-sell to your current and future clients.
7. Conflicts: Don’t assume you can drive all your customers to a potential business; be sure to clarify any conflicts. Companies vary in whether they will build a wall if there are conflicts or scrap the deal, so it’s important to resolve conflicts before leaving your current company. Sometimes conflicts can take up to 3 weeks to execute.
8. Administrative Support: It is wise to find out if you will have adequate administrative support and access to associates, paralegals, etc. Chances are if you move to a larger company, you will have the option of bringing some of your staff along depending on their salaries and available work.
9. Firm reputation: Determine how important the reputation of a company or group is to you. If you have customers in a particular region, perhaps all that matters is the company’s reputation in that region; If you have clients on both coasts, then you may want to consider a firm that is well known on both coasts.
10. Size: One factor to consider is whether you want to belong to a large company/group. Is being the big shot or having lots of peers/mentors important to you?
Take the time to write down all the reasons why you are dissatisfied with your current company AND all the reasons why you like your current company. Write them down! Keep this checklist when talking to potential employers, and be realistic if you’re making a smart career move. Considering the above issues before your move will help ensure that your new venture is a perfect fit for your career.
