By
Margaret Hepper, Esq.
Executive Director
PilotLegis RPGI.

I. Introduction

I wrote the bulk of this article five years ago, when law firms were scrambling to rebuild practice groups eviscerated by cost-cutting and down-sizing, and to acquire "hot" practice areas such as intellectual property and healthcare, in order to jumpstart sluggish profits. From a risk management perspective, all of this lateral hiring was worrisome, given the growing number of malpractice claims and conflicts of interest attributable to poor lateral selection and oversight.

Five years later, amidst a strong economy in which work is bountiful and profits are soaring, law firms are vying more fiercely than ever for experienced talent in the face of unprecedented mid-to-senior level associate departures, thinly staffed client matters, overworked partners, on-the-fly attorney training and demanding clients. It is time, once again, to discuss the serious quality control challenges and risk exposures associated with undisciplined hiring and distracted attorney oversight.

II. Lateral Hiring: Why the Frenzy?

Law firms hire laterally for innumerable reasons, some of which are common among law firms across the country. First, firms are experiencing severe staffing shortages which restrict (or should restrict) their ability to accept new work and increase profits. Second, industry consolidations leave some firms with more work than they can handle and others with gaping revenue holes. In either scenario, these firms need bodies. Third, increasingly sophisticated clients are demanding the greater efficiencies and high quality work product that experienced partner-level attorneys provide, thus forcing firms to hire partners laterally.

For the above reasons and more, firms of all sizes and disciplines are trying to attract the best talent from a limited pool.

A. Acquiring New Areas of Practice

Everyone wants intellectual property and mergers and acquisitions practices these days, to cite two popular examples. What was once the exclusive strategy of the large, general practice firms has infiltrated law firms of all sizes and geographical locations. Firms want to profit from flourishing areas of practice as quickly as possible, so they acquire practice areas, rather than grow them from within.

B. Staffing Alternatives: Temporary Lawyers

In order to make hay while the day is long, so to speak, many law firms are turning to temporary lawyers to solve ostensibly short-term staffing shortages. Competent temporary attorneys present a reasonably-priced alternative to replenishing a revolving door of associates. Generally, temporary lawyers are hired on a finite project basis and have no singular loyalty to any firm. They present the most radical departure from the traditional law firm practice, and pose a quality control risk that is unique. Unless firms establish track records with temporary lawyers, they must work hard to monitor the quality of work that leaves the firm.

III. Who's Minding the Store? Law Firm Liability Exposures Associated with Lateral Hiring

Law firms continue to hire laterals based upon insufficient due diligence and, thereafter, they fail to adequately monitor the integration process. Why is this a problem? Because malpractice claims and conflicts of interest proliferate in this present environment of "hire now, ask questions later." The following are some obvious reasons why lateral hiring can be dangerous.

A. Lateral Hires as Unknown Quantities

In varying degrees, all lateral hires are unknown quantities. Without exception, law firms must engage in meaningful, objective due diligence regarding prospective lateral hires. Even if firm attorneys have some history of working closely with prospective lateral hires on demanding legal matters, or there are long-standing personal relationships involved, consistent levels of due diligence should be performed. Otherwise, law firms take a tremendous gamble that their lateral hires will produce consistently high quality work product, employ strong work ethics, manage client relationships effectively, have profitable practices, and be willing to assimilate into firm cultures.

B. Management Oversight Concessions

What concessions do law firms make to attract and retain rainmakers? If lateral hires have sufficient economic clout, law firms may subconsciously (or even consciously) relinquish practice management oversight regarding these individuals. Perhaps law firms abrogate their oversight duties in order to provide rainmakers with the freedom to produce business, unencumbered by established practice management procedures. Perhaps these same firms hope that by affording rainmakers considerable autonomy, they will be satisfied to remain indefinitely. All the while, these firms hope that the rainmakers act responsibly, but turning a blind eye can be devastating. Lateral hires may not adhere to firm policies regarding client screening and intake, engagement letters, associate training and development, work product review and other critical risk management controls. Lateral hires may not share their clients or delegate work. Lateral hires may resist efforts to integrate them into the firm's culture.

C. Acquiring Unfamiliar Practice Areas

Most newly acquired practice areas are intuitively similar to existing firm disciplines. Others are completely foreign to the acquiring firm, and it is extremely difficult to meaningfully assess and monitor attorney competence levels within these unique areas of practice. Law firms face exposure stemming from their unfamiliarity with the substantive and procedural idiosyncrasies of these unique new practice area(s). Intellectual property provides an excellent example. Although many firms are interested in acquiring intellectual property groups, they do not always educate themselves sufficiently regarding patent, trademark and copyright processes and associated malpractice exposures. As a result, many intellectual property groups remain isolated from, rather than integrated into, acquiring firms. Non-intellectual property attorneys are not aware that patent and trademark practices require vastly different docket control mechanisms and procedures and highly-trained docket staff. They do not familiarize themselves with the intellectual property client base. They do not know about the risks associated with foreign patents through foreign associates. They do not know about the exposures posed by infringement and validity opinions. As a result, attorney competence becomes even more difficult to monitor and manage.

D. Transient Attorney Loyalties

With the advent of attorney mobility and narrowing equity interest opportunities, institutional loyalty is disintegrating. Arguably, the biggest challenge facing law firms today is how to motivate their attorneys to work hard, produce high quality work, and foster exemplary client relations in the absence of institutional loyalty. Law firms must help their attorneys with re-engineering their personal ideas of success and achievement. Otherwise, flagging enthusiasm and general malaise will undermine attorney competency and client relationships. Now, attorney accountability and firm-imposed competency maintenance are no longer foreign concepts, but are paramount to minimizing law firm malpractice liability.

E. Conflicts of Interest

Attorney mobility and alternative staffing such as temporary lawyers increase the likelihood of conflicts of interest. Consequently, the methods by which law firms identify and resolve actual and potential conflicts of interest are under increasing scrutiny.

IV. Responding to the Challenges of Lateral Hiring

The most potent methods of measuring and maintaining firm-wide attorney competency are thorough lateral hire due diligence and ongoing peer review.

A. Lateral Hire Due Diligence

Effective due diligence must have breadth, depth, objective and consistent application to all prospective lateral hires, regardless of the firm's relationship or experience with the prospect. Firms should design their own due diligence review, according to their particular firm cultures and practice needs. Due diligence should cover, at a minimum, the following areas:

· Ethics complaint and malpractice claim searches
· Resume verifications
· Personal credit histories
· Criminal histories
· Interviews with attorneys and other professionals with whom lateral hires have worked;
· Client base analysis
· Profitability histories, including average
· Revenues · Billable and non-billable hours
· Write-downs and write-offs
· Realization rates
· Aged accounts
· Reasons for seeking new opportunities
· Reasons for leaving previous firm(s)
· Conflict of interest issues, including philosophies regarding disclosures and waivers
· Expectations regarding client and matter integration
· Staffing requirements and expectations
· Philosophies regarding and experiences with peer review and practice management oversights
· Expectations regarding involvement with management
· Compensation expectations

Restrictions upon lateral hire due diligence inquiries may be on the horizon. Law firms in Illinois must be careful to monitor whether case law limits the amount of information law firms may request regarding prospective lateral hires' clients and related financial and productivity information.

B. Peer Review

Generally, law firm partners and shareholders are loath to engage in formal, regular review of each other's files. Reasons for resisting formal peer review include time constraints, discomfort with reviewing experienced attorneys' files, and skepticism that peer review is ultimately valuable. Fortunately, increasing numbers of firms are implementing or are in the throes of designing peer review programs.

The goals of peer review include: 1) enhancing professional standards within the firm; 2) measuring compliance with established practice management systems and procedures; 3) measuring and establishing goals to improve overall work product quality; 4) assessing attorney responsiveness to and communication with clients ; and 5) involving all partners in the overall improvement of the firm and firm communication; and 6) monitoring lateral attorneys' work product and how well they are integrating into the firm.

Peer review is not intended to be punitive, although if serious problems surface, they must be handled. Whether individuals or teams review files, their feedback both to the attorney being reviewed and to the appropriate managing body should be couched in terms of strengths and weaknesses. These comments should also remain confidential to the extent possible. Goals and objectives for the following year will be established through the peer review process, also.

V. Conclusion

When times are good, memories become selective. Expensive mistakes from the past are either forgotten or recategorized as "just one of those things." Most law firms have made poor lateral hiring decisions at one point or another, with varying degrees of consequence. The best lesson is to learn from these mistakes, exercise hiring and attorney management discipline, and history won't repeat itself.