When is the best time to pull the plug on a bad investment in a partner?
This crossed my mind a few weeks ago when I noted the move of a partner I once acted for, many moons ago when I was a recruiter. He was seeking to leave the firm which had headhunted him as he was finding the environment unsuitable for his practice.
It was a familiar story; he had been hired with great promises of lots of untapped work in the firm’s client base and – rare even at the time – had been hired on a two-year escalating (!) guarantee.
Alas, in his first year he had barely billed enough to cover his guarantee and year two was looking dire. Little did either of us know that we were about to dive into a recession where his practice area was badly affected, so I can’t imagine it got much better after that.
It’s difficult to properly calculate the ‘loss’ on a partner who only just covers their direct costs, but I guess the firm’s expectation when they hired him was that he would be billing a minimum of £2m a year, probably £3m in fact, so his entire run with them – over five years – should have added up to at least £10m, I’d guess. I bet they were lucky to get £3m in toto.
Of course I could be entirely wrong. After his dreadful first two years his practice may have picked up massively and he could have had a purple patch and defied my expectations. My sources say otherwise, however, and if he did knock sixes out of the park in the midst of calamity, then why move?
No, I suspect I’m right, which raises a number of interesting questions in my mind.
One, how did the firm get it so wrong in the first place? This is a large, highly-sophisticated, law firm with an ostensibly rigorous process but this was a really poor hire, of what was, actually, a partner with a good reputation and pedigree. And a two-year guarantee with escalator? This suggests the analysis of the business plan was sorely lacking or the projections massively over-optimistic.
Two, how did the integration process – again, a sophisticated one – fail so dramatically that the partner was talking to me less than two years into his time there. They had clearly oversold the opportunity in order to make a juicy, ‘trophy’ hire; perhaps other partners resented the feted newcomer. Certainly he was not getting the promised referrals, nor was there the latent potential in the client base, so how well had the firm researched the need among its clients before hiring?
Three, now that he has moved again, what kind of promises is he making to the firm he has moved to? And what kind of analysis did they do? It’s a good firm with plenty of money, so I doubt he’s going there on a song. I wonder if he has managed to negotiate another guarantee, in which case well done his recruiter!
But the major question in my mind is why the first firm stuck it out for so long. As I say, I could be wrong but I doubt I am, and in any event, all of us know that way too many failing partners hang around for way too long in most firms, their tenure prolonged by a combination of weakness, structural failings, wilful blindness on the part of management or simply the awkwardness of having to tell someone they’re out and the worry about what signals that might send to the rest of the partnership.
So how long is too long? When should you pull the plug?
If I am right, and the firm is staring down the barrel of a £7m mismatch between expectation and reality, the answer has to be WAY before they did. Most HR directors think two years is enough. Some reckon to know after a year. I think many feel that the partner will somehow realise they are not working out and move on, but in a poor economy this may be nigh on impossible.
This is far from the only example I have seen of law firms supping from a heady cocktail of optimism, hubris, machismo and chutzpah, the glass nicely rimed with a twist of fear that if they don’t hire him, the opposition will.
Nor would it be the first hire I have seen which has progressed from “we have budget to hire” to “let’s instruct a headhunter” to “let’s hire this guy as he’s the best of the bunch” without any proper research, business plan or strategy.
The answer seems obvious, at least to me. Yet as we see a new wave of partner lateral moves in 2012, including some partners I happen to know will fail to meet expectations, I wonder if some law firms will ever learn from duff hires, or whether the lure of cocktail hour will always remain too strong to resist.