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Choosing the Right Path: The Importance of Due Diligence in Lateral Moves
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Introduction

Embarking on a lateral move within the legal profession introduces an inherent level of risk. However, recent data from Major, Lindsey & Africa’s 2023 Lateral Partner Satisfaction Survey reveals a key factor that significantly influences satisfaction post-move: the depth of due diligence performed before the transition.

The Impact of Adequate Information

Partners who reported having “adequate and accurate information” about their prospective firm demonstrated higher post-move satisfaction rates. Notably, 72% of those who sought detailed information on crucial aspects such as firm financials, discussions with recent lateral partners, and a partnership agreement review expressed satisfaction. This compares to a lower satisfaction rate of 58% among those who skipped this informational diligence.

Alarming Trends in Due Diligence

Despite the intuitive nature of due diligence, the survey uncovered a concerning trend. Only 20% of respondents admitted to evaluating their new firm’s financial statements, leases, or loan documents before making the lateral move. This marks a decline from 29% in 2020 and a significant drop from 40% in 2014.

  
What
Where


Investigating the New Frontier

Partners contemplating a lateral move should delve deep into understanding the new firm. Key steps include meeting critical leadership, such as the CFO and firm chairman, reviewing the partnership agreement, and engaging with recent lateral hires.

What to Look For

Before finalizing a lateral move, partners are encouraged to explore critical aspects of the prospective firm. This includes understanding the lateral integration process, the firm’s financial performance, management structure, compensation system, and practice support.

Proactive Engagement During the Interview Process

Prospective laterals should be proactive during the interview, ensuring they obtain essential information. At the same time, some firms guide candidates through discussions with decision-makers, but not all cover critical topics such as management systems, financials, and practice support. Therefore, candidates should take the initiative to ask these crucial questions.

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Key Questions on Firm Financials

Partners should inquire about various aspects of the firm’s financials, including its performance over the past three and five years, profits-per-partner (PPP) and revenue-per-lawyer (RPL) trends, debt management, distributions, lease liabilities, and expenditures.

Understanding Firm Management

Understanding the firm’s structure is essential for aligning personal goals with the overall vision. Partners should inquire about partner compensation, distinctions between equity and non-equity partners, associate billing rates, firm management, governance procedures, and the composition of essential committees.



Navigating Lateral Integration

Navigating the lateral integration process is critical. Partners should seek information on the goals, duration, responsible parties, input into the integration plan, and expectations at the process’s conclusion.

Looking Forward

As partners undertake due diligence, they should also inquire about the firm’s strategic plans for the next five years. This includes potential office expansions, focus on specific practice areas and overall growth plans.

Conclusion

In lateral moves, profitability does not necessarily equate to personal success. The right firm might not be the largest or aligned with one’s practice area, but stability and growth potential could make it the perfect fit. Performing due diligence is the key to making an informed decision and setting the stage for success in the new professional home.



 

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