Attorneys With Portable Business: 10 Factors to Consider Before Making a Lateral Move

Below I present 10 factors to consider before an attorney with portable business makes a lateral move to a law firm. This should act as a guideline to your decision-making process as there are a lot of moving parts in such a move and I cannot cover all the ground.

1. Law firm environment: Never underestimate the importance of the firm environment. If you are unhappy with the firm environment you will not stay long regardless of the compensation you make. Some of the biggest reasons for unhappiness include an unapproachable group or practice leader; an out of touch practice leader; a lack of cohesiveness within the group; an attorney’s lack of participation in firm management; failure of the firm to support an attorney’s development of business and a difference of opinion as to billing rates for various clients. For example, in the IP field some firms have little interest to support a patent prosecution practice. Patent prosecutors may find that the litigation group will not divert assets to their practice while raising their billing rates to a point where they cannot compete. Before you make a move laterally write down the reasons why you are unhappy with your current firm and make sure you address these issues with the potential new firm.

2. Partnership: Attorneys and firms are more cautious with anointing income or equity partner status to lateral attorneys than in the past. Without the proper level of business many firms will not provide a partner title. In these situations some firms will take a year or more to try you out first as of counsel – a pilot program if you will – even before trying to bring you in as income partner. This may be a good option for those attorneys with a smaller book going in as of counsel to see if the fit is right for both parties before investing in a partnership.

For those with a larger book that do become partners immediately there are a wide variety of ways firms designate 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 by closely reviewing any offer letters or partnership agreements to determine your financial obligations and compensation. Part of your due diligence should also include reviewing relevant bylaws and recent financials of the firm before taking the leap.

3. Portable Business: It is 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 will land at a top firm with a partner title. However, please be conservative in the amount of business you expect to bring and hope to develop. I like to use a range that is expected for each client. If you only list the maximum possible portables it can act as an Albatross for your time at that firm. Whether you are being paid by an “eat what you kill” formula or a salary plus bonus it is best to pick a firm that is a fit for who you are and what you have. Otherwise, it simply is a matter of time when it will not work out. You really do not need that pressure over your head everyday.

The amount of portable business will vary depending on the type of industry, client base, your connections and visibility in the legal market. Generally for transactional attorneys most good-sized firms would like to see partners bring in at least $1.0 – $1.5 million in portable business while the more prestigious firms seek $3.5 million or greater. Even with these amounts some firms will want the attorneys to come in as of counsel first.

There is a market for of counsel with $500K to $1.0 Million for boutique firms and with some regional firms. It is harder to gauge the exact range needed for litigation attorneys but firms will need to see significantly more than they do with transactional attorneys and need to clearly see a good track record of consistent business.

Billing Rate: An obvious issue for clients is how much your services will cost them. If you move from a small firm to a large firm the billable rate may be an obstacle, especially to smaller clients or start-ups that you are developing. Find out if the potential new firm is flexible in grandfathering in your old rates with existing clients. You also will want to determine if the rates will be too high for the type of industry you are in. For instance, M&A clients will likely be wiling to pay premium dollars versus insurance defense or worker’s comp clients.

Most firms will ask you to complete a Lateral Partner Questionnaire (“LPQ”). This is usually a very lengthy form that will ask pages worth of questions about your background, practice, clients, past, current and future revenues & billables, any ethical issues, references, etc. If you are using a recruiter I suggest you have him or her read it over. Be careful about having a firm contact current references you do not want contacted until after an offer is extended or better yet, accepted.

4. Compensation: There are a variety of ways firms compensate attorneys with portables. For of counsel type of positions at smaller firms you may see an “Eat what you can kill” compensation plan with originations fees and bonuses depending on whose brings in the business and performs the services (See #5 below). You have to be honest with yourself and assume a very conservative approach to what you can really make with your clients; are the bonuses truly attainable and will the firm have an overflow for you to make additional compensation.

If the compensation is heavily salary-based then get the particular details about bonuses as well as the percentage of origination collectibles you will receive when you do firm work or the firm performs your client work. It is best to get this in writing if possible. More typical of a larger firm is to pay a salary to the attorney with business and a bonus for reaching certain billing milestones. On the very high end base salaries can be 1/3 of the portable business (could even be better if a practice leader or in charge of office) but much more typical is a 1/4 to 1/5 ratio with a good bonus for making numbers.

5. Origination Percentages: Find out the percentage you will receive if the firm works on your client matters and when you work on firm matters. I have done an informal survey and the origination methods vary widely. Some firms will work out a bonus at the end of the year while others will provide specific percentages. Lately I have seen 50/50 to 60 (attorney)/40 (firm) splits with smaller firms.

6. Business Development/Cross-selling: You may wish to move to a new firm to a new to attract larger clients that have legal needs outside of your “specialty” or to expand your client base within your field, In order to accomplish this goal you will need a firm that is willing to make a commitment to put the adequate financial and human capital resources to develop your business. Meet with the other practice area attorneys and the group leader to affirm there is a similar motivation to cross sell to your current and future clients.

7. Conflicts: Do not assume that you can bring all your clients to a potential firm – make sure you clear any conflicts. Firms vary on whether they will build a wall if conflicts exist or scrap the deal so it is important to have the conflicts run before you resign from your current firm. Sometimes conflicts can take as long as 3 weeks to run.

8. Administrative Assistance: It is wise to find out whether you will have adequate administrative assistance and access to associates, paralegals, etc. More than likely if you are moving to a larger firm you will have the option to bring some of your staff over depending on their salaries and the work available.

9. Firm Reputation: Determine how important a firm’s or groups reputation is to you. If you have clients in a particular region than perhaps all that matters is the firm’s reputation in that region; if you have clients on the Coasts then you may want to consider a firm that is known on both Coasts.

10. Size: A factor to consider is if you wish to belong to a large firm/group. Is it important to you to be the Big Fish or to have many peers/mentors?

Take the time to write down all the reasons you are unhappy at your current firm AND all the reasons you like at your current firm. Write them down! Keep this checklist when talking with potential firms and be realistic if you are making a wise career move. Considering the above topics before your move will help ensure your new firm will be a great fit for your career.