Law Firm Hiring, Go Where the Money (Value) Is
By Laura Leopard
published on LegalTechnologyHub on February 21, 2023
It is not very sexy to save money. It IS sexy to MAKE money. What many forget is that the money you save has as much financial power as the money you make. Those savings can feed into profit, and that profit can go into the pockets of partners at law firms. That is why it is confounding that not enough attention is paid to their hiring and retention numbers.
At many legal conferences, you can usually bet that you will see a session on ‘Moneyball for Law Firms’. Yet, no one is really playing the game. To assess how well your recruitment is doing, you need reliable data and an understanding of the costs of recruitment. Onboarding entry-level hires are expensive and time-consuming, as are lateral hires. If they don’t stay, it costs your firm wasted time and future earnings you believed that associate would bring to your organization.
The Burden of Entry-Level Hires
We estimate that the onboarding costs of entry-level hires are equal to that of a lateral associate hire at $350,000. They may not have the same recruitment costs as laterals, but they come with onboarding and training costs that can quickly add up. To achieve the return on the firm’s investment, that entry hire (just as that lateral associate) must be at the firm for three years.
We discovered in our 2022 year-end roundup that the hiring patterns of the Top 200 have changed over time. In 2012, they hired far more entry-level associates than laterals, but in 2018 that pendulum began moving toward more lateral hires. As top firms hire fewer entry-level associates overall, the success of that group becomes even more important to the firm. Firms should ask the question, which performs better at my firm?
Tier Schools Performance
Interestingly, our data show that hires from the Top Ten schools underperform in ROI, year over year. A single percentage point can mean millions of dollars lost in unsuccessful recruitment. Note that the Top Ten School group has the lowest success rate of any of the law school tier groups year after year. What drives the low ROI of this group? One word: competition. The group of Top Ten associates is aggressively recruited year after year and that lowers their opportunity to achieve their ROI for their initial employers.
These are the average ‘success percentages’ of entry-level hires by year and by law school grouping. You can see the Top Ten schools have the lowest ROI score of every group. However, averages just tell a portion of the story. There are significant swings within the Top Ten grouping with some schools far outperforming others on the 3-year metric for ROI. This equation varies again on the individual firm level.
In 2016, Goldman Sachs announced it was changing how they recruit, according to Wall Street Journal. They would no longer go to the Ivy League schools for on-campus interviews and they would widen their pool of candidates beyond Harvard and Yale. Why? They were looking for students who would be ‘loyal’ to the industry. In 2014 Goldman Sachs hired more Yale graduates than any other company, they were the biggest employer of Yale graduates aside from the university itself. Just two years later, however, Goldman Sachs noticed the numbers were not aligned with their plan of hiring ‘loyal’, according to a report on Business Insider, and they changed course. Goldman Sachs was simply losing too many of them to make these Yale graduates successful hires. Goldman Sachs was playing Moneyball.
Dive Deeper to See the Performance
We see much of the same issue within big law. Recruitment of attorneys from a Top Ten school can be fierce and can begin the moment they land at the firm. The more prestigious the school, the fiercer the competition. Below is a chart from the entry-level hires in 2019 and you can see significant differences in the success scores between the schools.
Yale did have the lowest success score, but it also had the lowest number of hires in the Top 200. Harvard enjoyed a considerable number many hires in the Top 200, but only 45% of them made their ROI.
Since 2016, Virginia has enjoyed one of the best ROI numbers in this group year over year. They normally see a considerable number hired as well. If we look at and compare the next tier group of schools (within the top 20) we see a noticeable difference. We took the years 2016 through 2019 to get an average success rate because in 2019, their three-year period has been completed and we have the final ROI on those hires. Hires made in later years are in flux, as they still have time to leave their firm before they reach their ROI number.
Not a single school received an average success score lower than 47% in this new grouping, the lowest score in the Top Ten school grouping was 35%. Their success rates were more evenly distributed with Boston University being the one outlier with a tremendous score. The success of these hires could be based on many factors, which individual firms hired them, their locations across the country, and more. But it is undeniable that the competition for this group was slightly lower than for the associates from the Top Ten group.
Determination between Money vs. Value
It is important to see beyond the averages and know exactly whether your hires are successful or not. Each firm has a unique hiring personality and traits. Many firms simply perform institutional hiring and automatically go to the same schools year after year for their main hiring of entry-level talent. The question is, does that cookie-cutter, institutional approach serves the firm? It may have served the firm at one time, but the landscape has changed in the past 20 years since that pattern was formed.
Here is a look at one firm in the Top 200 Group and their hiring statistics through Leopard Solutions Firm Index 200 analysis. In this chart, you will see every law school that they hired from for those entry-level associates. Many of them hit the 100% success score, but those schools saw only one or two hires. Other schools that enjoyed more hires faired far worse on the ROI score. If the firm became aware of its successes and failures, it might prompt behavior change. The cost of the 2019 entry-level recruitment for this firm was over $12 million.
It is natural to assume that hiring from the top law schools means that you are attracting great talent. Knowing more about where you hire from can help firms develop a smarter strategy. Yale is a great school, hence the competition to have them is high. It doesn’t mean you shouldn’t hire from Yale; it means that firms should be aware of the risks in that hire. Strategy can be developed to help retain them from the moment they start at the firm.
Hiring Patterns that Inform Strategy
Firms should know what hiring patterns breed success and which ones they should reconsider. It takes data for that. Firms should have good data on past hiring, both laterals and entry hires, and know why that hire didn’t work out. Did they lose them due to the competitiveness of the market or other reasons? Firms should also try to benchmark their success scores with their competitors to understand if they are truly underperforming. At the very least, firms should look at their institutional hiring practice and see if they are ripe for an adjustment. Old patterns may not give them the same result they did ten years ago. If law firm leaders realized that flawed hiring impacted their wallets, they might get some results! Moneyball can be won, but only if you follow the data and make decisive changes where needed.