If the statistics about high failure rates of lateral partners don’t persuade you, consider another barometer: the stress levels of professional liability insurers.
Indeed, lateral hiring tops the list of issues that malpractice insurers say “keep them up at night,” along with cyber risks, AI and fraud, according to Ames & Gough’s annual report, which surveys the companies that insure more than 80 percent of the AmLaw 200.
There’s good reason for this insomnia: Lateral hiring is a minefield, with plenty of opportunity to cause collateral damage to law firms.
In a Decipher Investigative Intelligence survey, 21 respondents – greater than one in five firms – had a lateral leave for client conflicts. (It’s worth noting that in the Ames & Gough report, conflicts of interest are the single largest cause of legal malpractice claims.)
Other concerning data points from the Decipher survey:
- 19 percent of respondents had a lateral leave for lack of required expertise;
- Eight percent had a lateral leave for actions the firm believed were unethical or illegal; and
- Two percent had a lateral leave for a claim that originated at a prior firm.
Malpractice claims can cause significant harm to law firms in the form of negative headlines, embarrassing disclosures in RFPs, and actual and punitive damages (or all of the above). These are often substantial: For perspective, in the Ames & Gough report released in 2024, 11 of the 13 insurers polled have participated in a claim payout in excess of $100 million in the past two years. Four paid a claim of $300 million or greater.
How can you safeguard your firm in the lateral recruitment process?
First, do not overlook the lateral partner questionnaire, one of the most effective tools at law firms’ disposal for fully vetting their lateral candidates. Law firms should deploy LPQs and insist on lateral candidates fully completing them. (Need to update your LPQ? Download Decipher’s complimentary sample.)
A comprehensive LPQ should ask candidates if they’ve had prior malpractice claims, lawsuits or disciplinary matters, as well as disclosures regarding their clients and conflicts. Firms also should work to verify the information provided to them.
Beware that shifts in the legal landscape toward law firm mergers, acquisitions and increased lateral hiring raise the risk of client conflicts. (And recall this is the No. 1 source of malpractice claims.) Consider your conflicts of today as well as your conflicts of tomorrow: What other lateral candidates are in the pipeline, and what M&A transactions might be in the works?
Don’t forget about laterals who come with “bad clients,” another leading cause of severe claims against lawyers (as well as disciplinary proceedings and possible criminal liability in addition to the financial hit of unpaid legal fees).
Basic conflict screens will rarely identify a bad client, so a more careful examination of a lateral’s projected clients and their underlying business interests and matters is critical. Here, even well-constructed LPQs are often insufficient; nearly 20 percent of the questionnaires submitted to Decipher lack a comprehensive list of the candidate’s clients.
Finally, look at comprehensive due diligence, including feedback from clients and former colleagues. In vetting lateral candidates, we sometimes come across unhappy clients, including those who have initiated multi-year litigation with their attorneys. One such client told us that the candidate’s prior firm “has not demonstrated any particular strengths,” and expressed deep dissatisfaction about the firm’s work on their case.
“They lose big cases, they don’t properly and fully analyze the issues, and their writing abilities are mediocre,” the client said. “I am not happy with their work. They recently lost a huge case, which is the second loss in two years. I personally wouldn’t be inclined to use them again. The work product they have delivered is not satisfactory.”
Attorneys from Hinshaw & Culbertson highlighted this issue in an article for DRI’s For the Defense, recommending that firms should, during pre-hire due diligence, carefully review the matters a lateral candidate is expected to transfer to their new firm for errors so they may be addressed or mitigated.
Prevention is key to mitigating the malpractice risks associated with hiring lateral partners.
