The American Lawyer Discusses Lateral Link's Innovative Business Model
Will New Legal Recruiters Succeed With Pay-to-Place Business Model?
Zach LoweThe American LawyerJune 19, 2008
When Lateral Link launched in the spring of 2006, traditional recruiters criticized the upstart firm for paying $10,000 to each associate it placed in a firm. Rather than disappear, the unconventional business plan has spawned a challenger, with a nearly identical business model, who has raised the stakes. Legal Recruiting Authority is offering a $20,000 sweetener to associates it places.
LRA launched last December. Founded by two Northwestern University law graduates, the company hopes to be part of what its founders see as a much-needed transformation in the legal recruiting sector.
Like Lateral Link, partners Gerald Lam and Rihan Javid say they operate just on the Web — and only through “membership.” The members are junior to midlevel associates from the nation’s top law firms who are considering a move. Instead of cold calls — the method of choice among the legal market’s more established recruiters — LRA, just like Lateral Link, will offer members access to a database of available positions.
When a lawyer/member finds herself with a bit of downtime in this downturn, she can log on, peruse the postings and let a recruiter know which position(s) she’s interested in. And if all goes well, the associate won’t just get a new job. She’ll also pocket $20K from LRA. At least that’s the promise that splashes across LRA’s homepage.
The payments have rankled traditional recruiters, who say the practice is unethical.
“It doesn’t sit well with me, and it doesn’t sit well with my fellow recruiters,” says Marina Sirras, founder of Marina Sirras & Associates and current president of the National Association of Legal Search Consultants. Sirras said she was commenting as an independent recruiter and not as president of the association, whose code of ethics bans such payments.
Sirras is not alone. Eric Sivin, co-founder and principal of New York-based Sivin Tobin Associates, considers the payments a kickback. “There are ethical ramifications here,” he says.
Ethical considerations aside, can this pay-to-place system work as a business? Lateral Link’s co-founders –three Harvard Law School graduates, all former associates at Am Law 100 firms — dismiss both the criticism and the questions about their business model.
Co-founder T.J. Duane calls the NALSC payment ban “anti-competitive.” Also, he insists that there’s nothing wrong with paying a placement bonus. “It has never once come up with [the law firms we work with],” Duane says.
Duane and his partners David Dorfman and Michael Allen argue that the basis of traditional recruiting — trolling for leads by cold-calling associates — is simply inefficient. They say that their advantage lies in their “exclusive membership” model. Associates interested in changing jobs apply to Lateral Link. Duane says that to be admitted as members, associates must be “high-achieving” graduates from top 25 law schools who also have big-firm experience.
If they’re accepted as members, they gain access to Lateral Link’s database of jobs, which consists of listings from public sources and tips and postings sent by law firms. The “members” flag jobs that interest them, and Lateral Link recruiters refer them to the law firms.
Lateral Link pays associates earning $160,000 or more a $10,000 bonus. The bonus comes from the commission the law firm pays LL, according to Duane. Placed lawyers making less than $160,000 receive $5,000.
Placement firms typically earn commissions of 25 percent to 30 percent of a placed attorney’s base salary –for a fourth-year associate earning $200,000, that’s $50,000 to 60,000. According to Sivin and Sirras, the firm then pays a chunk to the recruiter who made the deal — the amount varies from firm to firm — and keeps the rest to cover overhead and maintain profits per partner.
With the pay-to-place model, the firm’s margins are less. “I question whether this is a sustainable business model,” says Sivin. “If you’re paying $10,000 or $20,000, you’re going to have make a lot of placements.”
“That’s the question we’re grappling with ourselves,” LRA’s Javid says. So far LRA has about 100 members and has placed about 10 candidates since December. The firm won’t disclose which law firms it has worked with. “Our current policy is not to release names of firms and candidates where we’ve placed associates,” Javid wrote in an e-mail message.
Lateral Link’s Duane says he has about 6,000 members and has placed about 100 lawyers. He says he’s relying on Web-based “efficiencies” to make his business work. And so far he doesn’t feel any pressure to increase his bonus payments to $20,000.
Lateral Link pointed us to clients and customers who said they were pleased with the results. “I enjoyed the fact that I could peruse listings at my leisure as opposed to speaking to a recruiter on that person’s schedule,” says Katherine Todd, an associate who used Lateral Link to move from Loeb & Loeb to Winston & Strawn.
LL’s law firm clients say the placement firm produces solid candidates. And the firms don’t seem troubled by the payments.
“We know about it, and the firm is paying the same commission anyway,” says Selene Dogan, national director of recruiting for Quinn Emanuel Urquhart Oliver & Hedges. Quinn Emanuel is among the nearly two dozen large law firms — including Gibson, Dunn & Crutcher, Hogan & Hartson, Morrison & Foerster, and Skadden, Arps, Slate, Meagher & Flom — that Lateral Link counts as clients.
The payments also aren’t a problem for the National Association of Law Placement, an association of law firm and law school recruiters, says Michael Gotham, NALP’s current president and director of recruiting at Heller Ehrman: “I’m interested in what they’re doing, and I plan to stay in touch.”