Relying On “Instinct” Comes At A Steep Cost – Due Diligence in Lateral Partner and Executive Employment Screening

October 21, 2022

Laura Pittenger

Laura Pittenger
Investigative Researcher

Introduction: The Lateral Partner Phenomenon

Fifty years ago, an attorney who made partner at a law firm put down roots that would last for decades. Those partners were handpicked from the firm’s existing employees to carry on the firm’s legacy as the founders retired.

Enter the year 2022:  Gen Z employees change jobs 134% more often than in 2019, and millennials 24% more often[1].  The hiring landscape is shifting, and with it, the traditions of the legal industry.

Today, many law firms hire partners laterally – directly from other firms. A stunning 1,100 lateral partners were hired through mid-December 2021 by the 50 largest U.S. law firms, up 76% since 2020.  Bloomberg  described these figures as part of a surge that “Big Law hasn’t experienced since before the Great Recession.” [2]  Reuters stated that “lawyer moves between law firms” had soared 111% nationally in 2021. [3]

It’s easy for hiring committees to be dazzled by resumes stacked with the names of prestigious law firms and titles like “partner” – so much so that conducting due diligence on a potential new legal partner, a peer, may seem excessive, intrusive, or even paranoid. As a result, lateral partner candidates are often under-vetted and hired on nothing more than a smile and an instinct. When it comes to lateral partner and executive employment, the background check process may fall to the wayside or be deemed unnecessary.

Relying on instinct when hiring lateral partners can come at a steep cost. When lateral partners are quickly hired and onboarded without conducting even the most basic due diligence, new law firms just might be ushering in a tidal wave of disciplinary actions, media scandals, or even – as this paper explores below – FBI investigations.

The data on lateral partners is less than encouraging. Per AmericanBar.org, the “failure rate for lateral partner hires typically hovers at about 50%.”[4] A U.K. study found that within three years, a third of U.K. lateral partners left their firms, while 44% left after five years[5] –  hardly enough time for a lateral partner to deliver on lofty promises made at the hiring stage, but plenty of time to tarnish a firm’s reputation.

How often have new partners switched law firms in the last 10 years? Are there disciplinary actions on their attorney registrations? Do the dates and titles listed on their resumes comport with company records? What do former colleagues have to say about their job performances?

These are just some of the red flags for which an employer should check before making lateral partner hires, and these are the red flags that First Advantage specializes in uncovering.

Due Diligence and Executive Employment Screening in the Legal Industry

The legal industry is no stranger to due diligence.  In 2021, over $1 billion in merger and acquisition (M&A) transactions took place in the United States[6], a phenomenon that could not have taken place without hours of painstaking legal research.

Lateral partner recruiting ought to be no different.  However, a 2014-2015 study by ALM Intelligence found that more than half of law firms do not conduct criminal background checks or credit checks on lateral partner candidates, while nearly two-thirds don’t check personal references.[7]

These results are surprising, given that due diligence is considered standard practice in other industries, which also carry high financial stakes. For example, many investors conduct extensive research into hedge funds, private equity firms, and the chief executives of those companies before investing millions of their hard-earned dollars into new funds.  At First Advantage, these investigations are well-known in the hedge fund industry as “BackTrack Reports,” which FA has conducted for over two decades.

But who is responsible for conducting pre-employment due diligence at a law firm – recruiters, human resources, or the firm’s other partners? Law firms might believe that legal recruiters conduct rigorous due diligence on lateral partner candidates, but legal recruiters often leave the brunt of due diligence to their clients.  Without expertise, legal hiring committees may struggle to know what questions to ask candidates,     where to look for red flags or lack the proper knowledge or resources to conduct thorough executive background checks.

First Advantage offers an invaluable option for pre-employment screenings: Executive Advantage, a comprehensive executive background checks and screening reports for clients with specialized due diligence needs, sensitive hires and overall brand protection.  The Executive Advantage report is available for new hires and “rescreens” of current executives.  The report offers law license verification, attorney discipline searches, adverse media searches, education and employment history verification, comprehensive litigation searches (both for matters in which the candidate is named as a party and in their capacity as an attorney), credit screenings, driving records, social media screenings, and more.

Case Studies: The Legal Industry and the Executive Screening Process

Pre-employment due diligence aims to uncover potential red flags in a candidate’s background that may affect the hiring decision. FA’s private investigators search media reports, lawsuits, research databases and even the internet to discover aspects of a candidate’s background which may have been omitted from a candidate’s resume.

The FA Executive Advantage report offers several key features of due diligence, designed to detect and prevent embarrassing scandals for law firms and to better shield them from any potential liabilities that might arise from a bad hire – including negative press:

  • Robert Schulman, former patent attorney, was convicted of insider trading in March 2017 for tipping off an investment adviser friend about Pfizer’s plans to acquire his client, King Pharmaceuticals. Media articles first reported Mr. Schulman’s involvement in the scandal in 2013. Mr. Schulman was still hired as a partner at a new law firm just two years later.
    • FA offers comprehensive searches of adverse media articles summarized in the Executive Advantage report, using a combination of publicly available records, the internet, and research databases.
  • Jeffrey Wertkin, a former Department of Justice trial lawyer, tried to sell confidential court documents from a January 2016 whistleblower lawsuit to the security company named as a defendant in the suit, all in exchange for a consulting fee of $310,000. Wertkin — using a pseudonym and wearing a wig — was ultimately caught in the act by an undercover FBI agent.  The news of Mr. Wertkin’s arrest stunned his new law firm, which had hired him in April 2016 after he left the DOJ.  Although the report indicated Mr. Wertkin had “never run afoul of the law,” it is possible that “financial and familial pressures, or perhaps some combination of them” were “at the root of a decision to put an entire career at risk for an amount that was probably less than his annual pay at the law firm.”
    • FA offers credit history screenings for employment candidates (in compliance with the FCRA and other state and federal laws) disclosing collections and defaulted loans, along with searches of property records, foreclosures, bankruptcy filings, wage garnishments, and settlements filed in civil and divorce actions.
  • Walter “Chet” Little, who lateralled in July 2016, was indicted on insider trading charges by the FBI in May 2017. Little’s new law firm reportedly had no idea that its new hire was previously fired following an internal investigation, which revealed Mr. Little misused confidential client materials to trade securities.  To make matters worse, the new firm and the rest of the world only heard about Little’s indictment when it was announced publicly.[8]  Little was fired and was sentenced to 27 months in prison, according to the Securities and Exchange Commission.
    • FA offers verifications of employment, which sometimes reveal a candidate has departed a firm earlier than claimed. FA can also conduct interviews with former colleagues of a candidate – and not just those listed as references on a candidate’s resume – to gain additional insight into a candidate’s reputation in the workplace.
  • Robert L. McKenna III, a medical malpractice attorney, reportedly made a speech in front of his law office in which he boasted of a recent case: “We managed to sock three lawyers in the face” (in reference to the plaintiffs’ attorneys). He also said in the speech that his recent case involved “a guy that was probably negligently killed, but we kind of made it look like other people did it.”  This speech was posted to the firm’s social media page, and while it was quickly removed, it was too late to prevent the subsequent outrage from both attorneys and the general public.[9]
    • FA conducts screenings for imprudent and damaging public social media posts by candidates so that “no stone goes unturned” in the hiring process.

While companies cannot be held accountable for all poor choices of their employees (or their previous employers), law firms can better avoid both embarrassment and financial liabilities: first, by asking candidates the right questions, and second, by adopting certain best practices of due diligence exemplified in the Executive Advantage product.

Conclusion: Take Advantage of Lateral Partner & Executive Employment Screening

A 2017 American Law Institute (ALI) report stated that while most law firms typically do not “fail” at partner hiring (by becoming one of the above case studies, for instance), they do get “inconsistent results because they put their trust in gut instinct or personal relationships instead of doing due diligence.”[10]  According to Law360, one managing partner, when asked about lateral partner hiring, said no background checks would be performed on his watch, and that law firms should assume most partners are of good character, given their standing as partners.  This managing partner went on to state that any failure to disclose information on a due diligence questionnaire could simply be seen as an oversight and probably nothing to panic about.[11]

Today, common sense dictates that we can never presume good character just because an individual holds a position or power. Partners must hold one another accountable for decisions that will affect the financial health of the firm as well as their personal finances.

Scandals from a bad hire can be more than embarrassing – they can be costly, time-consuming, distracting and headline-grabbing.  A little time invested in adequate due diligence can save countless hours of potential damage control later, time that is better spent servicing clients.

With the help of FA’s Executive Advantage reports, the legal industry can ensure due diligence on lateral partners becomes an integral part of the hiring process.

 

[1] https://www.axios.com/2022/02/25/gen-z-great-resignation-generation-job-hopping (LinkedIn data)

[2] Bloomberg Law (December 23, 2021)

[3] Reuters (April 5, 2021)

[4] AmericanBar.org (January 13, 2021)

[5] National Magazine (Canada), November 2013

[6] https://www.statista.com/statistics/245977/number-of-munda-deals-in-the-united-states/#:~:text=In%202021%2C%20there%20were%20676,15%2C103%20in%20the%20previous%20year.

[7] The AM Law Daily, June 2017

[8] AM Law Daily, June 2017

[9] Los Angeles Times, June 6, 2022

[10] LawJournalNewsletters.com, January 2017

[11] Law360, June 201

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