Since the year 2000, there has been a steady flow of partners making lateral shifts among the top 200 firms listed in American Lawyer surveys. On average, those firms have hired 2,231 lateral partners in each of those years. That equates to more than 11 lateral hires per firm, and this does not include the 454 law firm mergers and acquisitions that have occurred in that time period.

While revenues and profits at those top firms have generally increased well beyond the rate of inflation, the results have been less rosy since the fall of 2007, leading a few commentators to question whether lateral hiring is more of a gamble now than an investment.

Ross Todd of The American Lawyer noted that among the 13 AmLaw 100 firms reporting the most lateral hiring in 2006 and 2007, only five enjoyed profit per partner growth in 2008, while seven had decreases and one was flat.

But Todd’s analysis did not address how those firms would have fared without strategic lateral hiring. It did not address how the practice groups performed that hired laterals, nor did it note that “flat” growth or small decreases in profits (only two firms dropped more than 10 percent) could be a positive result in a year when the stock market declined by more than 40 percent and companies pulled in the reigns on legal spending during the worst recession in 30 years.

Furthermore, the profitability of many firms was affected by their reluctance to cut staff and cut costs until the second half of 2008, with many paying out severance packages to lawyers, Chief Marketing Officers and other well-compensated staff who were dismissed during that period.

Among the four firms who did enjoy continued growth in profits well beyond inflation, there was a common thread. All of them (Bingham McCutchen; Baker & McKenzie; DLA Piper; and Jones Day) have developed detailed lateral integration programs for quick and effective assimilation of new players on to their rosters. All of them also have strong marketing and business development infrastructures to support lateral integration and coordinated team approaches to client development and service. These firms averaged more than seven percent growth in profits during a horrid year!

Two other firms were flat to slightly positive in growth, another firm did some effective lateral hiring to replace lost partners in a regional market that was hard hit by losses of manufacturing clients, and two firms added to their significant presence in California in 2006-07 (one of three states hardest hit by the real estate fallout). Furthermore, none of the 13 firms experienced profit losses anywhere near the average of those suffered by the Fortune 500 clients they often serve.

In fact, Jay Zimmerman, Chairman of Bingham McCutchen, noted that his firm has benefited from hiring good laterals during times when the practice areas for which they were hired were slow. This kind of approach to diversifying a marketing platform in down times could be thought of as the equivalent of “buying low” in the stock market and it certainly appears to have paid off for Bingham.

So the real issue for firm managers and hiring partners is not whether to “gamble” on lateral hiring, but how to do it properly, as many have. Any profitable approach to lateral hiring must be grounded in solid analysis of the market, the needs of existing clients and prospective clients, and the calculated risks and benefits of any hiring decision. The smartest firms have grown not by making good “gambles” but by strategic analysis of their expected returns on investment in hiring.

The smart investors in people, like the best business investors (think Warren Buffet) also are “in it for the long haul.” That means they look for people who fit into their culture and add to their team chemistry, while having the patience to develop them and their roles on the team. They understand that lateral hiring is not a “magic bullet” and takes time to pay dividends, but can pay handsomely if done correctly.

Of course, good lateral hiring analysis involves some educated guesswork, as does any forward-looking business decision. But there are some questions that can help you to make that guesswork more fruitful:

• Do we have a solid business reason to seek a lateral hire?
• Will a lateral hire better prepare our firm to serve the future needs of existing clients, or the needs of future clients we want to attract?
• Will a lateral hire help us to increase our service capability in areas that are likely to grow, such as clean technology needs, e-commerce needs, or labor and employment needs related to increased workplace volatility and regulation?
• Can we find a lateral hire who will be able to grow our business by adding depth, new expertise, enhanced visibility and marketing, better service practices, or better understanding of how to use technology for superior efficiency and service?
• Can a lateral hire grow his or her business by offering new services to our clients, and can we grow our business with existing clients by adding his or her expertise?
• How will a lateral hiring prospect fit into our team and our firm’s culture?
• Will a lateral hire help to diversify or to amplify our reputation in core competencies for which we want to be known?
• Does a lateral hire offer us any intangibles that we need or desire, such as leadership traits, managerial capability, teaching capability for younger lawyers, creative thinking, new approaches to business development, or enhanced understanding of the marketplace for legal products and services?

If you can challenge yourself to find the answers to the business-related questions relevant to growing your practice, then you can bet on making better investments and taking fewer gambles in your lateral hiring.