{"id":100982,"date":"2022-10-06t12:30:16","date_gmt":"2022-10-06t16:30:16","guid":{"rendered":"\/\/www.g005e.com\/?p=100982"},"modified":"2024-08-07t23:10:27","modified_gmt":"2024-08-08t03:10:27","slug":"fourteen-rules-for-lateral-partner-hires","status":"publish","type":"post","link":"\/\/www.g005e.com\/2022\/10\/06\/fourteen-rules-for-lateral-partner-hires\/","title":{"rendered":"fourteen rules for lateral partner hires"},"content":{"rendered":"

\"two<\/a>be clear about their client base.<\/strong><\/p>\n

by marc rosenberg<\/i>
\ncpa firm mergers: your complete guide<\/i><\/a><\/p>\n

it\u2019s fairly common for law firms to hire partners from other firms, a practice termed \u201clateral partner hires.\u201d cpa firms do this but much less often.<\/p>\n

more: <\/b>where mergers go wrong<\/a> | twelve tips for negotiating mergers<\/a> | buying a solo<\/a> | why merging in smaller firms is fabulous<\/a> 13 reasons to merge up<\/a> | thinking merger? first ask why.<\/a>
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the main reason for this difference is that law firms cannot legally have nonsolicitation or noncompete covenants in their partner agreements. most cpa firms do<\/strong> have such provisions, which severely restrict the movement of partners from firm to firm.<\/p>\n

despite these nonsolicitation provisions, cpa firms do sometimes make lateral partner hires (lps). there are several variations:
\n<\/p>\n

    \n
  1. it\u2019s highly unusual for a cpa firm to make someone an equity partner if the person does not bring along a client base. the firm cannot afford to pay partner-level compensation to someone without a client base. the firm may still bring a partner-level person on board but make them a non-equity partner or other senior position instead.<\/li>\n
  2. the hiring firm is in such dire need of the technical expertise of the partner that it\u2019s willing to bring in an lp without a client base. most common are audit and tax specialists whose expertise is at a very high level if the firm is sorely lacking this expertise in its ranks. we have seen a number of instances in which a firm with a sizable audit practice anticipates the imminent retirement of its only audit partner. this firm has an obvious and dire need for a new audit partner. in another example, the hiring firm wants to start or augment a specialty in which the lp already has the experience and expertise.<\/li>\n
  3. the hiring firm may have experienced a significant increase in revenue, and the existing partners can\u2019t handle the client load. the lp will be assigned clients to ease the existing partners\u2019 burden.<\/li>\n
  4. there are situations where an lp is able to bring clients with. perhaps the prior firm did not have a noncompete provision. or the prior firm chose not to enforce the provision. some partners wishing to leave their firm negotiate the purchase of their clients.<\/li>\n
  5. some lps don\u2019t bring clients with but have the selling skills to build a client base. it\u2019s common for these individuals to have credible experience managing a sizable client base at their prior firm. caution: firms are advised to grant a base compensation to these lps based on what they bring to the firm at the onset of employment instead of assuming that they will be successful at bringing in clients in the future. if both the hiring firm and the lp are optimistic that the latter will bring in business, a bonus plan should be devised to compensate the lp handsomely for acquiring clients. it\u2019s all too common for lateral partners to promise a client base but fail to deliver.<\/li>\n<\/ol>\n

    best practices<\/strong><\/p>\n

      \n
    1. criteria for evaluating an lp coming in as a partner (equity or non-equity) should be at least as high as those for internally promoted partners.<\/li>\n
    2. where possible, avoid making someone an equity partner for the first year or two, even if the lp brings a sizable client base. instead, make the lp a non-equity partner, which gives both sides the chance to live with each other and see if the union works. it\u2019s very important to ensure that the lp is a good fit with your firm\u2019s personality and culture.<\/li>\n
    3. one aspect of cultural compatibility is this: many firms have an opportunity to hire an lp from a firm much larger than theirs. for example, a $7 million local firm has a chance to hire a disenchanted partner from a $100 million regional firm or even a big 4 firm. it\u2019s easy for the hiring firm to become impressed with the pedigree of the lateral hire, but beware: partners at huge firms work quite differently from those at smaller, local firms. they have a large-firm mentality and are used to a higher level of professional and administrative support than smaller firms can give. they tend not to get into the nitty-gritty details and may be unwilling or unable to change their ways. be sure to check this out.<\/li>\n
    4. somewhat related to #3 is the importance of doing due diligence:<\/li>\n<\/ol>\n