Episode 6 of Steve's Rules- The difference between retained and contingency search and why it matters

In this episode Steve provides some intel on the hottest lateral partner market (hint they call this city the Third Coast, and its the place Murray first drew breath.) Then we discuss contingency and retained search and relative merits of each approach based on your firm's profile and needs. Finally we hear a hunk from Steve's standup show. We packed a lot into 30 minutes. If you have any thoughts or ideas for future programs please feel free to contact Steve or Murray. Thank you as always for listening. 

Contact Steve
McCormick Group

Contact Murray
M Coffey

Transcript

Unknown: 0:07

Murray, welcome to Steve's rules periodic podcast featuring Steve Nelson, executive principal at McCormick group in the law and government affairs practice. My name is Murray Coffey, and I am the principal of M Coffey, a law firm marketing and business development Boutique. For more information, please visit my website at M coffey.net Steve has been an executive recruiter for nearly three decades, and without naming names, he is ready to spill the tea on best practices, and maybe a few not so best practices by firms and candidates that he has seen during his career, recruiting some of the most driven and successful professional into highly profitable and growing firms. Steve is a former lawyer and journalist and is a fellow of the college of law practice management and a proud son of Wilkes Barre, Pennsylvania. Full transparency here, Steve has helped my career immensely through the years and has become something of a career shaman to me and I know many others. Hey, Steve, welcome back. This is the Thanksgiving edition, and I'm thankful for you, Steve.

Steve: 1:12

I'm thankful for you

Unknown: 1:15

and but we're back. We're in the dreaded fourth quarter for our law firm friends, which means that that they will ignore us until until January. Absolutely the case. That's absolutely the case, but, but that doesn't mean that they shouldn't be thinking about recruiting, and it doesn't mean that they shouldn't be following trends. So I know that that you and the your your brainiacs at McCormick Place are always keeping track of trends and seeing what's going on and seeing what's hot, and I know you've got some thoughts on all of that, so let me turn it over to you, because I'm I don't know what you're going to say here, so I'm right. I'm excited to hear what you

Steve: 2:00

have to say. Alright, so not only do we keep our records, but we're also follow the other the other people who are keeping statistics, the decipher group,

Unknown: 2:13

which is out there last time I believe,

Steve: 2:14

yeah, and they do a lot of tracking of information. They've come out with statistics for the first nine months of the year, basically reported that overall recruiting is down partner level, down less so than associate not surprising, but down 4% from 2022 that's still up from even pre COVID years. So still a strong market. Interestingly, a couple of interesting things that they also reported. One was that the council level hiring is significantly down. And that makes sense, because I think after COVID, you did have a spade of retirements and people you know, people you know, easing back. And so there was more succession planning going on, succession hiring going on. And I think that that, coupled with, you know, sort of more difficult economic times, has led firms to be more conservative about investment dollars. And councils are usually investment others. So I think that's number one. Number two was interesting is that of all of the markets, geographic wise, Chicago was the only market that indicated an increase, which I know is dear, near and dear to your heart, being a native Chicago, but, but that was interesting. I've got some ideas as to why that is.

Unknown: 3:43

Why is that? I mean, Chicago kind of goes up and down in its in its the market. And you know, if you talk to anybody from Chicago about what's going on in Chicago right now, they're gonna say everything's down. But actually that's not the case, right? So what's going on? Yeah, I

Steve: 4:01

think it's because I think that we're seeing increased billing rate increases across the board, across the country, and I believe that, I think corporate law departments are more willing to accept that from New York firms or New York offices. And I think they look at if they're going to go to a Chicago firm or Chicago office, they're expecting lower rates. And I think that the big firms are pushing their rates, just like the New York firms are. And let's face it, you're talking about big, big Chicago firms that are out there that are as you know that they're as prestigious as the New York firms. But we're also seeing, interestingly enough, that even some of the Midwestern firms are pushing their rates up. So with this constant pushing rates up, that is the number one thing that we're seeing that is that is forcing laterals to think about changing. Is they're just getting pushed on rates. Their their clients are pushing back, and they're feeling. Like, I've got to go someplace with a lower rate structure, and we're seeing that across the board, and I think in Chicago, that hits home even

Unknown: 5:06

harder. Yeah, yeah, those, those, those thrifty Midwesterners, right? The so, so we're seeing, we're actually seeing, we're seeing partners getting priced out of their own firms,

Steve: 5:20

right? Absolutely. Is there any practice that

Unknown: 5:23

you're seeing that where that's more prevalent than others?

Steve: 5:27

I really see that's pretty much across the board, maybe not on the corporate M and A side, you know that that practice probably can, can handle the rates, but we're seeing it particularly in IP we're seeing it in litigation, you know, we're seeing it labor and employment. I mean, we're seeing it pretty much all of the of the sort of non, you know, you know, public company tech, kinds of practice areas,

Unknown: 5:54

interesting, interesting. Well, we'll, we'll need to keep, keep an eye on that and see where, you know where things are going. I know you all are tracking that, and that's a service to the to the to the sector, for sure. But let's hop into today's today's topic, which is really understanding the various kinds of relationships that can be developed between recruiting firm and and their clients, and, you know, really bringing it down to contingency or and or retained search. And we'll talk a little bit about the benefits of each and and where there might be a hybrid approach along the way. So, you know, Steve, I think you know, maybe we can define terms here and talk a little bit about what is contingency. I think a lot of people in our world know it, but let's hear it from somebody who knows it, right?

Steve: 6:55

So contingency obviously means that the recruiting firm only gets paid when they make a place. They don't have any upfront payment at all. It's just based on success. And if you success, you get a big fee, et cetera. And that is in the law, in the legal world in the partner and associate for the talent, that has been the traditional way that firms have used recruiters. There's not, haven't been as much Retained work. And that's there's a good reason for that, which is, if I'm a law firm and I want, let's say an intellectual property partner, patent patent litigator, let's say the chances of any one search firm finding that person in a six month period is pretty low these there aren't that many people in the market, no matter what we hear about in terms of how much movement there is, there aren't that many really strong partners With business who are ready to move at any one particular time, and therefore the chances of success are really low. And law firms don't want to start paying out money. Totally understandable, paying out money and then having to report back to management says, well, we paid this, you know, this, 10 firms, $50,000 and we didn't get anybody right. So that's, it's pretty logical that that's the way it works. And then if you take it from there, the way that that law firms traditionally use recruiters is they will, they will call up, you know, their recruiters of choice, with the four or five different recruiters, let them know about what they're looking for, and then they let them go out. They basically let the recruiters go out, find the people and come back to the firm with with their selected candidates. So it is, it is, you know, pretty much, almost totally outsourcing the job to the recruiters to find the talent. And that's, you know, and then obviously, some, you know, definitely, you know, recruiters get their percentage, you know, percentage of people they can find, they can present, and you know, and you know, a fair number of instances, they're successful, not not a majority of the time, but you know certainly that there is some success there, and that's the way the recruiting firms generally do that. Now, couple I mean, there's an advantage, obviously, because you've got, you know, you got a lot of people working for you, you can get the good talent. It's particularly good, I think, for groups, because groups will often, when they are they've decided, the pre formed group has decided to move. They'll call their recruiter of choice. They realize the benefits that a recruiter will give them, and so therefore that that that those groups can sometimes be placed by the recruiter of choice, who happens to have the relationship with them one way or another. Um, so. There's a benefit there. The downside is that the firm never has, has assurance that everybody is actually, that anybody's actually doing any real work. Are they just calling their their buddies? Are they calling people they know, the people they've placed, you know, so forth, or, you know, is there a really market coverage going on? And I and I don't think so, because I think that the recruiters are, they're trying to figure out the best way to make the placement, and if they can make as few calls as possible, that's what they'll do. So that's, that's number one. Number two, I think, is depends a little bit on your on a law firm's placement, you know, in the tier of firms, if you're, you know, a top firm, and you've got a name reputation, there's a good chance that the candidates that a recruiter will generate have a good chance of being sent to your firm, because they'll be the firm that they think of, and that no has the reputation, and that when they talk to their lawyers, the lawyers know the firm, so they say, oh, yeah, I'll go there. It's not as valuable for firms that aren't you know in the top tier, in terms of the firms, if you're not a known quantity, you may never get called. You may the, you know, the best candidates will never get to you, because they'll, they'll call everybody else first. It's, you know, you're in a tiered situation. And if you're, if you're in a, in a contingency mode, there's no incentive for the firm to think of your mid sized firm. So I think that's a downside that you've got to be

Unknown: 11:42

thinking about. We're we're entering, we're entering the the beginning of the year, you know, the the pre, the pre sale time, if you will, in the beginning of the year. And I know what happens at the beginning of the year, after all the, you know, after all the ledgers are taken care of. There's oftentimes a fresh look at the strategic plan, or maybe there's some some new strategic planning that that's that's going on, or, you know, measuring success against the strategic plan over the prior year. And a lot of times with firms that are looking for growth, they will, they'll say, Okay, we need, we, you know, there is a, there is a practice that we don't have, that we need to have in place that's going to be strategically important for us to be able to go to the next level with our M and A group, or whatever the case might be. So we need, we need a team of benefits lawyers, let's say, and that happens, say that we, or, you know, our benefits lawyers left, we need to get benefits lawyers in. Is, does it behoove them to work with, to work on a contingent the firms to be working on a contingency basis in that situation, or a retain situation? We'll talk about retainer in just a minute. I'm just kind of curious about about how you said that the groups that are looking to move may want to work with somebody who works on a contingency basis. What if you're trying to fill a gap or create a, create a strategic strap on,

Steve: 13:15

right? So, yeah, let me qualify a little bit on the group situation. There will be sort of the preformed group that you know that there, there's at least a reasonable shot that they will be using a contingency firm, because they're the ones hiring they're hiring the search firm, not the law firm, if you know what I mean. So I think so you always want to keep that option open at least, at least at the beginning of your search process, is, it's probably a good idea if you're just starting to look at it, is that, you know, let's see what the market will give us. You know, let's see what benefits lawyers. Let's say, Well, maybe out there. And again, more you know, particularly if you're looking at a group, I think that where it's really you know whether, when you're on a strict time frame, you've got to get this group in in the next three months, six months, something like that, and or you're going to lose business, that's when you may want to think about retained. Because I think what happens is, on contingency, one of the things you don't get is, you don't you, as I said, you don't get market coverage. You're never assured that everybody out there is being called. And second thing is, you're not getting feedback on the marketplace either, generally. I mean, if you're doing sending a contingency firm out there, they'll, they'll call you when they have somebody they're not going to go out and volunteer a lot of information about, well, you know, occasionally they'll say, you know, we can't succeed because your reputation is bad or something. You're not getting that kind of real feedback. And you're also, the other thing that you don't necessarily get is, um, is, if you need, let's say, you know, there are five or six people, you know, in the market. They're great lawyers. And you might know them a little bit, you're not willing to call them up on the phone that a lot of lawyers do not want to call up other other lawyers and ask them, I would that can happen. It's great. You can do it. But a lot of times there's, you know, there's a hesitancy there. And particularly because if you, let's say, You call that person up and that person, you find out, you know, person doesn't have enough business or whatever, now you've got to try to figure out a way to let them down. Well, your dowry wasn't big enough, right? So, so, so I think that there's a real reason to bring in a search room, and so that's where retainer becomes important, because it's, it's, it's a search terms dedicated to you when you know they're dedicated to you and they're know, they're giving your feedback, they're, you know, we, we, when we do these, retain agreements. We always have a schedule, usually every two weeks, we're checking in and telling you what we've done and what the market's saying. We provide reports at the end of a search. If we're not successful, a lot of times we are successful. When we're not, we'll give you a report that says, Okay, we call these people and we can't, we can't tell you anything told to us in confidence. But if things you know, people can say we're not interested, I'm not interested in leaving at all, or I'm not interested in going to a firm like that, whatever, so I think you want to have that information. Market Information is worth something, whether it's the market information about yourself, whether it's the market information about particular candidates. Sometimes we've had firms who we do that project with, we give them that information. Two years later, that candidate becomes available, and they know at that time, they know more about that candidate than they did going in. They know that that person might be very valuable. So there's a real benefit to a law firm, but they have to understand, and they have to have management understand that this is not a guarantee of success. It's you're paying for marketing information. You're paying for somebody who's dedicated on your behalf.

Unknown: 17:06

And let's talk about retained while we're while we're in this, you know. And kind of the the outline of that retainer relationship, I think you talked about a, talked about some of the pluses on it, but maybe define it a little bit here and and dig into the dig into the pluses. I have specific thoughts about retain search. I when I can at what I typically like to do,

Steve: 17:31

right, right? So, you know, I guess first of all, the the amount of the retainer is pretty standard, at least in our work. It's, it's a flat fee, and it is not a percentage of the placement. So if you're looking for a partner, that you're going to pay a million dollars, you know, and then the fee on that General, the general terms, is like $250,000 fee. We're not going to ask you for a third of the fee upfront. That's way too much money, so I'm not going to tell you what we would charge. It does depend a little bit on the size of the firm and the size of the project, but it's not at the level of a third of a fee, which is what is standard in the retained industry. If you're looking for a if you're looking for a COO of a law firm, that's what you pay, you know? And these days at a major firm, CEOs make a million dollars. So you can figure it out. So that's number one, you don't pay that. Number two is the time period in which that gets applied to the fee. So you pay us a retainer. And then, you know, six months down the road, we make a placement that, not that that amount is is applied, and at least our firm does it. We extend that even another year, because if, if, in case, we're successful, and this has happened many times, we're not successful during the first 90 days, but we're successful. A year later, we still apply the fee in that situation. So the fee is, is sort of, and we have often we even, to be fair, I mean, it's, we don't love to do it, but we'll end up doing it, which is, we, we're doing a corporate search for a firm, and then we come in with a litigator. A year later, we end up applying the fee. It just, that's just the way it works. And so that you do get the money back if we're successful in any endeavor on on your behalf, that's a fair shake, okay? The other, the, the other thing I'd like to stress on retainer is if, if we, if we attract a candidate on your behalf, on a firm's behalf, and and you're interested, and you start discussions with a candidate, we, under our terms, we are prohibited from sending that candidate to another firm, even if they ask us, you. You know, they say, Listen, I'm, I'm in the market. Now I want to go to, I want to look at other firms. We are not allowed to do that, except with the permission of the firm that we are, that we have contracted with. Now, sometimes they allow us to do it anyway, but I can get into that. But that was in a, in a contingency situation. Yeah, if I, if I get somebody for your firm, I'm free to send them anywhere I want.

Unknown: 20:27

So if, if the if you're gonna make sure I understand this there. So if you have a retained search and you present candidate and the firm says, No, that's not the candidate that we're looking for, you can't turn around and open shop that? No,

Steve: 20:42

no, that's not what I'm saying. What I'm saying is, if, if I, if I, if I present that candidate and you are interested in, uh, interviewing him or her, we cannot send that candidate anywhere else at the same time.

Unknown: 20:56

So during the courting, during the courting stage, if the current firm says, hey, you know what? Let's bring that person in and let's talk to them, you can't then try to try to work with another firm on this person's behalf. But if they reject them, yeah, you can, yeah, yeah, obviously

Steve: 21:19

you're free. It's more about what happens when you, when you, you know when you, when there is interest. Because, again, in the contingency situation, even if I've even if I my first call to a candidate was about Firm A and Firm A's interested. If I'm on a contingent basis, I've got total, the total freedom to send them to firm, B, C or D, and it becomes a competition, and the firms understand that. I mean, it's not like the firms get upset if you're doing contingency, but that's an advantage of doing it on a routine basis.

Unknown: 21:56

Got it? Got it. Okay, okay. And is there any sort of hybrid or, I mean, where you're kind of, kind of working with a firm in, in with, with your feet, in both, both camps.

Steve: 22:11

Well, not really, except for the fact that the you know, the fee is so the percentage that we get up front is so small that it tends to work more like a contingency arrangement. So I think that's true. The The other thing I will say, though, and at least, and I'm not sure this is true for other firms that do Retained work, but our view is, if we're doing a Retained work for your firm, and by just chance, nobody else has really been, you know, been calling, you know on your behalf, but somehow a candidate comes your way, either through a personal relationship or through another recruiter, and it's a good candidate, we encourage you to talk to them. We just need to be informed. But other than that, we're not exclusive to the point that you couldn't consider another candidate that just happens to be on the market at the same time that does happen. And we just feel like if we're doing a Retained work, you shouldn't be excluded from that.

Unknown: 23:14

Now I've, I've heard in some instances where if, if you, if it's a retained search, and you wind up hiring somebody who wasn't presented by the by the firm, by the recruiter, that the recruiter is still recruiter still gets a piece of that. Is that right?

Steve: 23:34

Can you repeat that?

Unknown: 23:36

So if, if you're a, if, if you're a, if, if you have a retained search, you have a relationship with a firm, and it's retained search, and that firm finds or has a candidate walk in the door that you have not presented, and they decide they want to hire that person. They're, they're they're free to do so. But what is, what is the impact on the on the feet,

Steve: 24:01

again, again. I don't again. I can only speak to what we do. We would not try to charge a fee in that situation. I see, you know, as long as we, you know, as long as if we are not involved in the actual recruiting of the of the candidate, that's, you know, that's not, you know, we wouldn't get charged for that. Now that's a little bit different than the situation where the firm says, We know of a candidate, we've worked with this candidate, but we want you to hire we want you to recruit them directly. Then we get paid, although often we negotiate with that

Unknown: 24:36

fee. Got it? Got it. Wow. It's a lot to consider for for the firms. And I, you know, I wonder if the firms think through all of the all the various, you know, aspects of it, as you outline here, or if they just say, Oh, we only do contingency, or we only do retain, um. Right without thinking, Is this really the right, the right way to proceed, or what is the right way to proceed on a given search? Because I assume too that there that it's from search to search. It may be, they may want to handle it differently.

Steve: 25:17

Yeah, one other thing I would say that has an impact on that is that we often do consulting before we even do a search. Other words, a firm will come to us and they have, let's say, they want to know what their perception in the market is, right? Or they they say, We want to have a an honest evaluation of whether we can build this practice in this city, and so we will often get hired to do that kind of work upfront, with no obligation on either side to use us to recruit. So that is another aspect of it which allows the firm to understand how we work, understand, you know, what the issues are going to be, how they can craft their story to attract these people, and we get more information about the firm. I know that we did stuff. We've done studies of when we've done consulting versus other situations. When we've done retained search, we are more success. We're successful about three times as much when we do consulting on the front end than we do if we're just doing a retained search, because it's just, it's both sides. Get so much benefit out of, you know, the amount of intensive work that's being done during that consulting stage, consulting phase. It almost,

Unknown: 26:46

it almost seems like, you know, the the the high performing, savvy firms would want to have that research done before they got started, because there's, there's, you know, unless they've got a really strong presence in that particular jurisdiction and really know it backwards and forwards, you're always going to know it better, right? Yeah. And, and they can make the go, no go decision. And I think a lot a lot of ideas are also come up through all of this and and, you know, people really figure out what they want, what they need, instead of just saying, Well, you know, go, go to the biggest firm in that jurisdiction and get me the the leader of of that particular practice. Well, that might not be the right way to go, right? You might. It might be that it's better to go after somebody in a local office, who knows?

Steve: 27:43

Yeah. Plus, if there is a successorship issue, you know, you've got that retiring partner, you want somebody who can devote some time, some percentage of their time, to the clients that have already been developed. You don't want somebody who's got, you know, $2 million of their own business, and they're going to put all of their time into their existing clients. That doesn't do you any good. You still, you end up losing the clients anyway. So you have to think that through. And sometimes you need that consulting help to to figure all that out.

Unknown: 28:19

A lot to chew on, Steve, and before we before we close, we haven't done this in a couple of our couple of our last go rounds, but those of you who are maybe listening to the podcast for the first time, you clearly hear the professional acumen of of my good colleague, Steve here, in terms of executive recruiting. But what you may not know is that is that Steve side hustle, is that he is, he is a stand up comedian and and so once in a while, we get a chance to hear some of his some of his work, and I think you've got a something for us today that I think is both topical and quite humorous.

Steve: 29:11

Alright, so people always come to me and they ask. They always ask things like these. Are often non lawyers, but sometimes lawyers as well. So say if you ever placed a senator or a cabinet official or somebody really famous, and the answer honestly is No, I haven't done that, but I have placed five lawyers who've been fired by Donald Trump,

Unknown: 29:38

and are they putting that on the resume? Is that now? A resume builder?

Steve: 29:42

Yes, no, I don't think so.

Unknown: 29:48

Well, very good, alright, Steve, Well, thank you, as always, for your wisdom and your thoughts, and if you have any questions or you have suggestions or you've got a topic that you. Like to see us cover in one of these, one of these podcasts. Please let Steve and, or I know you'll find our email addresses in the in the show notes for the for the show and, and please keep those cards and letter letters coming. Right, right.

Steve: 30:16

Comment, comment, like us, all that stuff,

Unknown: 30:19

all that stuff, all that stuff that you hear all the time. All right, Steve, take care. Thank you. We'll talk soon. Bye, bye. You.