Executive Recruiting Agreements

In this episode of Steve's Rules, podcast partners Murray Coffey founder and principal of M Coffey and executive recruiter Steve Nelson from The McCormick Group discuss some of Steve's market updates and then go deep on best practices in legal recruiting agreements..  This episode should be of special interest to those on the law firm side responsible for engaging executive recruiters for lateral placements.

Key Topics:

1. Increased Government Hiring by Law Firms
   Steve highlights the recent surge in law firms hiring from key government agencies, including the DOJ, SEC, and FTC. This trend reflects law firms’ increasing need for regulatory expertise, especially amid policy shifts and anticipated changes from upcoming elections. Steve explains how this affects the demand for experienced attorneys from federal agencies.
2. Employee Benefits Partner Hiring Report
   Steve shares insights from McCormick Group’s new report on ERISA and employee benefits partner hiring. As mergers and acquisitions increase, firms are turning to highly specialized attorneys in this technical area to support complex deal structures. Steve discusses why these roles, though not profit centers, are crucial client retention tools..
3. The "Poison Pill" Clauses in Law Firm Recruiting Agreements
   Steve discusses three key “poison pill” provisions in partner recruiting agreements that can make firms less attractive to recruiters and dissuade them from bringing top talent forward:
   • Fee Caps for Large Groups: Some firms impose strict fee caps on large group hires, which can be problematic if they aren’t consistent with the market for securing these high-value placements.
   • Guarantee Periods and Conflicts: Onerous refund requirements, particularly when partners are forced to leave due to unanticipated conflicts, put undue burden on recruiters making placements less appealing.
   • Non-Recruit Clauses:  Blanket restrictions on recruiting, particularly not tied to placements, can limit long-term partnerships with recruiting firms.

Steve emphasizes that balanced, reasonable agreements foster stronger recruiter-firm relationships and ensure access to the best talent.

Contact Steve
McCormick Group

Contact Murray
M Coffey

Transcript

Murray: 0:00

Murray Coffey, 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@mcoffee.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 professionals 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,

Steve Nelson: 1:05

how are you? Okay? Murray Coffey, doing I

Murray: 1:08

am doing great. It is actually starting to cool off here in Dallas. We actually got below 90.

Steve Nelson: 1:20

Hey, listen, I'm excited, particularly I just went to New York, and my comedy mentor, Tom Dustin, who runs the Key West Comedy Club, is the subject of a new documentary called Tom Dustin portrait of comedians. So I was there for the premiere of New York. So it was really great. It was great to see him, but it was also great, a great movie. If it ever comes to your city, I recommend,

Murray: 1:47

oh, is it? It's not on one of the streaming services right now,

Steve Nelson: 1:50

not yet, not yet, but I think it will get there. Okay,

Murray: 1:53

okay, well, I'll keep an eye out for it. I enjoy, I enjoy a good documentary, for sure, especially one where there might be some yucks. There are definitely that. There are definitely that, right? Well, as we often do, we will start off this episode of Steve's rules getting kind of what's going on out there, Intel that Steve and his colleagues at McCormick group are hearing. They've always got their ears to the ground. And also, I think they've got a new report that Steve's going to talk to us about. So, Steve, what are you hearing out there? Right?

Steve Nelson: 2:30

Well, I think the biggest thing going on in the DC area right now is that we're seeing a spike in government hiring, hiring from the government by major law firms. It's uh, we've already counted 13 in the month of September, which is the highest this year, and was well above what was last year. Now, earlier this year, the government hiring was lagging behind last year's pace. I remember, which is normal, because an election year generally is a slower year, because a lot of the people who are, you know, high, high up in government, have pledged to to stay to the end of the term. But in September, we started seeing them, and they've continued into October. So we're thinking that there's been a change in in the the loyalty, let's say, of the of the of government worker government attorneys right now, with regard to staying until the end of the administration, and I may have something to do with the fact that, you know, there's, there was a change in the the election, with Biden dropping out, Harris coming in. So that may have been a factor. Now I will say this, three agencies are the key agencies that are that are being hired from it. So I think that really will tell you a lot, DOJ, SEC and the FTC, and so those are all areas of important importance to business and where really, no matter what happens with the the election, there's going to be a lot of issues that are going to be raised right next year and the year after, with regard to policies at the SEC, everything they're doing with regard to crypto. I mean, that's a huge deal. Everybody's not sure where that's going. Obviously the FTC and the whole issue of, you know, price gouging, and Paris is talking about that, that may turn out to be something that will be a new policy. Antitrust has been strong, has been a strong area of interest throughout, frankly, this entire administration. So we're seeing a continuation of that. Don't want to, don't want to mislead anybody to say that, well, it's across the board, and that, you know that people from the Federal Communications Commission are going to be in tremendous demand. We're not seeing that, but we're seeing it that is going on.

Murray: 4:55

Yeah, and those are all agencies that have levels of enforcement can. Abilities that that are are critical to to law firms in terms of representing their clients. So that is fascinating. And I, you know, who knows how this election is going to turn out. It still is, is, you know, neck and neck, which, frankly, I find hard to believe at this point, but there were that that's where we are.

Steve Nelson: 5:20

So and you were telling me earlier, we were discussing this earlier, that a interesting wrinkle is the fact that you've got Kamala Harris, a former prosecutor, that's right, is, is, is, is the Democratic candidate, and if she were to become president, you would, you would think that there's going to be heightened enforcement, you know, more aggressive posture. And of course, that's going to be of, oh, yeah, interest or even scariness to business. Yeah.

Murray: 5:55

Look, she's, she was, when she was attorney general. She was an activist, Attorney General, and and she had a reputation for using the powers of law enforcement to try to try to stimulate some some societal change. Whether, whether, you know that was, whether that was successful or not, I think is an open question, but it's an interesting, you know, she that poses an interesting issue for law firms. If you have a prosecutor who is, who is head of the United States, you know, government and will inevitably appoint whoever is going to be the head of the DOJ is going to be somebody that Kamala Harris is, is, is sort of in sync with so could be, could be very interesting time, that's for sure. It'll be interesting either way. I guess you know so. And you guys have got something new, some new reporting that you're doing too, right?

Steve Nelson: 6:56

Yeah, no, we, just last month, we issued our first report on employee benefits. Partner hiring for us y national, we have been developing a strong practice in this area, terms of ERISA lawyers, again, mostly partners in council. And you know, because of that, we've, you know, we've really been tracking a lot of the moves, and so we decided to to give that, to provide that information on a national basis. You know, that's an area right now. It's, it's always been, it's super technical, yep, and it's and it's something where, you know, firms need the expertise. It's not a money maker for the most part, but it is. It's a client holder, you know. So the clients do a merger, they need that expertise, and they're going to get the best person to provide that expert, that's right. And so therefore these, these lawyers, are very much in demand. And therefore this is really interesting information for for firms to know. What you know, where are the people going? Are they? Yeah, are they going to boutiques? Are they going to big firms, etcetera. So stay tuned. If you, if you're not subscribing, you know, you know, you'll get the notes below about how to reach us, and, you know, we'll get you on the list. So very excited about that project. Yeah,

Murray: 8:28

that's, that's great. And you know, with, you know, we're seeing, we're seeing interest rates come down, so that's going to stimulate the deal world. And you're right. So this could, we could see a whole bunch of mergers, acquisitions, you know, spin offs, and that's going to drive a lot of, a lot of need in this, in this area, and it is highly technical and, and, and Full of landmines. So, so it's, it's great and very cool that you guys are tracking that so, so carefully. And

Steve Nelson: 9:07

I want to give a shout out to rob Virgo, who was my colleague, yes, practice. So if you're an Arista lawyer, and you're want to, you know, want to get an idea what your job options are, give Rob a call.

Murray: 9:20

Yeah, give Rob a call. He's a great guy too. We, we've had him on the podcast in the past. He's just, just great. So let's focus in on what kind of the the primary subject here Steve, and that this is what I would this is what I would call, you know, the fine print of the of the recruiting world. And I think you called it when we were talking about the subject. You call it the poison pill, and, and I found that intriguing and, and as we talked about it, it became even more intriguing so, so, and this is probably, you know, the this is, this is getting to that inside baseball point where. Where you know the people who care about it are really going to care about it, and probably other recruiters. And as we often know, Steve, the traffic that goes to this, this particular podcast seems to interestingly come from lots of your competitors. So right,

Steve Nelson: 10:16

yeah, and it may come from the competitors. It's this is definitely a topic of interest to law firm management, in particular, terms of this is important, and really what, what we're talking about is the various law firms recruiting agreements with outside recruiters. And virtually every am law 100 200 firm has them as their own their own agreement. And, you know, pretty much insist that that all of their recruiters sign them. And on the one hand, I mean, it's, it's a good vehicle to protect the firm. You know, one of the areas that they, that they go into, which is, important is the who's got the rights, you know, who, who got the resume in first, etc, which, you know, there's a whole, you know, there's a whole, you know, basis of that I want, I don't really want to get into it here. But, you know, sometimes it's not the person who gets a resume first, it's the person who actually knows the candidate. But we could argue that. But there's other things in there which which are important. And I think that what the law firms have to understand is that, on the one hand, you want to protect yourself, but if you go too far and you and you become draconian in your approach, what you're telling the recruiter is, you know, don't, don't call me with your candidates, because you're not going to get as good a deal with us. And so you know, you know, you know, go ahead and send your candidates elsewhere. I don't think most law firms want that with partner candidates. So that's the issue, is you want to protect yourself. On the other hand, you don't want to be draconian and do something in there like a poison pill that's going to dissuade recruiters from sending you their best candidates. All right, so I think that there are, like, sort of three basic issues that I that I want to go into. One is, is the fee percentage now the market for partners and law firms at amla, 200 firms, 25% for an individual partner, and a sliding scale down to at least the third partner in a group. So if you have a partner in a group, you would pay 25% for the first partner, 20% sometimes it's 15% but 20% for the second partner, and 15% of the third part. And that's the base compensation that's all based on, yeah. Where it gets tricky is when you get into groups, and if it's a particularly large group, there's firms will put in a fee cap. And so the, you know, the question is, is the fee cap reasonable? And you know, my sense of this is at least, I mean, at least the way we look at it. And I think most of our competitors will look at it, if it's reasonable, we're going to be fine with it. You know, it's not like a, I mean, if it's a million dollar cap or million five, yeah, it's a lot of money. But I'm looking at the relationship. I want to make the deal. I don't you know, to me, that's not worth the hack. It's when you know you do get sometimes a firm will come up with, like, a 300,000 cap. And if you're talking about four or five partners, it's unreasonable, no, and therefore, therefore, you know, that will be a problem. So that's one area of issue. The other part of this is, what is, how is a group defined? And that can be really tricky, because what happens a lot is one or two partners begin the process, and they talk, they go to the firm, and they, you know, the firm starts to say, can you bring somebody else with you? And, you know, as as the recruiter, is the recruiter really part of that process, or is that something that's, you know, organic within the firm, and so often the recruiting firm will argue that, well, I brought you the first two, therefore you're gonna have to pay for everybody else. I think the firms use it differently, which is, you brought us the first two we'll pay your fine for that, but you don't get any credit for anything else. I think there are various versions of that. Sometimes, when we were working with the group, we say there is a potential for a group or five other partners who might come along. So therefore it's a question of how. Much was the recruiter involved? Again, my view is, if the recruiter was involved and talked to the group and talked to all the members of the group before this transaction happened, they should be paid, yeah, maybe, maybe a bit less than what normally would be done, because the firm did a whole bunch of stuff on its own, but they recruiters should be paid unless I think it's, it's, it's less available or less required if, if, in fact, it was one of these situations where the recruiter really just represented one or two partners and that it just sort of came out of that. I would take the firm side on that so, but the provision has to be the language of that provision has to be written in a way that it sort of covers all the nuances there. So that can be little when you're looking at that particular provision. But we do think that the firms have a right to make it clear that you know, that the recruiter has, has had a role in the additional partners. That's the way I look at it. So, so that's the first, the first area of of some controversy. Let's, let's put it that way. Second area relates to the guarantee period. So the way this works with, with part, you know, if you're not doing, if you're doing raw staff recruiting or executive recruiting, you can, you can make a guarantee that if the person leaves within a year of starting, you replace the individual. That's standard in the non law firm partner industry, right? It's even standard within the law firms, but with regard to their management, and that's because you can a recruiter can readily replace the person that has left that there is a really good chance that you will find somebody else. You know, either circumstance has changed, or they're very good people, or they were the they were the number two candidate, and they're still available, you'll be able to replace that person. And therefore the replacement is sufficient. But I think the firms have found that law firm partners is they're a different animal. And therefore, if you were, if you place a private equity partner with $5 million worth of business at Firm A and that partner leaves, you know, in six months, you're not going to be able to replace you could work forever. You could pay five years and you would not replace them. So firms obviously figured that out, and, and, and they've come with basically money back guarantees for for those circumstances, when, when, when? Part, generally, what we find is some variation of a sliding scale, pro rated give back. So it might be like for the first 90 if somebody leaves within 90 days, it's a full gift back, because if they left within 90 days, there's been a change in their in their circumstance, a change of mind, something disastrous happened. It's not a place the way we look at it's not a place within if you're leaving within 90 days. But after that, there would be a sliding scale that would go on often, often throughout a full year, sometimes for only six months, throughout, you know, so that you would that the recruiter would have to give back a certain percentage of the fee, depending on how long the person stayed well.

Murray: 18:47

But we were, you know, when we were starting this conversation, prepping for this conversation, we talked about a circumstance in which a which a conflict comes up during the during during this guarantee time, and that's to me, and maybe you can explain what we were talking about with this, but to me, it seems it doesn't, it doesn't seem particularly fair that the recruiter should have to, you know, disgorge fees if there's a conflict that has come up. And maybe you can explain that content, that conflict context, because we all know that they're checking conflicts before the partners come in, and they didn't check the conflicts well enough, you know, shame on them. But sometimes there's a subsequent conflicts issue. So maybe you can talk a little

Steve Nelson: 19:34

bit. Yeah, exactly. I mean, other words, obviously, if I mean, I think that the recruiter doesn't have much, much weight to stand on if the the candidate didn't disclose a major client or something like that, right? But what happens more often is that after, after that person starts, that the firm will will bring in a new potential client. It maybe a very large client that will require that partner to give up their main or one of their main clients. So if this happens, you know, again, you know, you know, several months down the road, right, the partner's gotten there is doing well, everything's integrated, etc, and all of a sudden this conflict comes up from the recruiter standpoint, and frankly, from the candidate standpoint, it's, it's like, you know, why are we the guarantor? You know, you made a business decision to bring in a new client. You it's your, you know. This is your, you know, liability, so to speak. You know you'll have to deal with having this partner. And to be fair, I mean, the partner himself or herself is, all of a sudden, their career has been thrown into turmoil because their expectations where they're going to bring this client and hopefully get some new clients based on that client, etc. So it's an overreach, in my view, to have that kind of situation come up and then the firm demand refund, you know, again, you know, if it again, I might look at it differently if it came up in the first 60 days, but, but certainly after a certain period of time, and it usually happens that way. I don't think I've ever had a situation where a partner started and then, you know, left within 90 days. I mean, it just doesn't happen very often. So that's one issue, but there are other ones, other things that come up that that end up a partner leave. One is a partner can end up going to a client. Could be a client of the firms. It could be their own client that get an opportunity to go to a client. Well, that could be a benefit to the firm, right of a new client come in or news, let's say it's a trade association or something like that. They could have a bunch of new clients, sure. So, so again, the the recruiter is faced with this, you know, obligation, which you know, the recruiter feels like, well, you're, you're getting benefit two ways on this, you know, you you're getting the the the new client, and you're getting the feedback, you know, part of your feedback government, sometimes they go, go to a government agency that can, you know, that could also be a benefit to to a to a to a firm. So, you know, my view is that, you know, once you get beyond six months, it's, it's, you know, I think it's you know, everything's a little different. And I'm not, I'm not saying that you never give money back after after months, but anything, you know, and then we have seen some of the provisions where you have to give back three quarters of the fee for the first nine months that somebody there, that, to me, is, is an overreach. And again, that's the kind of thing. If we as recruiters see that in the agreement, we're going to take a note of it, and, you know, you might get the first candidate we bring you because it's a good fit, or something like that. You're not going to hear from us again very often, because we'll find other firms that we can do business with. So that's, it's just, you know, the fact of life, it's, it's, it's

Murray: 23:23

business, business decision, absolutely. Yeah, alright. So

Steve Nelson: 23:28

then the third area, which is probably the most, maybe the most controversial and most sensitive, is non recruit agreements. So if we make a placement with your firm, right? We agree, if it's a partner placement, we agree for to a one year, you know, a one year, you know, we're not, we're not sort of recruiting your people for a year, right, recruiting your people, or recruiting that candidate, recruiting your people, we we would never recruit that candidate, okay, unless less circumstances significantly changed, and that candidate came to us and said, you know, things are not working out here. And we often, to be honest, we asked for them to give, to get some sort of authorization from somebody, some partner at the firm, or leader at the firm, is this is not working, but if it's the just the firm itself, we agree not to recruit for a year, once the placements made. And I think that's generally the way that firms look at it. But we have run into to some firms and not, not, you know, not just a few, but a fair number of firms where, where their approach is, something upon something along the lines of, if you submit a candidate, or if you sign this agreement, you agree to indefinitely, not. Not recruit any of our partners or any of our people indefinitely,

Murray: 25:04

indefinitely.

Steve Nelson: 25:06

So that means it's sort of all time I send one candidate who may or your firm, and you're asking me to not recruit any of your people indefinitely. Well, I'm not going to sign that because, I mean, we're a recruiting firm. I mean, this is, this is coming about, because so many people in our industry, the legal recruiting industry, are basically just, they're just agents for lawyers. They're not, they're not really recruiting. They know a lot of lawyers. When a lawyer calls them up and says, I need to make a change, they represent them. They take them to a few firms, and that's how they do their business. And for those lawyers, recruiting doesn't mean much, because they don't do it. But if you're a real recruiting firm, and the best, the best legal recruiting firms out there, are recruiting, okay, let's face it, you know whether it, you know it's any of the name brand firms are recruiting, yeah, so, so when I get that, it's, it's like, okay, I'm not doing business with you. I mean, I'm going to withdraw this person. And, you know, we're never, you know when you're not going to hear from us again. Because it's like, you know, it's to me, it's like, as if you're if looking at from the lawyer point of view, let's say you get asked by a client to do an RFP, and we do an RFP about, you know you're looking, you know, we're looking to hire you to do, you know, workers, cop work, or something like that. And we so you do the RFP. But as part of the fine print of the RFP, that says, as part of this RFP, you agree never to sue us, never to sue us again on any no matter what I mean, would you, I mean, you know, if you're the General Counsel of that, if you're the General Counsel of that law firm, would you, would you sign that

Murray: 27:00

you that's why we always say, you know, the for those of us who answer RFPs, that's why we always say, Look, before you put pen to paper, look at that outside council guidelines and get it in front of the firm Council, because there's all kinds of little nuggets in there like that, right? Exactly.

Steve Nelson: 27:17

So, so any event. So that's the idea is that you know you as a firm, you're limiting your access to recruiters if you do that. And so therefore, I mean, I just think you want to be reasonable you, and I'll tell you the good firms for firm. We've had this come up a few times where we we negotiate with the firm and we say, okay, we understand your position, and we will agree to to the to the point at which is not normally what we would do, but just so we can can move this along. You know, have this candidate considered is we'll agree that if there is a candidate that you are considering from McCormick group during that period of time, we won't recruit for you, but once that, if you decide not to hire that Sure, not to interview that person, then we're, you know, then it's, you know, it's free ball. And I think we've gotten firms to get to the point where they understand that that's, you know, that that our point of view is legitimate, and that, you know, again, I mean, the alternative is, you're going to have us and many other search firms that will not do business with

Murray: 28:32

that's a So, it's the, you know, it's in working with law firms. They are, they are conservative businesses. They approach their business conservatively, and they approach their business with with, you know, risk management being sometimes the the highest order of of business. And so I can imagine that that the when, when they're looking at recruiting, or how they're going to set up their their recruiting agreements, they're going to be looking at minimizing risk, and in so doing, I mean, there's nothing wrong with minimizing risk. You have to do it. That's how you have to run a business. You have to have risk tolerance to a certain level. Just that law firms tend to have very low risk tolerance, which is always interesting to me. But you gotta, you gotta, there's, there's, there's a line, there's a fine line, you know, right between, between the risk tolerance and the and the and the, you know, kind of screwing up business relationships because you're so, you're so risk tolerant or intolerant, and so, I guess, how does a, how does a firm, you know, dance on that line of protecting itself while still, you know, making sure that. It has, it has access to the pool of candidates that that they need, and anymore, you know, we talked about this a little bit. We won't name names, but, you know, some firms are seeing the the laterals as a as a critical factor in their revenues, maybe even, you know, so

Steve Nelson: 30:19

that's that's entirely true if you, if your firm is, you know you're, if you're doing, you know your revenue projections because you're you're planning to bring in X number of levels per year. You know you're going to have to, you need to maximize your your opportunities, and so you are balancing the the risk factors, you know, you're about, you're you're balancing the downsides and, you know, and the risk with the opportunities. And so I think it's one of those things where I think you want to have the person who is, who is, basically got the final say if that person is also in charge of the recruiting strategy and the and you know, the you know, you know, the actual, you know results, that person has responsibility over the results, then you could probably get there, because they'll understand that they want to have, they want to have access to as many good candidates as possible, and so that they, you know, you know that they, yes, they'll want to protect themselves. And that's where some of the issues come up, where we talked about the the groups and the being, you know, you want to protect that, because that's, that's a little different sort of issue. But I think in this area, in terms of in terms of guarantees, and in terms of the non recruits, I think you want to be, you want to make sure that, that you are, that the recruiters, that you can develop a partnership with them, and that they're not just sending you the occasional candidate, but you really start seeing, you know, a flow of candidates from them, and you only can do that if, if the if the recruiter feels like your agreement is not draconian,

Murray: 32:10

yeah, yeah. Everybody has to share in the risk. It can't be one sided, right? And I think that's that's critical. That's a it's a very interesting topic. I hope the firms are are listening to this one.

Steve Nelson: 32:24

Well, we're going to be doing one of our roundtables that we do with recruiters. We got one next week. We're going to talk about a lot of these issues next week. So, good, good, interesting. I think that's I just think that's what you know. I think that you know that this comes up a lot. And I think these are important issues, you know, that for our industry. And I think that, I mean, I can, I can tell you one thing which is unfortunate for our industry is that looking at from the other side, from the recruiter, the law firm, recruiter side, they do not have a high opinion of our industry as a whole, because there is no barriers to entry. You know, if you've got a phone, you've got a recruiter, right? And, and nowadays you don't even need a phone, right? Yeah, you know you gotta blame, you know, you gotta, you know, Wi Fi, you've got recruiter, and, and so therefore there's no, you know, you nobody can get, can get thrown out of the business,

Murray: 33:24

right, right, right. There's not licensing that's going on, right?

Steve Nelson: 33:29

So, I mean, I recognize that, and I think the firms are caught in a situation where they've got to protect themselves, and they've got to come up with good, good provisions to protect themselves, yet, on the other hand, they still need to get access to the best candidates. Yeah,

Murray: 33:46

yeah, absolutely. Well, what did we learn today? We learned that. We learned that we all need to share the risk, and it's all Kumbaya, right, right? Steve,

Steve Nelson: 33:58

really, I wish that was the case. All

Murray: 34:03

right. Well, very good. Any parting thoughts before we sign off?

Steve Nelson: 34:08

No, I don't think so. I think we've covered it. Okay, yeah, I we've got some good we've got some good plans for some future upcoming episodes. So we will be back. We will let you know. But we've got, you know, a couple of guests that we're talking about. Yeah, absolutely, bring in some, some different perspectives. So yeah,

Murray: 34:26

absolutely, and and, and we'll, if we can, we'll drop the link to your friend's documentary, the document director friend, into the show notes as well. So if you've got that handy, send it on and we'll, we'll add it to the show notes. Okay, all right, all right. You.