By Patrick Smith, originally published in Law.com, The American Lawyer on January 03, 2020 at 09:00 AM.

Keeping Referral Relationships is Key, But Not at the Cost of Growth

Midsize law firms rarely see referral relationships as an impediment to their growth plans. But when they do, expansion is often the priority.

Mid-market firms, perhaps more so than their larger counterparts, depend on referrals, especially if they are operating in mostly smaller legal markets. 

But what happens when a mid-market firm expands, either geographically or via an additional practice area, and that expansion threatens the ever-important referral network?

It can be a difficult situation for a firm: Does it burn a long-term bridge with a reliable referral source in order to open up a new practice area deemed lucrative by leadership? Does the firm risk developing a reputation as ‘cut-throat’ or untrustworthy if it goes aggressively after its former referrer’s business?

Of several firm leaders who spoke with the Mid-Market Report, none said they would actively go into a new practice area or open a new office without making some effort to co-exist with the existing legal environment. But all of them said if the business case is clear, niceties won’t stop their firms from pursuing their objectives.

Andrew Giacomini, managing partner for Northern California-based firm Hanson Bridgett, said that while he takes his referral network into consideration when thinking about expansion, it, for the most part, has not been an issue.

“We have pretty much been focused on Northern California for a long time,” he said. “Then we decided to open up an office in Los Angeles. We have relationships with firms there, and basically told them that we are doing this. But it is a big legal market, and isn’t like us going there is going to be some big, disruptive force.”

Hanson Bridgett has around 165 attorneys and offices in San Francisco, Sacramento, North Bay, East Bay and now Los Angeles, which was the firm’s most significant foray into a new market to date.

Giacomini stressed that he didn’t ask “permission” to come into a new market, but at the same time he felt obligated to give the other firms in the area a heads up that the change was coming.

“I’m in a managing partner network, and we talk about that,” he said. “It’s good to touch base with people and let them know what is coming.”

He said if the firm decided to move into a smaller market where it’s presence would be that big, disruptive force, he might go about it a little differently. But as for their expansion into Los Angeles, he said “it is a big deal for us, but to the other firms in the area, not such a big deal.”

Phillips Lytle, a 200-attorney firm based in Western New York, takes a slightly different approach when it comes to referrals.

“Because we have enjoyed such a significant portion of our growth through referrals, we have made a hallmark of those relationships as part of a no-poaching policy,” Kevin Hogan, managing partner Philips Lytle, said. “We have to demonstrate over time that they [the referring partner] can be confident not just in the quality of our work, but in the fact that we aren’t going to turn to the client and argue they should send work to us.”

Hogan said the firm’s recent growth has been directly and profoundly impacted by its relationships with some larger firms that refer business. He said many of the partners at Phillips Lytle are formerly of larger firms like Kirkland & Ellis or Akin Gump Strauss Hauer & Feld, and those firms often send business their way when the client’s ideal rate is lower than the larger firms are willing to provide.

“If a Kirkland partner can refer business to a former Kirkland partner at our firm and the client is getting the rates they want, that is a win for everyone,” he said.

Hogan said the dynamic with the larger firms is stable and really not in any danger of getting to a place where there is competition for the client.

“We can be completely non-threatening to the Am Law 50 firms, even though they are referring work to us,” Hogan said.

He also said smaller, boutique firms will send business if the boutique doesn’t handle that sort of work.

In one instance, a referring partner in Cleveland who had been working with Phillips Lytle for over 10 years was approached by the firm and asked to join, avoiding any potential conflict as the firm opened it’s Cleveland office.

Hogan said his firm “would think long and hard” before making a strategic move that could create conflicts with referral sources. Still, he added, “if the business rationale for developing a practice is so strong that it simply outweighs the considerations of the referral source” the move could go on.

Ted Offit, managing partner at Mid-Atlantic-based Offit Kurman, said that while relationships and the referrals that come with them are important, those issues don’t warrant a lot of discussion when opening up a new practice or office.

“It is not on our short list of things to consider,” Offit said.

Offit Kurman has grown considerably in recent years. The firm now has 13 offices in seven states and Washington, D.C., and it is launching a new environmental practice this month.

As the firm expanded into new markets, Offit said, it has encountered little push back from attorneys worried about losing business.

“All lawyers have a tremendous amount of competition,” he said. “We want to continue to work with our partners as we grow and keep that relationship.”

Patrick Smith, based in New York, covers the business of law, including the ways law firms compete for clients and talent, cannabis law and marketing innovation. Reach him at pasmith@alm.com or on Twitter at @nycpatrickd.