Research: Hiring a Superstar Can Backfire

Prior research on poaching “star” employees has shown that hiring stars is not only difficult but often counter-productive. Newly hired stars often find it challenging to reproduce their exceptional performance. They may also harm their new employer, for example, by hindering innovation or lowering incumbents’ performance. This is both surprising and troubling given the costs, time, and effort involved in the hiring process.

Organizations that rely on the knowledge and skills of their employees as their primary asset and source of competitive advantage still struggle with this dilemma. As such, they are under the strategic imperative to recruit the “best and brightest,” even or perhaps especially, if this means poaching them from their competitors.

This practice is known as lateral hiring and knowledge-intensive organizations, such as large law firms, are increasingly reliant on it for their growth strategies. A recent industry report shows that in the largest 200 American corporate law firms there can be as many as 3,000 lateral hires per year at partner level. This is an annual average of 15 lateral hires per firm.

This leads to a very interesting question: If hiring stars is unlikely to work, as recognized both in the academic and in the practitioner literature, why do organizations continue to do so?

Our recent working paper, which has been presented at AOM and other conferences, on the lateral hiring of stars in the UK legal industry helps to answer this question. We followed 2,700 star lawyers working in more than 100 UK based corporate law firms over a 17-year period (2000-2017) and looked at whether practice areas that hired a star performed better in the year after hiring than comparable practice areas that did not do so. We define a lawyer as a star if they were listed in the annual UK Chambers Legal Directory. Inclusion in “Chambers” indicates that a lawyer is recognized by peers and clients as being amongst a small group of outstanding performers in their respective practice area for the year in question. In the context of our study, we define performance in relation to the rating that a particular practice area is awarded in Chambers. We complemented our analysis of statistical data by talking to some key decision-makers in the law firms featured in our study, including senior management, recruitment professionals, as well as star lawyers themselves.

Our study shows that, on average, practice areas that hired a star had up to 10% lower performance in the following year than practice areas that did not do so. Yet a closer look at our results reveals a more nuanced picture, with some instances in which hiring stars may work.

The Main Problem with Hiring Stars

There are a number of arguments against recruiting stars. First, there is the issue of portability of individual performance. Research has shown that organization and team factors are important contributors to the stars’ individual performance. When a star is recruited, these factors do not transfer as easily as the stars’ own knowledge and skills. Superior performance is often a collective endeavor, and dependent on the contributions and support of many others beyond the star in question, including professional colleagues both in the star’s own team and across their broader organization, clerical and support staff, and of course clients.

Performance also depends on routines, systems, and cultures of work which are often organization specific. As they move, stars lose their broader support networks and systems which greatly facilitated their exceptional performance. Moreover, research has shown that stars often struggle to adjust to their new organizations’ systems, routines, networks and cultures, as they are too invested in their previously successful ways of working. Indeed, many stars also feel that their star status insulates them from the need to change, and instead expect their new organization to adapt to them. They might in other words buy into the myth of their own exceptional talent.

Second, one needs to consider the reactions of incumbent employees in the new organization, some of whom may also be stars or may have ambitions to become one.  For instance, studies of scientists and investment bankers have shown that the arrival of new stars negatively affects the performance of incumbents. Incumbents may resent the arrival of the new stars and the attention and resources these receive. They might fear for their own career development opportunities and for their reputation within their organization. They might interpret the hiring event as a lack of confidence in their own abilities and future prospects.

Furthermore research has shown that multiple stars may not work together smoothly, as they jostle for status and compete for resources, ultimately resulting in the group failing to take full advantage of its collection of exceptional individuals. As such, when hiring stars firms risk triggering non-cooperative and even hostile forms of behavior which undermine the integration of the star and the ability of the firm to capture the full value of the move.

It is not surprising therefore that a lot of lateral hires (upwards of 50% according to some estimates) fail within a few years, with the star moving to new pastures.

When does hiring stars work (or not)?

Our findings lend support to the arguments above, as they show that in the first-year post-hiring, those practice areas that hired star lawyers have lower performance than comparable practice areas that didn’t do so. This relative underperformance is approximately 10%.

Yet our results also show some variability in outcomes, including two scenarios when hiring stars may actually work.

The first scenario is when a star joins a practice area where many incumbents are stars. In this case, the performance disadvantage reduces by up to 74%. The second scenario is when a star joins one of the strongest practice areas in the organization. In this case the performance disadvantage dissipates entirely, and the hiring practice enjoy a performance advantage compared to non-hiring practices. In fact, we observe a 162% swing from negative to positive relative performance.

Importantly, these two scenarios can also intersect. Indeed, the best conditions for hiring stars occur when the star joins one of the strongest practice areas in their new organization and when this new practice area that they are joining is better than the practice area that they are moving from. In these circumstances our results indicate a 270% swing from negative to positive relative performance.

We also identify instances when hiring stars is likely to be a particularly bad idea. Many of these are simply the reversal of the positive instances identified above, such as situations when the star joins a relatively weaker practice area within the organization, and when they are moving from a higher quality practice area to a lower one. These instances may again interact with each other.

However, we also identify a third scenario: instances where a practice area’s quality has been declining over time. Here, bringing in stars not only doesn’t help—it makes things even worse. This is surprising and concerning because, as our data suggests, this is exactly a situation when organizations may be more likely to bring in new talent from outside.

Hiring Stars Is a Risky Business

Our research shows that in most cases hiring stars may be detrimental to performance. Yet there are some important exceptions where hiring stars may work and make a positive contribution from the start.

1) Hiring stars works better when you already have other stars in the same area.

It has been previously argued that when recruiting stars, too many cooks may spoil the broth. This does not seem the case in our research. Rather, the brighter the stars you already have in an existing group, the better the chances for the move to work.

This is probably because in these cases, the new hire is likely to view the move as a step up in their own career and therefore be more willing to adjust to their new context. At the same time, incumbents are less likely to view the new hire as a threat and more likely to engage in cooperative behaviors that help to quickly absorb the incoming star into the group. In this context, the group and the broader organization are likely to capture and leverage the skills, competences and relationships of the new arrival and to exploit synergies between their old and new stars.

In short, it seems that hiring stars works better when they are joining an existing constellation.

2) The hiring group must already be one of the best within the organization.

Hiring stars can work to further improve your best groups but is much less likely to work in lifting the performance of weaker groups. In short high-quality groups deliver better outcomes even when it comes to their capacity to absorb star hires.

There are several reasons at play. Your best groups may already include your brightest stars and therefore are more likely to satisfy the condition discussed above. Furthermore, they are likely to have the resources and capabilities, such as robust systems, routines and relationships, required to absorb the disruption cause by the recruitment of a star. They might also be viewed across the organization as being a source of competitive advantage. As such attempts to further invest in them are less likely to cause resistance from other parts of the organization and more likely to elicit support and collaboration.

In short, the rest of the organization is more likely to be invested in the move and committed to making it work, something that is very important in situations where there is usually a need for cross-group collaboration.

3) Bringing in stars cannot stop the rot.

Trajectories are important. Although it might sound like a good idea to strategically hire stars into a declining group to stop the rot, this not only doesn’t work—it can actually make things worse. In these situations, we can expect existing routines, systems, practices, and relationship to already be under strain and therefore less likely to cope with the disruption caused by a new star entrant. Furthermore, we can expect incumbents, even if they are stars themselves, to feel under pressure and be less confident, and, therefore, more likely to resist the arrival of newcomers and cause further disruption that undermines the quality of their practice’s work. Only recruit into an already well-performing group.

If one follows these principles, recruiting stars may pay off. In all other situations, it is generally a bad idea. In these cases, organizations are advised to rely on other talent management strategies such as nurturing existing staff and developing them into new home-grown stars, and to prioritize the retention of existing stars. Organizations, however, should not panic at the prospect of losing their stars, as it is not clear that the hiring firm will benefit. As such the loss of a star should not prompt hasty attempts to bring in a replacement star.