Are clients loyal to your firm or the people in it?

Employee turnover can be a big challenge for companies. But it creates a unique problem for professional services firms, which have to worry about employees taking clients with them if they leave.

I looked at the issue in the context of the U.S. federal lobbying industry. Using federally mandated reports filed by lobbying firms, I obtained a sample of more than 1,800 lobbyists who switched firms between 1998 and 2014. I also analyzed the decisions of approximately 18,000 clients to stay with their current firm or follow their lobbyist.

There were a few significant findings. First, the duration of a client’s relationship, with both the lobbyist and the lobbying firm, influenced where client loyalty resided. The probability that a client follows an employee who switches firms increases by nearly 2% for each six-month period that the client works with the lobbyist, but decreases by approximately 1% for each six-month period that the client enlists the services of the lobbying firm.

The way that a client relationship is structured is also important. Clients served by teams are much less likely to follow an employee who quits than those who work with individuals. To put that in perspective, the probability that a client follows a lobbyist decreases by approximately 2.5% with each additional team member who works with the client. In fact, using teams even helps firms retain clients who have an extensive history of working with one lobbyist. The vast majority of clients in my sample worked with teams.

The characteristics of team members matter as well. When clients work with teams of specialists, they are more likely to stay loyal to the firm than when they work with teams of generalists.

That said, one risk of using teams to manage clients is that team members may collectively leave to join a competitor or start their own firm. About 19% of lobbyists quit with a co-worker, a phenomenon we call “co-mobility.” When this happens, the likelihood that a client follows skyrockets — but only if team members had jointly served the client before leaving. Because professional service firms are increasingly serving clients with collaborative teams, they should try to reduce the incentive for whole teams to quit.

While my study focused on lobbyists, these effects should generalize to other professional services firms. But some important questions remain. Do firms benefit from hiring employees who bring clients from their old firms? The answer may seem to be yes, but recruiting these employees could result in a winner’s curse where firms overestimate the value these employees will create and overpay them. Another area worth investigating is how and when firms use nonsolicitation clauses to prevent employees from taking clients when they leave.