We measure what we value

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People love lists. We love the choosiness, the ordering, the nice linear way they stack up or count down. There’s a reason why every cover of Cosmopolitan includes at least one numbered list. You think Stephen Covey would be a millionaire today if he’d merely written The Habits of Highly Successful People? You think we’d even have heard of the American Film Institute but for its endless series of movie lists? We love lists, and we especially love rankings, which add the irresistible power of personal judgment: I declare “you” more important than “you.”

Sometimes it seems that no one loves rankings more than lawyers. We devour directories, books and websites that rate and rank our firms and competitors. We want to know what Chambers, Martindale-Hubbell, Avvo and other august authorities have to say about us, and if they’re saying good things, we crow about it. Lawyer magazines (and you can think of a few) generate attention and revenue every time they publish an article rating lawyers or law firms in a given region or field. Lawyers love attention, status, prestige, and beating the other guy, and rankings tick all those boxes. (Clients who want easy or lazy ways to choose a law firm like them too.)

The problem with rankings, of course, is that they’re riddled with subjectivity and bias. Who and what you rank, and in which order, has everything to do with the criteria you choose and the people you ask to apply them. What are the best corporate finance law firms in New York? How we answer that question says more about us than it does about the firms, and how those questions are phrased says more about the questioner than it does about us or the firms. When you stare into a ranking, the ranking stares back into you.

Rankings are in the news right now thanks to this recent article (and this follow-up, not password-protected) in the Wall Street Journal. It reported some discrepancies between the profits per partner (PPP) of the 100 biggest law firms in the United States (the AmLaw 100) published in The American Lawyer, and the same numbers apparently compiled by Citi Private Bank Law Firm Group, which lends to many of these firms. Specifically, the Journal reported that “[r]oughly 22% of the top 50 firms overstated their ‘profits per partner’ by more than 20% in 2010, according to a person briefed on an analysis prepared by Citi Private Bank Law Firm Group.” Citigroup declined to comment or to release its figures to the Journal. The American Lawyer also tried to obtain Citi’s figures and was rebuffed.

This has generated a lot of attention, and as those links demonstrate, many people have reasonably drawn conclusions that don’t exactly flatter the firms. At this stage, I’m inclined to think the likeliest explanation for the discrepancy is that we’re measuring different things here — Citi’s definition of “equity partner,” which lies at the heart of the calculation, is slightly different than AmLaw’s. That said, it sure seems odd that none of the discrepancies arose from firms under-reporting their profits per partner in 2010. And it does seem odd, when we really think about it, that the industry-bible ranking of large law firm profitability — a measure that is extremely important to these firms’ position in the market — is based on self-reported figures that do not, so far as I know, have anything like an independent audit standing behind them.

This story reminds us of a couple of things. One is that few checks and balances exist to ward off the potential for privately held law firms to inflate their publicly announced financials. This is especially a problem because whether or not every firm inflates (and I don’t think they all do), every firm is highly motivated to do so. A precipitous slide down the AmLaw rankings is often a prelude to an exodus of key partners and potentially the collapse of a firm. It was to avoid exactly that result that many firms sliced off so many staff and associates in the wake of the financial crisis — you have to prop up profits in the face of falling revenue by slashing costs or risk having partners flee the firm as if it were on fire. Moreover, to the extent partners pay attention to their firm’s overall financial situation (and that is generally not a great extent), they quite probably suffer from cognitive bias: they want to believe that their firms are highly profitable, so they’re not going to heavily scrutinize any report that says they are. This is a system inherently prone to inflationary bias.

The other reminder is of the stark reality that we’ve developed some pretty unhealthy priorities in the legal profession. We use rankings of the previous year’s self-reported partner profitability as a surrogate for the prestige and desirability of a law firm, and what that says about our profession isn’t good. (Do you admire companies based on their ability to make a profit off you? Do your clients?) I was speaking to a friend who advises law firms on professional development, and she mentioned that relatively few law firms track what their associates are actually doing — the opportunities offered to them, the tasks they’re engaged in, and the skills they are (or aren’t) developing. In fact, most law firms closely measure only one aspect of their associates’ work lives: how many hours they’re billing. The message about the firm’s priorities is clearly received by associates and is passed on in turn to the next generation.

We like to complain, as a profession, that law firms only seem to care about partner profits — but we assiduously follow and legitimize rankings that not only endorse that outcome but effectively create it. We measure what we value. So you might try asking yourself what your own firm records, measures and acts upon. Those are your priorities. That’s your culture.

Jordan Furlong delivers dynamic and thought-provoking presentations to law firms and legal organizations throughout North America on how to survive and profit from the extraordinary changes underway in the legal services marketplace. He is a partner with Edge International and a senior consultant with Stem Legal Web Enterprises.

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2 Responses to “We measure what we value”

  1. Julian Summerhayes

    Jordan

    Having spent 14 years in practice I noticed an insatiable desire to always come out on Top. I came from a sales background (recruitment) and it was quite natural for me to motivate myself to achieve, but I was surprised how pervasive this practice became. The law firms that I worked for never shared their PEP figures which I think added to the suspicion that excessive profits were being taken out by partners who very often were not up to the mark. And that is where the rot set in. The “I want some of that mentality” where the only force multiplier to keep the troops in line was an ever thinner slice of the partnership cake. I never once heard a partner talk about client satisfaction or happiness of the staff. These had been lost a long time ago in the chase for the numbers. Am I saying that there should be a return to the old days where no one really knew what a job was worth or clients were not billed properly? No. But firms have to look at other ways of measuring their performance. How about the amount spent on charitable donations? Or the amount of pro bono work? Or the number of female managing partners that have been home grown? I could think of lots better than are we number 1 or 2 of some table or another.

    Regards
    Julian

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