The stewardship crisis

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Over the legal news wire this week came a report of the closure of a US law firm. The full report of the firm’s demise was restricted to those with a premium account that I have no interest in acquiring, and in any event, the details of what happened weren’t relevant to what caught my eye. It was the one-line description leading off the wire report, which looked something like this: “Law firm ABC is closing next month; its name partners will retire and the rest of its lawyers will form smaller boutiques or join bigger firms.”

That’s the capsule story of the end of a law firm. More importantly, though, it’s also a template — the founding partners’ retirement, coupled with a scattering of the remaining lawyers — that I expect to be repeated frequently throughout the legal profession over the coming decade, especially among small and midsize firms. It’s the natural outcome of the widespread inability of law firms to deal successfully with succession issues. And it reflects what can only be described as the failure of hundreds of law firm leaders (by which I mean founders and power brokers more than “managing partners”) to look beyond their own short-term interests to the long-term survival and success of the firms they created.

It’s a given that law firms exist to generate profits for their partners. The addition of leveraged associates, the admission of new partners, the arrangement of origination credits, the expansion of the firm to new regions and new practice areas — all these activities are undertaken in order to maximize partner revenue. Nobody really doubts this or has a serious problem with it.

The difficulty arises when the interests of the founding partners inevitably begin to diverge from the interests of everyone else in the firm, especially lawyers at the start or in the middle of their own careers. These lawyers’ own timelines extend beyond the expected career arcs of the partners who hired them, and they have an interest in seeing the firm continue to develop and thrive after the founders have moved on. This interest is primarily financial, of course — they want their turn occupying the most profitable seats — but it’s often also personal: they like the idea of taking up the mantle of a respected firm and leading it into a new age. I think most people would find these sentiments reasonable.

What has struck me over the past few years — what has shocked me, to be honest — is the number of founding partners and senior lawyers who don’t care all that much what happens to the firm after they leave. I mean, these partners talk a good game about legacy and continuity and a bright and promising future and so forth, and I’m sure that their well-wishing is sincere enough. But ask them to take steps to ensure that future in ways that might compromise their near-term revenue — especially as the economy worsens — and the conversation comes to an abrupt stop.

These partners essentially place their personal interests, even near the end of their careers, ahead of the long-term prospects of the firms they helped found. They do not share clients. They do not delegate work. They do not mentor juniors. And they do not approve compensation system changes that would motivate the next generation of leaders if those changes might also reduce the size of their own slice of pie. They couldn’t make their priorities much clearer. (My Edge International colleague Nick Jarrett-Kerr has written an excellent analysis of law firms’ challenges in this regard.)

This state of affairs creates immense levels of frustration and disillusionment among those members of the firm whose retirement is not in sight, for whom the firm is at the least a steady employer and at the most a stage for their own flourishing careers. These members of younger generations look at their leaders from an older generation and it begins to dawn on them: the founders weren’t creating an institution that could stand the test of time. They were creating a vehicle for their own financial interests, and once those interests draw to a close, so too does the need for the vehicle.

I don’t think it’s an accident that inter-generational tension within law firms has grown over the past several years, in both good times and bad. I don’t think it has much to do with the clichés about Generation Y and its “sense of entitlement,” except to the extent that younger members of the firm felt entitled to inherit some of the prosperity earned by the firm’s founders and leaders, in exchange for their own contributions and loyalty to the institution over the years. They’re now coming to conclude that there never was an institution — just a platform for founder prosperity. I expect them to react accordingly.

There’s a word you hardly ever hear mentioned in discussions of law firm leadership and succession planning these days. That word is “stewardship” — the sense that those who lead an organization have a responsibility to leave it in better shape than they found it, to ensure its future success for no other reason than that future generations will benefit.

Stewardship, among other things, requires the stewards to relinquish at least some of their own powers and priorities near the end of their terms in order to assure a better future. There are some stewards among law firm leaders today. There are not many.

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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3 Responses to “The stewardship crisis”

  1. John Day

    You accurately describe a problem in some firms.

    There is a different problem in other firms. In those firms younger lawyers fail to appreciate the need to develop in-depth relationships with firm clients or to develop their own book of business. These lawyers are often unwilling to sacrifice the time necessary to make these efforts and continue assume that the work will just continue to flow to the firm as if by magic.

    In these firms, senior partners can lead the horses to water but cannot make them drink. Education, prodding, appropriate compensation plans, client-sharing, etc. will work to secure the long-term future of the firm only if those who will control the firm in the future (a) understand what is necessary to have the firm out-live the senior partners; (b) are willing and able to carry the ball to advance the long-term best interest of the firm.

    Thanks for your great blog. It is one of the few I always read.

  2. Stephen Nelson

    Jordan—-As usual, your comments are insightful and spot on. One variant that I see a lot in small firms is that the for years founding partners don’t really encourage (and often discourage) the junior partners to go out and develop business, and that when the end is near, they start moaning about that their partners aren’t very entrepreneurial. By the way, can you enlighten me as to what firm is closing.

  3. Andrew

    Jordan,

    What a terrific post. As a lawyer approaching the end of the first quaarter of my career at a first generation mid-size firm, your observations are certainly spot on in my world. Succession is something frequently discussed, but really only at a high level. And it is almost always a one-sided conversation, not a dialogue.

    But here is the real problem, and you kind of touched on it. A lot of founders set terrible examples for their subordinates. Compensation systems in most law firms reward short-term production almost to the exclusion of everything else. And compensation systems pertty much dictate behavior. If equity partners appear intent on sucking every last bit of origination credit and profit out of a firm, that’s fine. It is your firm. But do not expect associates and income partners to act any differently and make the sacrafices necessary to promote succession. And more generally, if founding partners do not demonstrate (and I am talking about genuine action, not a line or two in a speech at the annual firm address) that you care about the firm’s survival after your departure, why should the people underneath you care either?

    There are certainly some Generation Y “entitlement” attitudes present in the younger ranks of associates today. I’m in my early 30s, and I so I have seen that behavior from some peers starting in law school. I understand why older lawyers would have some of those sentiments. But at the end of the day, it is a cop-out . You can pick out those types in a minute at a mid-size law firm, and I think it should be apparent those people aren’t future leaders. And frankly, at mid-size firms those people were among the first to be let go a few years ago.

    Most law firm leaders know which associaties and young partners have long-term potential, both as a rainmaker and a manager. Those are the people who need to be engaged in the dialogue about succession. Succession, if done properly, is a long process. I don’t think anyone in the second generation is asking the founders to just give up everything when they hit a certain age and hit the road. It is a piece by piece process. But it has to start somewhere. And in a meaningful way.

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