Changing the lawyer assessment system

Every two months, I publish a short e-newsletter called “Dispatch” that’s sent to about 2,700 subscribers. (To sign up, email me at jordan@law21.ca). Each edition contains exclusive content for subscribers, which I sometimes share with my wider readership here at Law21 after a few months. In this post, I’d like to reproduce an item from a previous newsletter as well as some follow-up content inspired by a reader response.

The June 2017 edition of “Dispatch” led off with this item:

Check out what Linklaters, a Magic Circle firm widely regarded as among the global elite, announced several weeks ago: it’s going to “abandon individual partner targets in favour of focusing more on team performance,” as reported by Legal Business. Partner assessments will now “give added weight to practice performance, as well as client-winning, business development, training and innovation.”

The previous individualistic system, according to the article, “encouraged defensive gaming of the metrics, and a focus on narrow utilization and billing benchmarks rather than broader business goals.” In future, says managing partner Gideon Moore, “We won’t have individual partner metrics for billings and other measures.”

“There’s no ‘i’ in ‘team,’ d’Artaganan.” “Yeah, but there is one in ‘équipe.'”

Upon what basis does your firm assess the value and productivity of its equity partners? If it’s like most firms, the main criteria are business generated and hours billed — important features, obviously, but also very much based on individual effort, not firm performance or client deliverables. This is how lawyers have always been trained to think and act, of course, from the first day of law school to the last day of practice: how have you performed, when compared to everyone around you? But firms that value their lawyers only for their individual efforts inevitably wind up as loose affiliations of individual lawyer businesses under one roof, and rarely for the better.

Linklaters has a different idea: treat lawyers as members of an enterprise, a team gathered together to deliver the universal goal of solutions to client problems. Reward them not (just) for their personal achievements, but also for those of the team(s) and the firm to which they belong. You could go a step further and add “client outcomes” to the assessment criteria — your clients, I’m pretty sure, would appreciate it.

One of the world’s top law firms believes that partners should be assessed based on team performance and cooperative activity, rather than individual efforts and billings. Your firm might want to think seriously about that.

Several readers did. One was the managing partner of an office of an international law firm, who sent the following response:

[Y]ou articulate what really amounts to a rhetorical question on the merits of more effectively measuring and incentivizing team behaviour. Most all of us in leadership positions see the need. The problem is transitioning from a culture of personal performance metrics. What advice do you have on overcoming the enormous obstacles to transitioning to the promised land?

This is, essentially, a change management question, which we all know is the trickiest challenge in law firm leadership. And to be clear, what this challenge requires is a full-scale change management and implementation program, one that’s been painstakingly planned and is professionally rolled out. I’m not proposing to describe such a program here — there are myriad resources and consultants to help law firms with this kind of thing. But speaking generally, and based in part on my response to my correspondent, here are some ideas along these lines for you to consider.

1.   This is the hardest thing you’ll ever try to do in a law firm. You’re attempting to implement changes that will directly affect how lawyers are assessed and valued within their firms — and, in all likelihood, how they make their money. This week’s bestowal of the Nobel Prize on a behavioural economist who helped identify the power of “the endowment effect” is a timely reminder that people tend to perceive any change in their status quo as a threat to their interests. That goes double for lawyers and triple for equity partners.

2.   Law firms tend to be low-trust environments. That’s a problem, because lack of trust within an organization exacerbates the friction generated by change efforts of any kind. You can’t just flip a switch and transform your firm into a high-trust workplace overnight; but you can be transparent and upfront about what you’re intending to do, and you can communicate it clearly, repeatedly, and personally. “Change management by walking around,” talking to people and actively listening to their responses, can at least help reduce the automatic resistance your plans will generate.

3.   Initial and ongoing communication of your plans is critical. Start with an all-hands, carefully planned, clearly explained call to action by the firm’s leaders that the firm is undertaking a change in how it measures lawyer performance, and especially why it’s making this change. Reinforce the call to action with outside experts, market data, and even client testimonials, as appropriate. But don’t stop there: Maintain ongoing communication, to ensure people don’t “forget” about this change, which is what they’d prefer to do. Keep talking and keep listening. Make clear that this isn’t going away.

4.   Start with “in addition to,” not “instead of.” Initiate your lawyer assessment changes as a kind of “parallel track” that encourages people to engage more often in certain activities, but doesn’t punish anyone for failing to engage in them. Start by incentivizing new team-oriented behaviours with bonuses, whether financial or reputational or both. But also be clear that the plan is to eventually transition these desired behaviours from “pilot project” status into the standard assessment system — and yes, into compensation calculations. Don’t mislead anyone about the ultimate goal.

5.   Don’t try to do it all at once. Choose a small, manageable number of team-oriented behaviours that you most want to encourage, so that people can focus their attention more easily. “Do these three things and you’ll get more praise and make more money” is a good way to grab lawyers’ attention. When you do transition these behaviours to the overall assessment and compensation systems, start with an amount or percentage small enough not to incite panic, but large enough to represent a noticeable enticement. (This part is obviously much more art than science.)

6.   Choose how you’re going to measure success. Will it be client satisfaction levels, on the theory that solutions-based assessment should produce better outcomes and happier clients? Survey your clients’ current satisfaction levels. Will it be more collaborative lawyers, on the theory that group-performance assessment will focus lawyers on working together to get the results the client asked for? Survey your current lawyer collaboration levels. Will it be more hours spent by senior lawyers mentoring juniors? Figure out where things stand now. Choose the benchmarks against which you can eventually show progress.

Seriously, Gimli, we’re not counting “orc necks hewn” anymore. Team goals, bud.

7.   Measure your progress and circulate the results throughout the firm. Congratulate those lawyers and groups that ticked the most boxes on your list of desired behaviours. Publicize a list of the lawyers and groups that earned “collaboration bonuses” over the previous period. If your culture would support it, list all practice groups is descending order of compliance, to trigger lawyers’ natural competitiveness. Publicly, repeatedly, and positively reinforce the behaviours you want to see, until the idea starts to really sink in.

8.   Be ready to absorb pushback from your lawyers, even up to the point of partner departures. Many firms lose their nerve at the prospect that some key business-driving personnel could walk out over these changes. But you need to have the right people on the bus to make this work, and you need to be prepared for some people to jump off. Before you launch this effort, have an honest internal conversation about who’s likely to leave, and whether that’s a price the firm is willing to pay to make this change happen. This is the gauntlet your leaders must be ready to run.

This process will take a long time and will not be painless for anyone, especially for the firm’s leaders. Immense patience will be required while the firm’s culture slowly reorients itself to the new behavioural priorities you’re encouraging. Resilience and fortitude will also be needed if or when your biggest rainmaker threatens to quit. Prepare thoroughly beforehand. Communicate at the start and throughout. Measure and update and reward progress continuously. This is the hard slog of real-world change, and it’s not going to be much fun, at least at the start.

But I also think it’s necessary. Individual performance metrics inherently drive me-first behaviours that can undermine attempts to build a firm-wide culture of performance geared towards the client’s interests. Hours- and origination-based compensation systems encourage lawyers only to bill hours and bring in business; these are certainly necessary, but they are no longer sufficient, conditions for a successful law firm in this market. Lawyers are deeply accustomed to being valued and rewarded for their individual efforts, and it will take time and effort to re-accustom them. Like I said, it’s the biggest challenge you can undertake.

But if you can pull it off, you’ll have well begun the transformation of your law firm from a 20th-century “hotel for lawyers” to a 21st-century legal solutions enterprise. And that’s where we need to go.

How to bring about change in law firms

(Note to readers: Pursuant to the terms of the New Author Self-Promotion Act of 2006, please be advised the statutory maximum of three (3) plugs for my new book will appear in this post. Thank you.)

Everyone’s gotten the memo by now. The legal market has experienced fundamental change, and law firms need to respond in equal measure. If your firm’s leadership doesn’t know or accept this, then with great respect, I think your firm needs new leadership. Ignorantia mutatio non excusat, to muddle a phrase.

Nor should any law firm leader be allowed to say, “I don’t know what we can do.” There’s now a wealth of practical, reliable information about how firms can change their operations and run themselves more effectively and profitably. This information is widely and easily accessible in countless articles, blog posts, and books, such as the brand-new and well-reviewed Law Is a Buyer’s Market: Building A Client-First Law Firm(1)

So we know what we need to do. What we don’t yet know, for the most part, is how to do it. Bringing about change in a law firm remains extraordinarily difficult, and the more fundamental the change, the greater the difficulty. That’s a problem, because we need to start implementing all these great ideas and putting them into practice at our earliest opportunity. Owning the tools won’t help us if we don’t take them out of the toolbox and start using them.

I couldn’t embed the video, so here’s the 45 cover.

These were some of the thoughts on my mind when I addressed the annual meeting of the Association of Legal Administrators in Denver earlier this month. I felt confident that this audience of law firm leaders and managers understood, more so than most, the steep challenges looming over law firms today. I also hoped — correctly, as it turned out — that they would be able to share some success stories about how they had overcome the incredible resistance within law firms to doing things differently.

In this post, I’m going to lead off with some of my observations about why change in law firms is so hard, and follow that up with suggestions and examples, drawn from the ALA conference and elsewhere, about how firms can nonetheless bring change about.

Why it’s hard to change law firms

Change in law firms is hard mostly because change is hard, period. People hate change. I mean, they love it in the abstract, and they’re happy to tell other people in great detail why they should change, but they don’t want to actually do it themselves. This is human nature, and unless you plan to automate your entire law firm (which I do not think you should do), you’re stuck with it.

I go into more detail about this in Chapter 14 of my new book, Law is A Buyer’s Marke(2), but there’s extensive psychological research documenting people’s resistance to change. Two behavioural patterns in particular, the status quo bias and the endowment effect, show that people naturally prefer things as they are, fear a loss more than they desire an equivalent gain, and place a higher value on an item simply because they already own it. Change represents a loss of the known and familiar, and people will fight that, no matter how attractively you sell the replacement.

But of course, lawyers fight change more aggressively and successfully than other people. Partly this is because we’re wired to be more conservative and trained to be more risk-averse than the general population, and partly because we’re skilled at arguing our way around and past an unpleasant or inconvenient fact. And since law firms are the concentrated commercial expression of lawyer culture, they are especially change-recalcitrant places. For better and more detailed analysis of lawyers’ resistance to change, read this excellent article by Anne Collier and review this slide deck by Ron Friedmann and Jim Tuvell.

So it’s worth keeping in mind, before we proceed to possible solutions, the nature of the problem. Lawyers aren’t fighting your change efforts simply to be difficult. They’re fighting it because everyone fights change; the fact that they’re lawyers just makes them especially good at it.

How to change law firms

The first thing to recognize is that there’s no single right answer. Experience has shown that facilitating change, especially in law firms, requires the use of more than one tactic or even several, sometimes applied in sequence, sometimes simultaneously. This complicates the process, of course, but it might also be a relief to know that there’s no magic bullet out there to which other firms have access and you don’t.

The second thing to recognize is that you are not going to accomplish change by working against your own people. No matter how frustrating you may find their resistance, they are not your enemy. They perceive their own interests very clearly and will fight to protect them, as would you in their place. Strive to understand those interests. You shouldn’t place those interests ahead of the firm’s, but you do need to know them and clearly acknowledge them.

All that having been said, here are five approaches that I’ve seen and heard about that have had some success advancing change in law firms

1. Build trust through transparency. This is my preferred tactic, and it received a lot of support from the ALA audience. Leaders of law firms in difficult circumstances opened up the books inside the firm, showed everyone the nature of the challenge, and asked people to help overcome it. They personally visited lawyers and staff, answered questions as best they could, and tried to defuse any suspicion of a hidden agenda. Call it “change management by walking around.” If you prove yourself trustworthy, you’ll gain trust, and thereby cooperation. I’ve written on this subject before, and I’ll re-up this quote from that post: “Every change requires effort, and the decision to make that effort is a social process.”

2. Give people control. People’s feelings of powerlessness in the face of change fuels much of their resistance to it. You can’t give people the power to reject or excuse themselves from change, but you can give them the power over how to adapt to it. One ALA attendee described how her firm wanted to help improve people’s physical and mental health, but couldn’t settle on a program to achieve it. So they gave everyone a $1,000 voucher to spend on any wellness-improving activity they liked. The diversity was amazing — gym memberships, yoga lessons, vacations, etc. — but so was the massive, firm-wide improvement in morale and productivity. People chose how they wanted to adapt to a new firm directive, and that improved buy-in tremendously.

3. Make it a game. Much has been written on gamification in the law, and possibly it’s been oversold a little at this point. But for lawyers, who like competing and love winning, gamification has a lot of potential to help facilitate change. Another ALA attendee described how her firm struggled to get lawyers to turn in their dockets on time. So they made it a competition, offering incentives to file dockets by a certain time every week and publicizing within the firm which departments and groups led the firm in hitting their deadlines. Cash prizes were also offered to the monthly and annual leaders. Docket compliance, which had been limping along in the 40% range, roared to the mid-90% level. Lawyers love winning.

4. Occasionally, apply the hammer. Carrots are fun and attractive incentives, but sometimes, you just need the stick. There are limits to the volume and intensity of punitive measures you can apply in law firms, especially to lawyers; but on a short-term basis, backed by strong leadership, it’s highly effective. A number of law firms, including one ALA attendee’s, have withheld a partner’s payouts until that partner turned in his or her dockets. This measure was strengthened by its logical argument: we can’t pay you if you don’t bill your work. The bonus here, to my mind, is the quiet, morale-boosting delight junior lawyers and staff take in seeing consequences applied to powerful rule-breakers; it makes them likelier to follow the rules themselves, too.

5. Await new conditions. This can be phrased, less charitably, as “Wait for the difficult people to leave or die.” I included this on my list at the ALA partly as a joke, but it did get a few hands raised here and there. Sometimes there’s a small number of influential people who are blocking a change initiative because they feel it would hurt their personal or financial interests. Pressure from respected peers can often lessen this resistance, but not always. I once advised a legal organization facing this kind of problem. I said, “If you can’t change the landscape, change the weather.” My client introduced a fleet of minor innovations and talked repeatedly about how the future would bring more change. Soon enough, some resisters began to move on, partly because they could tell the climate was changing and it wasn’t going to suit them as well.

Bowie would have been way too obvious.

We talked about other approaches at the ALA event, such as alarming everyone with dire warnings, or selling the benefits of change in detail, but these were generally held to be less effective. “Scared straight” has a checkered history of success as a change tactic, and as mentioned previously, people are usually not persuaded to give up present conditions by the promise of future benefits. I also added my own recommendation that whatever change you want to accomplish in your firm, enlist your clients in the effort. It’s easy to ignore what some consultant or even the managing partner says; it’s harder to ignore what the person behind your origination credits says.

I’d love to hear your own thoughts and success stories about change in law firms in the comments below. But it’s worth emphasizing, again, that the most effective change management processes will combine several of these and other approaches and will be careful to administer the right medicine to the right people.

What matters above all is knowing your firm, knowing your people, listening to their concerns, showing you’ve heard them, and continuously enhancing the level and quality of trust between the firm’s leadership and the people they’re leading. Change isn’t something you do to people. Change is something you help people go through. Make that the mantra of your firm’s change management efforts.

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Here’s what the business intelligence director of an AmLaw 100 firm wrote me about my new book, Law is A Buyer’s Market: Building A Client-First Law Firm: “You offer an exceptionally clear diagnosis of many law firm ills and concrete recommendations on changes law firms should make in order to thrive in the buyer’s market. It is a very practical book … I hope more lawyers and law firm decision-makers read this book and take appropriate actions.” Law is A Buyer’s Market is available here. (3, right under the wire)

Why law firms need R&D investment

Lawyers hardly ever talk about research and development. We might be the only major industry or professional sector that fails to do so.

Last year, total spending on R&D by the world’s 1,000 largest companies was about $638 billion, according to the Strategy& 2013 Global Innovation 1000 Study. The 10 companies that spent the most on R&D (from Volkswagen to Johnson & Johnson) shelled out a little less than $100 billion themselves. Five of the ten companies on that list were in the health-care industry. Typically, businesses invest about 3.5% of their annual revenues on R&D, a measure known as R&D intensity.

The commercial legal market generates something in the range of $300 billion in revenue annually (a figure that comes with some reservations). Applying a normal R&D intensity of 3.5%, we would conclude that law should be spending about $10.5 billion every year on research and development. The AmLaw 100 alone clocked in at around $77.4 billion in revenue, suggesting their R&D spend ought to be $2.7 billion. We all know, of course, that nothing like this is actually happening.

Money was spent on legal R&D in 2013 — but as Susan Hackett pointed out, it wasn’t spent by established by law firms, but by their suppliers and competitors in legal startups. A venture capital investment of $458 million is slightly more than 1% of total legal revenue; it’s not nothing, though it’s not a whole lot more than that. But preliminary estimates suggest 2014 will produce lower levels of outside investment in the legal industry. So if there’s going to be an imminent uptick in legal R&D, it will have to come from lawyers and law firms themselves.

Many lawyers have difficulty seeing how R&D would have any application to their businesses, probably because “R&D” conjures images of scientists and engineers in lab coats, conducting experiments in hopes of discovering some new chemical compound or medical miracle. But research and development is far broader than that: it refers to activities that a business undertakes in the hope they will lead to the development of new (or the improvement of existing) products, services, and procedures. It’s not limited to the scientific or manufacturing sectors at all.

How could a law firm conduct research and development? By considering possible new products and services for its market, or new ways in which its services could be created and delivered. Here are four types of R&D activities that law firms of any size could undertake.

1. New Products And Services: Think about emerging or overlooked possibilities for providing value to your firm’s current or desired markets. Look at it from the perspective of people and businesses within those markets, their needs and opportunities, and consider potential responses or solutions that you could offer. This isn’t a lawyer-centred “business development” exercise; it’s a client-centred “opportunities and solutions” exercise.

2. New Delivery Mechanisms: Brainstorm potential new client service protocols or enforceable firm-wide systems for client interaction. Envision new methods for delivering products and services online, directly over the Net. Could you package your firm’s expertise as an ongoing service? What delivery system changes would enhance the speed and convenience of service for your clients? What do clients wish law firms would change, but never do, about client service?

3. New Pricing Systems: Anything that truly moves your firm away from the billable hour is going to get clients’ attention. Effective pricing involves knowing your client, your competition, and your costs: what projects could acquire this information from the market or dig it up from within your operations? Identify the lawyers, practices, or client relationships most amenable to new pricing arrangements, and start coming up with experiments to try them out. (NB: Your compensation system will be affected, too.)

4. New Management Systems: There’s not a law firm in the world that couldn’t benefit from better processes and management practices. Rethink your assumptions around talent by exploring home-based or mobile workers and project lawyers, or by reconsidering your recruitment and training regimens. Study the potential use of project management on personnel, budgets and timelines. Could you harness your firm’s know-how to improve productivity or create value? Think of ways to reward people for good management.

Earlier this year, at a Legal Marketing Association conference, I delivered (along with Prof. Dan Katz of Michigan State Law’s Reinvent Law Lab) a day-long session on R&D to a group of law firm CMOs. The marketing directors were intrigued by the possibilities of law firm R&D, and in their breakout sessions, they came up with all sorts of great ideas and initiatives that could be planted and could blossom under such a program. [do_widget id=”text-7″ title=false]

But when we asked them to identify the internal obstacles to developing an R&D functionality, many CMOs wearily raised the same objection: the partners wouldn’t go for it. Research and development, by its very nature, is an investment in the future, a short-term expense made today in order to generate revenue and sharpen competitiveness in the medium and long term. Many law firm partners, fixated on their annual profits, have no interest in reducing their income today in the hope that their income tomorrow will be multiplied (and that goes double for any partner in his or her last few years of practice).

This is most likely true. And I can’t help but note this reluctance in the context of the growing debate around non-lawyer ownership of law firms. Virtually every company in the Global Innovation 1000 is publicly owned, with shareholders renowned for their insistence on steadily rising value — yet these same shareholders have no difficulty approving the expenditure of millions of dollars annually on R&D initiatives. They’re quite willing to forego some profitability today if it could help sustain and improve the company’s prospects down the road. Yet lawyers, supposedly the guardians of higher-minded professional objectives, prefer to empty the entire piggybank every year rather than divert a few coins to enhance the firm’s long-term competitiveness.

But happily, there are exceptions. Earlier this year, AmLaw 100 firm Akerman LLP announced the launch of an R&D Council, “dedicated to creating new offerings that advance the business of law and redefine service delivery models, jointly helping Akerman and its clients overcome future barriers to innovation and growth.” Akerman has a history of innovation-friendliness, but their efforts here should demonstrate that R&D is neither impossible for nor irrelevant to law firms.

Nor is R&D limited only to large firms. I remember reading (and if I can find the link, will provide better details) about one moderately sized firm that gathered its young associates together, gave them a chunk of non-billable time, and told them to come up with ideas about markets the firm could be serving tomorrow if it started investing the time and effort today. One of the many ideas brainstormed in that session grew to become one of the firm’s top practice areas. That wasn’t a systematic, budgeted and ongoing R&D functionality; but even as an ad hoc event, it demonstrates what can happen when a firm gives its lawyers the permission and the space to be creative about what they do and how they do it.

Law firms probably won’t break the R&D 1000 anytime soon, but they don’t need to, either. Asking every partner in the firm to take 99% or 98% rather than 100% of their annual draw, and putting that money towards a well-funded research and development director who reports progress quarterly to the firm’s management — that might be all it takes to get your firm’s R&D started. And that investment, in turn, might be all that keeps your firm relevant and competitive as the legal market continues to redefine itself in the years to come.

Jordan Furlong is a lawyer, consultant, and legal industry analyst who forecasts the impact of the changing legal market on lawyers, clients, and legal organizations. He has delivered dozens of addresses to law firms, state bars, law societies, law schools, judges, and many others throughout the United States and Canada on the evolution of the legal services marketplace.

Advice to associates about law firm efficiency

I recently delivered a webinar to a group of associates at one of my law firm clients, as part of the firm’s internal CPD and training program. (I referred them to my recent posts about associates, which probably didn’t make them very cheerful.) Among the advice I gave the associates was to start looking for opportunities to streamline their work, increase their efficiency, and reduce their own “cost of doing business,” in order to make themselves and their practice groups more competitive and effective.

This led one associate to send along a follow-up question, which I’ll paraphrase thus: “Is this my responsibility? What role should I realistically be expected to play in finding enhanced efficiencies in my practice? Do I wait to be directed by the partners, or by the IT staff?” It’s a good question, with an important subtext: “Come on. You seriously expect me to make my practice more efficient, billing fewer hours, without the direct approval of the partner who controls my career?” Here’s my reply:

My advice about efficiencies is primarily addressed to associates in your role as future law firm owners. Whether that’s as partners with this firm or in a different capacity (maybe running your own sole practice someday), you need to look for efficiencies and process improvements to begin reducing your own cost footprint, in order to maximize the profit derived from your revenue.

Now, if you’re running a business on a cost-plus pricing model (i.e., you multiply rate X hours, trying to maximize both in every situation, and bill the result), then efficiency is the enemy of revenue and therefore of profitability, and you should try to avoid it. This would be a sensible strategy if the year were 1993. But since it’s not, I don’t recommend it. By the time you become an experienced law firm owner (regardless of the firm), you’ll be confronted with a market that rejects cost-plus pricing for all but the most specialized, demanding, high-stakes work (and with all respect, the odds simply do not favour the idea that such work will constitute the bulk of your practice).

So I believe you should start, today, even as associates, thinking about and looking for ways in which you can reduce the cost-generating friction of inefficient work practices. If you can produce a flowchart or checklist that will allow you (and your colleagues) to carry out routine and repetitive matters more rapidly (and, by the way, likely at higher quality), you should do so. If you can identify free legal research resources (such as CanLII) rather than paying Lexis or Westlaw to look up cases, you should do so. If you can build and contribute to even a modest knowledge management database so that wheels don’t need to be reinvented every day, you should do so.  [do_widget id=”text-8″ title=false]

Fundamentally, associates should develop the habit of asking themselves, before embarking on any measure to carry out a legal task: “What if this were my money being spent? Would I consider it wisely and justifiably spent? Would I be asking about alternatives?” Thinking like a client is an invaluable skill to develop, and the best way to start honing it is to think about the client, all the time.

Now, this all comes with a giant caveat, and that is: you’re not yet the owners of a law firm. You’re employees, and your bosses are the owners who decide how work is done at the law firm and how it’s priced. Associates can’t independently give themselves the authority to decide how the law firm’s work should be carried out. That’s the law firm’s call, not yours.

Nonetheless, I also believe that you owe it to your employers, to your clients, and to yourselves to investigate efficiencies and process improvements at ground level that could reduce costs and/or improve quality — and having investigated and identified such steps, to bring them to the attention either of your immediate reporting partner or the firm’s managing partner.

That’s a formidable challenge for any associate, especially in this environment. So in order to relieve you of the burden of deciding when and where to report — as well as the intimidation factor of potentially bringing efficiencies to the attention of a partner who has no interest in them — I think the managing partner should require you to identify such steps and bring them to his or her attention on a quarterly basis. This places the responsibility for potentially disruptive discussions with the MP, not with highly vulnerable associates.

The firm must also do two other things:

  1. Take into account the process improvements identified by associates in assessing their productivity and contribution to the firm’s value — if these improvements reduce their billable hours and therefore their compensation, that obviously would be a perverse result.
  2. Provide the associates with complete protection from any political consequences that might flow from introducing potentially disruptive changes to the firm’s workflow practices — ideally, in fact, associates should be directly rewarded for helping to bring about such enhancements.

The upside of adopting this practice is that you learn, as associates, to start identifying improvements in how you do your work, enhancing your own ability to someday be a profitable law firm owner, without potentially incurring the wrath of traditional partners, because the option to not look for and report such improvements has been taken out of your hands.

Everyone would benefit from this. The associates improve their productivity, build their confidence, increase their profitability, and become easier to retain. The firm, if it implements these innovations, can lower its prices in a tough marketplace while remaining profitable, make its prices more predictable in a market whose demands for fixed prices become louder every day, and differentiate itself from its competitors. Clients get lower prices, more predictable prices, or higher quality, and maybe even all three.

And all of this starts with one simple proposition: associates should be empowered to increase the efficiency, effectiveness, and productivity of the firm. In most of the firms I’ve seen, it’s the new lawyers who are most enthusiastic about working differently and better; older partners tend to be more concerned with holding on to what they’ve got with both hands. Which of these two groups has the firm’s best long-term interests in mind? Which should be encouraged to act and be supported when they do?

You bet I expect associates to assert themselves, and to seek and receive the firm’s support in doing so, when it comes to improving efficiency and effectiveness. Neither the associates nor the firm will have much of a future in this new legal market unless they do.

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.  

Law firm profitability metrics: Just subtract lawyers

I’ve received a lot of great feedback and commentary on my post earlier this week, “Death to Profit Per Partner,” none of it better than from my friend Toby Brown of 3 Geeks and a Law Blog. In a post at 3 Geeks this morning, Toby channeled the spirit of Weekend Update in challenging some of the premises and conclusions of my post. Here’s a sampling:

Although [Jordan] makes many arguments for why and how PPP might be a negative force, he misses the main point of why PPP or any other law firm profit metric exists. They exist to drive behavior. Firms need their partners to behave in profitable ways and need to set clear expectations of what those ways are. Without a clear expectation, firms can fully expect partners to perform in whatever way enhances their self interest, regardless of its impact of the economic health of the firm.

Giving Jordan credit, currently firms seem to only have the goal of improved profits (however they might be defined). I am in complete agreement that for firms to be successful for the long haul, they need a better goal: something like being the best and most cost effective at addressing their clients’ legal needs. Focusing on client needs does lead to success. But then we still need to define success. And ‘profitable’ needs to be part of that definition.

The fact that a given PPP number is not a true mean or median is beside the point. The real point is whether profits are healthy. PPP is actually a fiction, like most profit methodologies. However, without having profit be part of ‘success’, then a firm risks going out of business and ending its ability to be the best at addressing client legal needs.

Toby invited me to respond, and I gave it my best Jane Curtin. I recommend you click over to Toby’s post to read his entire argument and the ensuing dialogue. But here’s essentially what I had to say:

I disagree with the contention that the main point of why PPP (or any other law firm profit metric) exists is to drive behaviour. The main point of a profit metric is to measure profits. That’s what it’s there for. A law firm has many tools to shape behaviour, some of them explicit (compensation and bonus systems, for example) and some implicit (cultural expectations and peer pressures). But in almost every case, a law firm uses only one method (PPP) to tell itself and others whether and what to extent it’s healthy. The choice of profit metric does have a distant, secondary influence over behaviour (more on the relationship between the two below), but that’s not primarily why it’s there. [do_widget id=”text-7″ title=false]

It’s entirely correct to say, as Toby does, that “[f]irms need their partners to behave in profitable ways and need to set clear expectations of what those ways are.” But we diverge at the sentence following: “Without a clear expectation, firms can fully expect partners to perform in whatever way enhances their self interest, regardless of its impact of the economic health of the firm.” I would argue that in fact, that’s exactly the situation we have now: partners do act in their self-interest, aggressively so, and firms’ current choice of PPP as their profitability metric directly encourages this.

PPP is a profitability measure based on the interests of partners, not on the interests of the firm. When it comes to PPP, the profit metric does not drive partners’ behaviour and priorities; in an unhappy twist, it’s partners’ behaviour and priorities that have driven the choice of this metric.

There’s no question that profit does need to be somewhere in our definition of the “success” of a law firm (unless you’re running a non-profit enterprise, which very few lawyers are). Whether profit is higher or lower on the list of success attributes will vary from firm to firm. But the main point of my original post was that it can’t be the sole criterion. More importantly, though: if we do use “profit,” we can’t define it as “individual partner profit,” because that will only maximize the natural human tendency to look out for oneself above all else. “Firm profitability” is the only sustainable and sensible way to frame the question of the legal enterprise’s financial success.

Now, this leads us to a critical point, as framed by Toby: “There is a need for a real debate over which profit methodologies do make sense for law firms.” I am assuredly not an economist, and I can’t speak with any authority as to what the best methods might be. But I do strongly believe this: calculating profit using volume of lawyers as a denominator is not only self-defeating, it’s also on the verge of obsolescence. This applies not just to PPP, but also to its current popular rival metric, RPL (Revenue Per Lawyer). It doesn’t matter if we’re talking about partners, associates, or both: “Lawyers” will soon be a mostly irrelevant factor in the equation.

Law firms in the future will employ far fewer lawyers, and include far fewer partners, than they have in the past. More legal work (and much more quasi-legal or fully clerical work currently billed by lawyers) will be routed to systems, software, para-professionals, temps, and LPOs. For a perfect example of this trend, look at Winn Solicitors in the UK: a hugely successful firm, £10 million in annual profits, loads of non-lawyer and para-lawyer staff, and essentially just one partner. Measured by PPP, this car accident law firm is about 10 times as profitable as Cravath or Skadden. No offence intended to Winn, but do we really think it’s 10 times better a firm?

Starting now, and increasingly in the coming years, law firms are going to make a lot more of their money through non-lawyer means. This is why it’s absurd to cling to a lawyer-centred metric like PPP. Defining law firm profitability by lawyer is like defining Wal-Mart profitability by salesclerk. The only way to know if a law firm is profitable is to look at the profits of the firm. The longer we keep our focus on individual partner profit, the more time we’ll waste measuring the wrong thing.

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.  

Death to “Profit Per Partner”

It’s time for law firms to junk “average Profit Per Partner” (PPP) as a measure of profitability and success. Past time, actually: our continued adherence to this shallow and self-centred metric is a prime contributor to the BigLaw existential crisis we’ve been reading so much about lately. By using PPP as the primary (if not the only) criterion by which to assess our law firms’ health, we perpetuate a host of self-destructive habits and impair our ability to operate our law firms in a truly profitable and professional manner.

There are two broad categories of reasons why PPP is a disastrous success metric for law firms. The first category has to do with the narrow and simplistic nature of this measure and its inherent definitions of value. The second is related to PPP’s increasingly outdated devotion to individual shareholder profits.

Let’s start by understanding exactly how primitive average profit per partner really is. First of all, it’s “average” —  adding up total firm profits, dividing by number of partners, and ending up with an amount that might well reflect no single partner’s profit at all. (Recall Bill Henderson’s dismantling of the concept of a $90,000 “average starting salary” for new law graduates, when he demonstrated the bimodal distribution of such salaries and that virtually no new lawyers actually earned $90,000 in their first year.) With the ratio between highest-earning and lowest-earning partners now more than 9 to 1 throughout the AmLaw 100, an “average” profit is almost meaningless, too easily skewed by outliers at either end.

We might improve slightly on PPP if we adjusted it to measure “median profit per partner” — at least then we’d have some confidence that a few partners are actually making that amount, and outliers wouldn’t distort the data. But even here, we run into another fundamental problem: the definition of “partner.” Law firms have tended in recent years to extend this title to lawyers, and retract it from them, based largely on their present accounting needs: we’re currently in the depths of a “de-equitization” trend, evidently based on a desire to reduce the number of seats at the table and the number of denominators in the PPP equation. This is worse than the tail simply wagging the dog — this is the tail deciding whether there’s even a dog back there or not. If a metric is going to determine your growth strategy, it had better be a damn good metric. [do_widget id=”text-7″ title=false]

But PPP is not a good metric: it drives selfish, irrational, destructive behaviour. If a firm’s PPP dips precipitously or its position in the AmLaw rankings falls more than a few slots, a veritable death watch is created for the firm, both inside its walls and in the wider market. Influential partners and rainmakers, most of whom know very little about actual firm profitability, feel compelled to jump to firms higher in the rankings — with no regard given to whether the “higher” firm will be better for them or for their clients. Morale falls within the firm, recruiting become harder, CVs start circulating — all because one simplistic metric says the firm is in trouble. Entrepreneurs would be shocked by the credulity and financial ignorance of lawyers revealed by PPP contests.

PPP is further susceptible to the widely recognized (but rarely acknowledged) fact that every set of PPP figures published for large law firms is entirely self-reported: law firms tell the market what their revenues, profits and partner counts are, and invite us to do the math. But hardly anyone steps up and questions whether the base figures themselves are accurate. Consider the brouhaha created in 2011, when some of the law firm profit numbers listed high in the AmLaw rankings varied from those in a report by the firms’ lender of choice, Citi Private Bank — and not surprisingly, the self-reported firm numbers were noticeably more robust than the bank’s figures.

Now, you might still be willing to overlook all these legitimate objections to PPP if you were convinced of one thing: that the annual profit earned by partners is a proper measure of the success of a firm, and that we should simply improve our analytics until we can measure that profit accurately. That belief rests on another basic assumption: that the ultimate and best purpose of a law firm is to generate and maximize profits for its partners. That brings me to the second, and I think even more incisive set of objections: this belief is false.

Law firm partners are the equity shareholders in their firm (and outside of England, Wales and Australia, only lawyers may be such shareholders). “Shareholder value,” in turn, has been the fundamental strategic goal of the corporate world for the last few decades: merge, diversify, fire, close, acquire, rebrand, lay off — do whatever it takes to maximize shareholder profits. This is a corporate philosophy whose time has passed. Justin Fox writes in the most recent issue of The Atlantic, in an article titled “How Shareholders Are Ruining American Business”:

This notion that shareholder interests should reign supreme did not always so deeply infuse American business. It became widely accepted only in the 1990s, and since 2000 it has come under increasing fire from business and legal scholars, and from a few others who ought to know (former General Electric CEO Jack Welch declared in 2009, “Shareholder value is the dumbest idea in the world”). But in practice … we seem utterly stuck on the idea that serving shareholders better will make companies work better. It’s so simple and intuitive. Simple, intuitive, and most probably wrong—not just for banks but for all corporations. …

[The] heyday [of shareholder value] ended with the stock-market collapse that began in 2000. The popping of the tech-stock bubble demolished the notion that stock prices are reliable gauges of corporate value. And as the economy languished, the shareholder-driven U.S. corporate model ceased to look so obviously superior to its Asian and continental-European rivals. The intellectual assault on shareholder value began, and has been gaining strength ever since. …

Multiple studies of corporations that stay successful over time—most famously the meticulously researched books of the Stanford-professor-turned-freelance-business-guru Jim Collins, such as Good to Great—have found that they tend to be driven by goals and principles other than shareholder returns. … In a complex world, you can’t know which actions will maximize returns to shareholders 15 or 20 years hence. What’s more, most shareholders don’t hold on to any stock for long, so focusing on their concerns fosters a counterproductive preoccupation with short-term stock-price swings. And it can be awfully hard to motivate employees or entice customers with the motto “We maximize shareholder value.”

You can see the many parallels between American corporations and law firms in this regard:

  • PPP as an overriding goal also rose to prominence in the late 1980s and 1990s (a period often associated with the start of a decline in professionalism);
  • Shareholder profit does not predict the health of an enterprise (Dewey & LeBoeuf was profitable until the day it crashed);
  • Rampant partner mobility and lateral hiring frenzies parallel shareholders’ increasingly short-term possession of company stock;
  • “Annual partner draws” parallel “annual shareholder earnings” and drive short-range, revenue-now behaviours;
  • Staff members and associates don’t share in the profits, so how they can be expected to support a strategy in which they have no personal claim?
  • Truly great firms are driven by goals and principles (how often have we said to ourselves, “Law used to be a respected calling, firms used to be places with a higher sense of purpose,” etc.?).

I don’t think it’s a huge stretch to say that when PPP became law firms’ fundamental measure of success, lawyers at these firms began to lose their compass, and the firms themselves began to lose their way. [do_widget id=”text-8″ title=false]

So it’s not just that PPP measures only one simplistic thing — it measures the wrong thing. There is no correlation, let alone causation, to be found between profits earned by equity partners on average and a host of other positive features that could equally reflect firm success:

  • Firm-wide profitability
  • Lawyer and staff retention rates
  • Lawyer and staff morale
  • Client loyalty
  • Client satisfaction
  • Community impact
  • Pro bono commitment
  • Prestige

That last one really goes to the heart of the issue: more lawyers now reflexively accord more prestige to a firm depending on its AmLaw ranking. But do you really think clients believe that a firm’s profitability — its ability to maximize revenue from these same clients — helps determine its prestige and desirability? And do you think clients applaud lawyers’ desire to make the maintenance and growth of that profitability their primary measure of success?

Law firms are, or should be, far more than profit machines for their equity partners, just as companies should be more than just profit machines for their shareholders. But even if you don’t believe the latter — if you think that capitalism is so base that corporations really should be nothing more than money engines — aren’t lawyers and law firms supposed to be different, and better? Isn’t this the argument we always hear against non-lawyer ownership of law firms: that “law is a profession,” that the greedy desires of businesspeople and shareholders would drive us to ruin if they were admitted to the ownership circle? If we’re so superior to mere corporate types, let’s prove it — by adopting a measure of law firm success that has more in common with today’s globalized economy than with Dickensian England.

I admire The American Lawyer and I have friends who work there (hopefully after today, too). But it’s time we called on AmLaw to abandon PPP as a measure of law firm success. The AmLaw rankings are incredibly influential within the US legal profession and have spawned imitators worldwide, and it makes sense that an independent assessment of law firms exists to guide both clients and lawyers in identifying “the best” firms. But we are in desperate need of improved criteria for determining “the best.” PPP is shallow, simplistic, and misleading; it encourages antisocial and unprofessional behaviour; and it’s out of step with modern enterprise philosophy. We can do better; we need to do better.

I have no doubt that constructing a more complex, sophisticated measurement of success among large law firms would be a difficult task — but that’s no reason not to try. If The American Lawyer again takes the lead, as it did years ago when it first developed the AmLaw 100, it could have a wide and (I believe) massively positive impact on how lawyers view themselves and how they run their law firms. If it chooses not to do so, it will only be a matter of time before someone else comes up with a rival ranking with different and better criteria that will capture the profession’s imagination.

Whether we like it or not, PPP is in its dying days. The sooner we put it out of its misery, the sooner we can start to bring new life to our law firms.

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.   

The secretarial canary in the law firm coal mine

“A really far-sighted law firm would give its secretaries the chance to ‘skill up’ and take on more responsibility, accomplishing more advanced tasks. … Change ‘secretary’ to ‘workflow manager’ or ‘logistics director,’ and you’ve accomplished three great things at once: increased the role of software in handling clerical and financial duties, reassigned your valuable secretarial help up the productivity chain, and attended to an area in which you can find real efficiencies and carve out a true competitive advantage over other firms.”

– Yours truly, “Legal secretaries 2.0,” January 24, 2008

In recent months, a number of major law firms have offered buyouts to legal secretaries, accelerating a trend that began before the downturn. This week New York law firm Weil, Gotshal & Manges LLP cut about 110 staff positions, including about 60 legal secretaries. “I would imagine that the remaining secretaries are going to take on a heavier workload,” said Lee Glick, a legal secretary with Weil who has worked there more than 25 years and still has a job.

The Wall Street Journal, “Legal Secretary, a Dying Job,” June 27, 2013

Contrasts like this one guarantee that I’m at no risk of overestimating my impact on the business of law.

I had fond hopes, 5 1/2 years ago, that law firms might take advantage of a dynamic environment and re-engineer their organizational workflow. Recognizing that secretaries’ purely clerical tasks could be done more efficiently elsewhere, for example, they would outsource or automate those tasks and liberate secretaries to take on more challenging, valuable and productive work.

As it turned out, however, firms only got as far as the first step: they sent the work to lower-cost providers. Then, instead of upgrading the qualifications of their loyal and experienced secretaries, they simply canned them. Surviving secretaries at a growing number of law firms are now expected to serve four lawyers at once — at some firms, that number is going as high as six or seven. Hands up if you think either the secretary or the lawyers are going to be better off as a result.

Five years ago, in an atmosphere of financial and social crisis, law firms threw numerous staff and associates overboard, in an effort to keep profitability levels from plummeting and sparking a rainmaker exodus. Not the best tactic in the world, but understandable at the time. Today, though, it’s as if those sacrifices were never made — the purges have intensified (staff, associates, and now other partners) as firms target for elimination any perceived drain on profits.

Based on all these cuts, I’m left to conclude that law firms apparently wish to be populated exclusively by extremely high-earning equity partners. In a magical land where complex legal businesses were run by invisible fairies, that would be a pretty nice outcome. In our world, however, where those partners need actual people to make their profits possible, the latest round of bloodletting bears a closer resemblance to profit-preserving cannibalization — a tactic that has its short-term merits, I suppose, but few long-term strategic advantages.

I want to take a look at what’s happening with law firm secretaries, and then I want to use that to illustrate what I feel is a growing, and serious, issue at the heart of law firm management.

First, why has it come to this: the evisceration of the legal secretary role? I can see three factors intersecting at the same time:

1. Many lawyers seem determined to view “secretaries” in their stereotypical role of clerical helpers, and as clerical tasks inevitably migrate to machines, secretaries themselves are perceived as serving no further purpose. I see secretaries differently: as lawyers’ “managers,” the people who quietly organize lawyers’ lives and enable them to practise law productively and effectively. The emergence of new technologies does not remove the need for lawyer management; if anything, it intensifies it. But if you really believe that a legal secretary performs low-value and easily replaceable functions, you will treat that position accordingly.

2. Many law firms seem equally incapable, even with countless high-tech tools and processes now at their disposal, of reconfiguring their workflow to be more sophisticated and cost-effective. The smart way to improve profitability is to outsource truly fungible tasks and upskill your existing resources (including, but not limited to, secretaries)  to take on more complex tasks that can deliver more value and/or reduce internal inefficiency. The stupid way to improve profitability is to fire people and give their work to their frightened surviving colleagues, thereby reducing personnel costs. Many law firms, near as I can tell, are choosing stupid.

3. Profitability pressures in law firms (more about that in a moment) have short-circuited any creative impulses that might have led firms to different outcomes for their secretaries. For instance: many lawyers still struggle with practice basics like client communication, marketing, and professional development. They would benefit tremendously from a dedicated resource whose job is to manage and organize all these aspects of their career — someone who has worked with them for years and knows them very well. If firms are going to reassign traditional secretarial duties elsewhere (and there’s good reason for them to do so), why not divert secretaries into these high-value and highly necessary roles, rather than just cutting them loose altogether? It’s not just a lost job, but also a lost opportunity.

It’s on that last point, I think, that we approach the heart of the problem. Law firms could help secretaries reimagine their roles, add more value to the firm, improve morale, and save jobs — they could do all these things, if they wanted to. But they don’t.  They don’t care about these things nearly as much as they care about maintaining or growing profitability. And the intensity with which law firms have come to care about profitability is starting to look a little sociopathic.

Something has gone seriously wrong at the core of a number of law firms. I don’t how else to describe it except as a mean streak — a level of selfishness and ruthlessness among decision-makers that we’ve not seen before. The triggering event was probably the massive change in client behaviour and the deeply unnerving drop in business that followed, combined with lawyers’ utter inability to adjust their own practices in response. But it seems to me that many lawyers aren’t just troubled or worried by what’s happening — they’re angry. Their income has fallen, and they’ve taken it personally, because that was income to which they were entitled. They’re feeling victimized, hard done by — and they’re lashing out, seeking instant remedies for themselves regardless of the long-term costs to others.

I’m not sure what it is about this latest round of cuts that feels wrong to me. Maybe it’s that it just seems so petty. You need to fire a secretary who earns a fraction of your annual billings in order to save your firm? That’s unlikely. You need to fire her in order to maintain the profitability to which you’ve become accustomed? That’s unseemly. They say you can judge a society based on how it treats its most vulnerable members, and I think the same applies to law firms. And I wouldn’t feel very proud to be a member of some of these law firms right now.

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.  

Available now! My first two published books: Evolutionary Road (e-book published by Attorney At Work) and Content Marketing and Publishing Strategies for Law Firms (co-authored with Steve Matthews, published by The Ark Group). Click the links to learn more and order your copies today.

 

So you designed a law firm: Your survey results

Previously on Law21 … after discussing the apparent disconnect between what lawyers seem to believe they can accomplish within law firms and what they’re actually empowered to do, I set up a brief survey inviting lawyers to distribute 100 points among 10 features of a hypothetical law firm to create an ideal working environment. First, the results (click on each image to get a larger version):

Question 1: Below are listed 10 features of a law firm. You have been given 100 points to assign to these features. Please assign these 100 points among these features according to how strongly you would prioritize their presence in your law firm. 

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Question 2:

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And Question 3:

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Now, my comments:

1. Law21 readers, and those in their immediate professional circles, are not big questionnaire fans. The post containing the link to the survey received in the range of 1,500 unique page views over the past several days, yet only 82 people completed the survey. In future: free coffee with every survey filled out! Limit one per customer. Not actually redeemable.

2. Not surprising to me, anyway, but Law21 readers aren’t a typical cross-section of the legal profession. “Client Service” finished comfortably in the lead among all 10 options, to be followed by “Good Workplace,” with the pre-race favourite “Partner Profit” barely finishing ahead of “New Lawyer Development” for third place. I think it’s fair to say that few law firms in the physical world actually match that profile. But I’d happily work for the law firm you’ve collectively designed here.

3. Nor am I really surprised to see “Community” and “Diversity” in the lower third of results. But I do think you should all be more concerned about your pension situation than you evidently are.

4. Does it say something that the survey attracted more responses from support staff than from non-equity partners and senior associates combined? At this level of statistical significance, probably not. But it at least suggests that the “non-lawyers” (sic) who work in law firms have a vibrant interest in what their firms could and should be.

Now, given the small response size, I’m reluctant to break down and compare categories against each other. But you may find this interesting: when I isolate the “Equity Partner” responders from the overall group (40 in total), the results are virtually even: that is, out of the 10 responses, no option received more than 11% of the total and no option received less than 9%. The variations in the final overall results are almost entirely the work of non-equity partners, associates, and staffers:

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I want to draw two statistically indefensible but nonetheless interesting conclusions from this.

First: equity partners want their firms to be everything, all the time. They want to be profitable yet collegial, prestigious yet affordable, elite yet community-minded. This, of course, is not possible: when you try to be all things to everyone, you end up being nothing to anyone. My own extrapolation is that this is at the root of many law firms’ problems: the people running these firms can’t prioritize among competing visions and demands, making them vulnerable to those demands that have the shortest time frame and the most severe short-term impact (hello, Partner Profits).

The second statistically indefensible conclusion from this exercise is that when you move outside the equity circle, a law firm’s other stakeholders have a very clear vision of what they want in a firm: one that serves clients above all else, one that provides a positive working environment, and one that yes, makes lots of money for its equity owners  — so long as those first two conditions have been met. You might or might not think that’s a good vision for a law firm. But at least it’s a vision: it’s the result of choices among options that result in a firm with an identifiable personality and profile. The firm designed by equity partners, as described in the results above, might as well have been formed at random.

So my last word on this exercise is to reiterate my message to law firm partners: you can make your law firms into whatever you want them to be. You are not helpless victims, floating like flotsam of the surging tides of commerce — that would more accurately describe your associates and staff, who, as previously noted, have a much clearer idea of what your firms could be. You and no one else are the captains of your ships, and their direction and mission is up to you. Accept your power and embrace the opportunity to make hard choices about the purpose and personality of your law firms — you’ll be rewarded for your courage and determination with praise and recognition of your leadership. We’re all waiting on you — make it happen.

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.  

Design your own law firm: A Law21 lawyer survey

Not for the first time, and probably not the last, I find myself reading reports from the legal marketplace and wondering why lawyers are asleep at the switch.

The latest head-scratcher comes courtesy of Altman Weil and its fifth annual Law Firms in Transition Survey of 238 US law firms. Importantly, only one-third of the respondents were within the AmLaw 200 — we’re not talking about the giants here, but about firms whose lawyer complements range from 50 into the hundreds, and whose clients likely include some national companies, a lot of regional businesses, SMEs, and individuals. Here are a few highlights from the Am Law Daily report:

  • 80% of respondents think the move towards non-hourly billing will continue — but only 29% had made significant changes to their own pricing practices.
  • 96% believe the focus on improved practice efficiency has become entrenched — but only 45% had made significant changes to improve efficiency.
  • 67% think smaller annual rate increases are also a permanent change — but between 21% and 40% of all fees at all firms are still simply being discounted.
  • And despite all the foregoing, when asked to cite the greatest challenge they expect to face over the next two years, the #1 response (15.2%) was “increasing revenue.” Coming in at #8 (5.6%) was “delivering value to clients,” while the afore-mentioned “improving efficiency” — which, remember, 96% think is here to stay — finished at #11, with  2.8%.

Near as I can tell, many of these respondents must believe that permanent, radical change in the market is something that’s happening to other people. The disconnect between “This is really happening” and “We’re doing something about it” remains perplexingly wide.

Now here are the results of another survey, one that didn’t get quite so much attention, but whose implications are far more chilling. The UK’s Legal Services Board released the results of an incredibly comprehensive survey of small businesses — an astonishing 9,703 of them, ranging from solo entrepreneurs to companies with up to 50 employees. (Although the countries are different, the two survey populations suggest a high degree of overlap between the law firms and the clients in each.) Here are some of the findings:

  • 38% had experienced a “significant” legal problem in the past year, almost half of which had a tangible financial impact — a total market value of £100 billion when scaled up across all small businesses.
  • 91% of respondents took action to respond to their problems — but most either handled it themselves or got help from family and friends.
  • Of the minority who sought formal advice, only about 40% went to members of the legal profession — the rest sought out accountant, trade associations and the like, especially for tax issues.
  • Bottom line: Legal service providers were involved in just 16% of these matters. That means that roughly £84 billion worth of potential small business legal services are being resolved without the legal profession.

Oh, and here’s the kicker: When asked to assess the statement that “lawyers provide a cost-effective means to resolve legal issues,” only 13% agreed.

So I find myself wondering: faced with reliable, overwhelming, and readily available data that shows a near-complete misalignment between them and their markets, why are law firms doing so little in response? Why are firms, even while openly admitting that many essential marketplace fundamentals have permanently shifted, moving so slowly, it at all, to address these changes? I’ve previously suggested the confidence of the dinosaurs as a culprit, but I think there’s something more at work here.

When I talk with lawyers in law firms about these issues, I’m sometimes struck by the impression of powerlessness that I get. Lawyers, including partners, seem to almost shrug, as if to say, “Yes, but what can I do?” The structure and culture of the firm are presented as an unalterable reality, a mix of good and bad that’s just the way it is. The firm delivers profits, prestige, and security — albeit ever-decreasing amounts of each — but it’s also hidebound, reactionary, and highly vulnerable to change. But what are you gonna do? Priorities have been set and choices have been made, and we have to live with the results.

There are times, when confronting this malaise, that I feel like responding, with some force: “Yes, but you own the firm! It’s yours; you’re the equity owners. Nobody else is in a position to make the firm something different and better than what it is. The associates, the staff, the clients — they might not much like the state of affairs either, but it’s not their show; they consider both the firm’s successes and its shortcomings to be entirely your responsibility. If you’re not in charge, who is?”

What I would really, truly like is for more partners to accept full responsibility for their firms — to recognize the need for decisive action to adjust the firm’s bearings, to take that action, and to fully own the changes that follow. I’d like to see them act as the owners they are, not as the passive sideline observers many of them seem to have become.

To that end, I’ve decided to try introducing a third questionnaire into this mix — my own. I’ve created a very short survey — only three questions — at SurveyMonkey, and I’m making it available to anyone who wants to take it. It’s directed towards lawyers in law firms, and I hope they constitute the majority of respondents, but anyone in the legal industry is invited to take part as well.

The title of the survey is: Design Your Own Law Firm. And that’s exactly what you’re invited to do. The survey provides you with 10 features of a law firm, gives you 100 points to distribute among those 10 features any way you like, and asks you to use those limited resources to design the kind of law firm you want to be part of. Here’s a preview of the 10 features, listed in alphabetical order (they’re randomized in the actual survey):

  • Affordability: The firm’s services are priced for maximum client accessibility.
  • Client Service: Clients reward the firm’s efforts to provide extraordinary service.
  • Community Leadership: The firm is widely praised for its active community efforts.
  • Diverse Workforce: The firm is more race- and gender-diverse than its peers.
  • Elite Reputation: The firm is considered among the very top tier in its market(s).
  • Funded Pensions: The firm ensures post-retirement income for both lawyers and staff.
  • Good Workplace: A positive, collegial atmosphere produces collaboration and referrals.
  • New Lawyer Development: Junior lawyers receive superb training, mentoring and work.
  • Partner Profit: Equity owners derive highest levels of annual revenue from the firm.
  • Prestigious Clientele: High-profile or respected clients frequently retain the firm.

Here’s the link to the survey — it’s open today, May 23, and will stay open for either one week or until I have enough responses to draw some conclusions. Please take the survey — Note: print out your choices before pressing “Done,” so that you retain a copy — and forward it to your friends and colleagues. Be honest with your answers: give the responses you really feel, not the ones you think you “ought to” give.

I’m very interested in finding out how — when given several good options, but only a limited amount of resources — lawyers prioritize the structure and culture of a law firm. And I’m hopeful, maybe even optimistic, that by going through this process, lawyers will realize that they really do have the power to make their firms the way they want them to be.

Here’s your chance to be the architect of your law firm. You’re responsible for its priorities. What will you create?

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.  

 

Vulture culture

Tackling this subject, I admit, may simply be an excuse to achieve a long-held goal of using an Alan Parsons Project album as a post title. (Next up: finding a way to smuggle in a Supertramp reference.) But in truth, I was pointed in this direction by a couple of recent developments that revisited the well-worn topic of “law firm culture.”

The first was the most recent Citi/Hildebrandt Client Advisory, which confirmed the increasingly evident fact that for midsize and large law firms, Winter’s Here. Among the report’s contents was this warning:

“Law firms discount or ignore firm culture at their peril … the leaders of a firm whose partners pride themselves on their dedication to public service, a culture of collegiality and tolerance, and a commitment to share profits in a fair and transparent manner should acknowledge the importance of this culture to the firm’s success so far.”

I would be hard-pressed to find a sizeable law firm that demonstrably fits this description in reality, not just in its partners’ imagination. As Steven Harper points out, almost everything about large firms’ strategy and behaviour over the past several years can be described in precisely the opposite terms.

Law firm “culture” isn’t that hard to define, really. Culture is what people at the firm actually do every day. In harsher terms, it’s what people get away with. Culture is what actually happens. A law firm’s culture is the daily manifestation of its performance expectations and behavioural norms — what is encouraged and what is tolerated. So it’s not a matter of law firms “ignoring” culture — every firm has a culture, and most firms’ cultures are remarkably and depressingly similar. It’s a matter of recognizing that the culture that a law firm develops and sustains has an impact on productivity, retention and morale — in many cases, a catastrophic one.

“Collegiality” deserves a closer look, because almost every law firm insists that it maintains a “collegial” atmosphere. Stephen Mayson accurately points out that at most law firms, this is nonsense, driven by a misunderstanding of what “collegial” means:

Typically, partners are confusing collegiality with friendliness and sociability. Collegiate organisations make decisions in the long-term best interests of the firm, they are collaborative, and no individual is more important than the firm. What I hear described, though – most often in firms that claim to be collegiate – is an environment where personal and local interests are usually pursued in preference to the firm’s objectives. Work-hogging, and a refusal to cross-sell, are prevalent, fed by a personal billing and client origination culture. These firms are often low-trust partnerships, where it is not unusual for high billers to hold the firm to ransom or to throw their toys out of the pram when it looks as though they might not get their own way. This is collegiality?

It is not. But it is the culture of the typical law firm — the behaviours that are encouraged or tolerated.

The second development arose from my attendance at the Feeney Lecture at the University of Ottawa Law School, delivered this year by Mitch Kowalski on the subject of the changing legal marketplace. I was struck by the consistent and even predictable reactions from panellists and audience members to Mitch’s portrait of the legal profession’s future, which included a prominent role for “non-lawyer” owners and service providers.

Among the objections was the classic concern that law firms run by “shareholders” or in a “corporate manner” would see their standards and professionalism fatally compromised, and that — wait for it — the “collegial” nature and professional “culture” of law firms would be lost. See the foregoing paragraphs, especially Stephen Mayson’s diagnosis, and tell me precisely what it is that’s at risk here. Tell me how equity partners are any different, for all practical purposes, from non-lawyer equity shareholders. Tell me how the “de-equitization” of “underperforming” partners now being carried out by hundreds of lawyer-owned law firms across North America and Europe is an exemplar of professionalism and collegiality.

I would like to suggest that our positive (if not vibrantly self-admiring) vision of “law firm culture” belongs more to the realm of myth than to reality. There is nothing about an enterprise owned, operated and populated by lawyers that makes it markedly better than any other enterprise, and quite a bit that makes it noticeably worse.  The sooner we shake off our misconceptions in this regard, the sooner we can address, in an honest and grown-up way, what will happen when lawyers are no longer the only (or even the dominant) decision-makers in private legal enterprise. Miguel Pereira and Fergus Payne argue persuasively that law firms possessing an “ABS culture” will be focused primarily on financial performance — a state of affairs that is, in reality, no different than how today’s lawyer-owned law firms approach things. We’d be well-advised to remove the plank from our own eye before hunting for specks in anyone else’s.

Culture is important to law firms, but not in the way lawyers think. We cite “culture” as a bulwark against the unprofessional and uncollegial forces of the corporate, non-lawyer world, as a filter that differentiates us from the crowd. In reality, it seems to me, the tendencies we think we’re locking out with “culture” are often the very things we’re actually locking in.

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.