Law firm culture and the “war for talent”

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Posted in: Strategy, Talent

This is a moment of opportunity for law firms. As systems and technology transform the engines of legal services and a new legal economy emerges, firms have a rare chance to strengthen their competitive positions and grow their market share through innovation and investment for the future.

A few firms are doing exactly that; but most are not. And what’s weighing down many of those firms is a cultural millstone that we don’t talk about enough. It’s not the tired excuse of “our lawyers are too risk-averse.” It’s something more formidable: a toxic mix of owner complacency and employee intimidation. It’s a culture of timidity.

At these firms, serious investment in meaningful innovation doesn’t happen, partly because the partners won’t sacrifice individual profits and comfort for the firm’s long-term strategic advantage — but also because nobody else in the firm is willing or able to confront this unpleasant truth and challenge the firm’s owners to do better. At exactly the moment when bold leadership would pay huge dividends, nervous silence predominates. The partners are afraid of risk and sacrifice, and everyone else is afraid of the partners.

A useful illustration of the culture of timidity in many law firms is the so-called “war for talent,” which apparently is still going on about 20 years after it first broke out. Law firms love to talk about how they’re “winning the talent war” by acquiring this lateral or appointing that director or paying first-year associates a little more than the firm down the street.

The thing about wars is that they’re expensive and destructive, even in the business world, and you don’t get involved in one if you can avoid it. But if you are going to get involved in one, you better have a plan for how to win it and an ironclad resolve to pay the costs you will incur.

As far as I can tell, no law firm has tried to actually start, or win, a war for talent. No law firm has been willing to make the sacrifices necessary. For the benefit of any law firm that might like to try someday — and more importantly, to illustrate how a culture of timidity hobbles the effort — here’s a suggested blueprint. A few caveats:

  • I’m focusing here on new legal talent, the kind law firms (often) hire straight out of law school and (occasionally) develop into partners, but the principles here can apply to acquiring more experienced talent too.
  • I’m discussing this in the context of large law firms, but the principles absolutely apply to midsize or regional firms, with appropriate changes to elements like quantum of compensation and range of law schools.
  • I’m restricting my definition of “legal talent” to just lawyers, which is unfair, but designing a full-spectrum legal talent strategy is beyond this blog post. Most of the reasoning below applies to acquiring all legal value providers, however.

1. Hire for your firm, not anyone else’s. The purpose of a talent strategy is to help implement a pre-existing firm strategy. Consult your firm strategy (if you have one) and ask yourself: What business are we in? Who are we serving, what do they need from us, and what is our differentiated value proposition to them? You are hiring people for that firm, and no other. Law firms that hire “the best and the brightest” (however they define that nonsensical term) end up with a generic pool of talented lawyers who could work anywhere. You want lawyers who will do better at your firm than they would anywhere else. But getting ruthless clarity about your firm’s nature and purpose can be a long, brutal slog through your partners’ selfish priorities and comfort zones. Effective strategic planning starts with honest self-assessment, and that is not most partners’ strong suit.

2. Hire for tomorrow, not yesterday. Law firms routinely make the mistake of looking for new lawyers who’ll “fit their culture.” That’s a problem — not only because “culture” invariably justifies and perpetuates the exclusion of women and visible minorities from the firm’s ranks and power structures, but also because your firm’s culture is old and your incoming talent is young. You’re not just hiring for 2020 — you’re also hiring for 2025, 2035, and 2050. You need lawyers who won’t “fit” your culture so much as make your culture new and better. You’re hiring leaders for a diverse future, not worker bees for a monochromatic past. But your partners, especially the older white guys, want to hire the candidates they’re “comfortable” with, and you know what that means. They need to be persuaded otherwise, or you’ll wind up building a law firm ready for all the challenges of 1998.

3. Cast the widest net for new talent. Most firms hire from a small group of favourite or “safe” law schools every year. It’s easy, convenient, and uncontroversial, which means all the other firms are doing it too. Look everywhere for talent. Your very specific needs will be hard to fill, so broadcast them to every school in the country through social media and targeted ad placements. Visit more “lower-ranked” schools in person and meet their brilliant, hard-working, creative, empathetic students. Your rivals are ignoring these rich veins of talent, but you’re smarter than they are and you’re willing to spend more than they do. But first you’ll need to persuade the partnership to increase your recruiting budget, and to consider schools other than their alma maters or those most highly ranked by some penny-ante online magazine.

4(a). Pay twice the going rate for new talent. A New York firm raises its starting associate salary to $190,000, and the rest of the industry either meekly follows along or clutches its pearls in dismay. That’s not a “war for talent,” that’s a PR exercise. You want to win the war for talent in New York? Pay new associates $350,000 a year. Or pay $240K in Chicago, $190K in San Diego, $140K in Halifax, whatever. Publicize it far and wide, make sure the whole industry (and every law student) knows that your firm crushes everyone else in this category. Or, if you simply can’t persuade the partners to ramp up associate salaries that much, try this cheaper alternative:

4(b). Take over your associates’ student loan payments. Pay the top-ranked salary as well as all your new associates’ loan instalments, and keep paying them until the associate becomes an equity partner or leaves the firm. Nothing preoccupies new lawyers more than their debt loads, so take this burden off their minds; you’ll be inundated with applications. Either of these tactics would vastly increase the size of the talent pool from which you can draw. It would also blow partners’ gaskets, not just for the hit to their profits but also for the exposure they’d feel from adopting such a bold tactic. Most firms that have made it this far into the list would falter at this step. For those that soldier on, we’ll add another outrage:

5. Don’t bill your new associates’ work. I campaigned for the revenue-neutral associate a couple of years ago, and you can read all my arguments for it there. But the upshot is that even your hand-picked high-paid new associates don’t have the skills to produce work of value that clients want to pay for, and forcing them to do so creates enormous negative pressure. “But, but,” the partners sputter, “Who will pay for the associates if we don’t bill their time?” Here’s a radical answer: The owners of the business can pay employees out of their own profits, like in the rest of the world. Another hard truth for the partners, another differentiating factor for candidates. And here’s one more.

6. Immerse new lawyers in a world-class training program. Take a group of brilliant, diverse, highly motivated, well-paid new lawyers, and instead of pushing them to bill thousands of low-quality hours, spend their first two years on the job equipping them with a suite of 21st-century legal business knowledge and skills. Which ones? Customer service, process improvement, project management, human-centred design, cultural competency, financial literacy, artificial intelligence, knowledge management, industry intel, time management, I could go on and on. Embed them on cases, in transactions, and especially on-site with clients, as observers and apprentices. Can you imagine what you’ll have on your hands at the end? What a contrast they’ll present to the exhausted, disheartened second-year cohort at every other firm?

All of the foregoing can be yours — probably yours alone, because how many firms will copy you? And to get it, all you have to do is pay the price for it. But this strategy would cost something even more valuable than money: It would cost political capital.

A senior staff member who seriously brought this proposal to the partnership at most law firms might not have a job this time next year. A senior partner who tried to sell their colleagues on it would suddenly stop getting invitations for dinner or golf. Breaking the culture of timidity in law firms, speaking truth to power, can come at a high price.

The path to winning the legal talent war is simple. But it’s not easy, and it’s not supposed to be. If it was easy, everyone would do it.

Will a law firm’s owners yield a fraction of their profits to help make their firm the undisputed winner of the legal talent wars, year after year? Will a firm’s leaders gamble their status, risk their relationships, or spend their political capital to make it happen? In the great majority of firms, maybe 99 out of 100, the culture of timidity ensures that these questions won’t even be asked, let alone answered.

So how about your firm? Are you one of the 99? Or are you the 100th out of 100, where someone was brave enough to raise this and the partnership was bold enough to try it? I’m not saying every law firm should mount this talent strategy — frankly, many firms shouldn’t. But every law firm should be a place where it could be openly considered, where employees feel empowered to raise difficult issues and owners are mature enough and secure enough to be told things they’d prefer not to hear.

Because of course, this isn’t just about the “talent war.” This is about everything coming our way in the legal economy over the next decade or more. Every law firm is going to experience the same storms, go through the same crises, and glimpse the same opportunities. The firms that come out of this gauntlet leading the pack will be those that found their courage, empowered the right leadership, galvanized the partners, accepted the sacrifices, and committed to act. They calculated the steep price of starting and winning a war, as well as the risks of breaking the code of silence around that price — and they chose to pay it nonetheless.

There’s no other requirement. There are no other tests. Is this your firm? Are you ready?

Fight the future

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Posted in: Leadership, Strategy

Most law firm retreats are not what you’d call somber exercises in austerity. Lawyers don’t go out that often, but when they do, they usually go in style. Smaller firms might gather in high-end lodges or resorts adjacent to lakes or golf courses, while larger firms will convert a luxury hotel ballroom into a casino or book entertainers for a private concert; in both cases, the food is abundant and the drink flows freely.

I’ve come to think that firms shell out the money and crank up the fun at these bonspiels for a couple of reasons. First, they serve as internal messaging to signal the firm’s success and self-confidence to its shareholders; and second, they act as an incentive strong enough to persuade lawyers to give up perfectly good billable time for mere socializing.

Often, the business agenda at these meetings will strive to match the upbeat vibe. Because really, who wants to fight about partner succession or de-equitization just before hitting the links? So when lawyers gather to talk about their firm, they prefer to visualize a sunnier future and to discuss expansion, rate increases, new business opportunities, and the like. And so they should, of course: Growth is essential for law firms, so obviously these are good and important topics to tackle.

But hard issues and tough choices are no less important, especially now, when challenges to law firms seem to multiply around us. The understandable tendency is to punt these issues to an “offline discussion” or hurry past these parts of the agenda. But I would submit that the more uncomfortable a topic makes everyone, the more important it is to deal with it, and soon.

So in the time-honoured spirit of Spoiling It For Everyone, I’d like to propose that at your firm’s next retreat (or at least, at an upcoming executive or partnership meeting), you engage in a strategic visioning exercise that’s more of a downer. Specifically, I suggest that you and your colleagues contemplate the following unhappy scenario: It is two years into the future, and your law firm has just failed. (Credit where it’s due: I picked up this idea in a discussion at the Toronto Legal Innovators Roundtable earlier this year.)

The scenario goes like this: Your small group (and there can be multiple groups pondering this question at a larger gathering) is part of the cleanup team charged with sorting through the fallout of your firm’s collapse. Your group’s specific task is to conduct a post-mortem on the firm’s failure, to ask and answer two questions:

  1. Why did our firm fail? What was the proximate cause, and were there contributing causes? What was the general sequence of events that led to this outcome?
  2. What could we have done two years ago (i.e., today), to prevent the firm’s collapse? What steps could we have taken, in what order, and at what cost?

You’ll need to provide the group(s) with enough information that they can make informed predictions about extinction-level events. This would include summarized financial indicators from the last few years (e.g., revenue per lawyer, collected realization rates, profitability by firm and sector), client churn, lawyer departures, and so forth. But you don’t want to drown people in facts and figures; just give them enough that they can detect troubling or dangerous trend lines and reasonably extrapolate from them. And ask your people to focus more on the second question, the “if only we had” part, because our goal here is not to find scapegoats, but to reduce the need for any scaping at all.

You’ve surely read accounts of major law firms that have failed, publicly and spectacularly, in the last few years. You may also have heard insider stories about less publicized failures of smaller firms in your region or community. What all these reports and accounts share is their dazzling 20/20 hindsight. It’s easy to pick apart the entrails of a deceased firm after the fact, but it doesn’t do the departed much good. Travel back in time before the disaster, though, and you can stop the chain of causation before it gets started.

It might also be helpful, especially if your people haven’t given these issues much thought before, to provide the participants with some potential “failure trigger” candidates for their consideration. Here are some seriously important issues that I know law firms are (or should be) seriously concerned about right now:

  • Client attrition during a process of key partner succession.
  • Technology changing the old rules of workflow, leverage, and pricing.
  • Shrinking market share in sectors critical to firm revenue.
  • Over-distribution of profits relative to contribution and cash flow.
  • New and discomfiting client criteria for satisfaction and firm retention.
  • Cybersecurity and the inevitability of a client data ransom attack.
  • Dangerous clients that could ruin the firm’s brand and reputation.

Your firm almost certainly faces some of these challenges. (If your firm is facing them all simultaneously, you might want to rethink the partners’ retreat at the ski resort.) But not all challenges are risks, and not all risks pose an equivalent threat. So encourage your visioneers to rank these challenges in order of their risk payload; that is, which challenges does your firm face that have real potential to:

  • Drive away clients,
  • Push out key personnel,
  • Cripple your operations,
  • Damage your brand,
  • Infect your culture,
  • Invite regulatory scrutiny, or
  • Expose your firm to liability?

Rare as they might be, these risks are nonetheless existential; that is, they threaten the firm’s continued viability. But few law firms convene their partners to think about potentially ruinous developments, not least because it’s kind of a drag. Who wants to spend a weekend at a posh resort thinking about all the ways the firm might go belly up? No one’s in the mood to listen to Hootie and the Blowfish after that.

But risks and rewards await your firm in equal measure, tomorrow and in the months to come. During times of intense market dynamism like this one, the peaks are higher, but the depths are deeper. You don’t want to keep your firm’s eyes so fixed on the mountains that you stumble into the valleys. And there are assuredly valleys ahead of you right now.

So ask yourself: What risks does your firm face today? Which of them are more threatening than others? Which of these has the potential, alone or in combination with other factors, to wreck you? Then, once you’ve settled on the clearest dangers to your firm, select the most acute one and assemble a crack team of the firm’s leaders and power brokers, with instructions to demonstrably reduce this risk in the next 120 days. It might put a damper on the party; but it could also go a long way to ensuring there’ll be many more parties in the future.