Aren’t you relieved that you don’t have wolfpacks of Wall Street analysts
and the multimedia, 24/7 business press breathing down your neck to deliver
"the numbers" every quarter? Isn’t it great living in
private-firm land and having the luxury of focusing on the long run?
The problem is: Are you really? I would argue that the pressures
of your partner-colleagues, who have this irrational belief that every
year should bring another new Mercedes and two weeks in the south of
France, are at least as relentless in motivating short-term thinking
as the most acid-penned analyst. So when McKinsey does a piece
counseling public companies on how to balance "performance" (read: this
quarter) with "health" (sustainable, profitable growth), I say it’s germane
to us. Here’s the trap:
"One major European financial-services company recently discovered
how easy it is for performance and health to get out of balance. After
the company had achieved an impressive turnaround in its short-term financial
performance in the three years to 2004, it found to its dismay that this
success had been accompanied by falling customer service levels, a huge
increase in staff turnover, and a fall in its share price. Management
complained that the financial markets didn’t understand what the company
had achieved. But in reality they understood, all too well, that its
short-term success had been purchased at the expense of its underlying
health."
This firm is not the exception. Shockingly, more than 80% of executives
surveyed said they would cut R&D and marketing costs to make the quarterly
numbers—even if they believed it would hurt long-term
health.
I’m now going to assume you’re convinced longer-term thinking is a healthy
habit to have. Let’s try to dimensionalize what that means.
Strategy, as always, comes first.
The trouble with the future is that it’s unpredictable,
so deus ex machina strategies delivered from on high are unlikely
to survive an encounter with reality. The sane and effective
alternative is to develop a portfolio of initiatives, spanning different
practice areas, geographic regions, and most importantly different
time-frames, that will give your firm options down the road. Only
you can identify what those might be, but some examples would be: Putting
a few litigators in an office opened for another reason to test the
local waters; making a bet on a region’s economic growth engine and
preparing to serve it (wouldn’t it have been nice to have a high-tech
practice capability in northern Virginia ca. 1993?); or deciding that
it’s too expensive to cherry-pick laterals for practice group X and
start a concerted effort to groom associates for that field.
Metrics are next. To be of any use, they must
be:
- focused;
- relevant; and
- few.
By "few" I mean three to five, and you probably know subconsciously
what some of them are: Client satisfaction; retention of
key people; depth of your management pool. If "collection rate
on past-due receivables" popped into your mind, go to the back of the
class.
Communication. This means both internal and external. Haven’t
yet done a client survey? Do you think P&G would change the type
font on the end-flap of a tube of Crest without multiple focus groups? You
care about your clients; it wouldn’t hurt to tell them. Ask them
what they’re worried about. Even spend a "free day" with each of
your best clients and let them set the agenda; if that doesn’t generate
many multiples of the "sacrificed" time, drinks are on me. You
should also care what the trade press and even professors at law schools
you like to draw from think about your firm; don’t leave them to figure
it out for themselves.
Internal communication, in a business comprised of "elevator assets,"
is even more important. And for the record, include associates;
you were once one yourself and, with any luck, they are your firm’s future.
Leadership is indispensable; nor is it a "soft" value. Anyone
bright and verbal enough to be a professional in your firm will be highly
attuned to the overall message senior management is delivering. And
don’t think that message doesn’t come through loud and clear, thanks
to what Niall FitzGerald, former Unilever Chairman and CEO, called the
"extraordinary amplification system" boosting the gain on all pronouncements
from the top. Perhaps above all, in a law firm a leader’s goal
should be to nurture the future by cultivating talent: This means
making sure the right incentives are in place to promote collaboration,
effort devoted to the greater interest of the firm and not one partner’s
individual clientele, sharing, and tying compensation to more than this
year’s results.
In a memorable metaphor, McKinsey recommends thinking of the role of
every manager as that of a "prince" rather than a "baron"—someone
responsible for the commonweal as a whole rather than a limited jurisdiction.
Lastly, remember this from Econ 101: Pay people for what you want
them to do.
Incentives will always out in the end.
