Text #1:
"He was recruited as a very senior director in a very large City law firm. His work went well but the thing that really bugged him was the pass he had to show every time he went into the staff restaurant. The words ‘non-lawyer’ were printed on the face of it (for non-lawyer, read ‘second-class citizen’)."
Text #2:
"Firm chairs differ from corporate chief executives in an important way: There is no market for the services of a law firm chair: … Chair vacancies at large law firms are always filled from within."
The first quote comes from LegalWeek, the second from the January 2008 issue of The American Lawyer ("Rewarding Leadership").
How are they linked? In our own profession’s Paleolithic view of how to reward key individuals contributing to the business success of the firm. By "business success," I mean "success as an organized business," not mere revenue generation (rainmakers, a/k/a salesmen) or back office functionaries.
Did I just label rainmakers "salesmen?" Yes, and there you have it again; that’s what they are. Understand that every viable business needs them, and that they’re indispensable. One of my favorite Socratic questions from Peter Drucker is, "What one thing does every business need?" (Pause, pause, pause.) "Customers!" Of course he’s right, and that’s where rainmakers come into the equation.
But.
Clients don’t sign up with any old firm because it has people with ample social graces, the right club memberships, and alumni networking skills. Clients sign up with firms who have capability. And capability has many dimensions.
Capability doesn’t arise in a vacuum or full-blown from the head of Medusa. Capability, in fact, is the sum total result of strategy plus operational and executional ability to achieve the strategic vision. It’s well past time to pay attention to the power of the strategic vision and the robustness of the execution. All of this adds up to what management consultants call "firm-specific capital."
Some firms seem to have been born into having these things—Cravath, Davis Polk, Slaughters—but of course none of them were born into it and all of them achieved it starting from the equivalent of an artist’s coal-stove garret. Others have built seemingly impregnable positions from relatively recent roots: Allen & Overy, Clifford Chance, Latham, Skadden, Wachtell. These firms all are by anyone’s estimation the elite of our industry.
Other firms are striving to be in the top-tier and could yet succeed: Among others I’d name as contenders (in no particular order) are:
- The US-based giants already recognized as truly global:
- DLA (Nigel Knowles would take issue with "US-based;" apologies, Nigel)
- Jones Day
- Mayer Brown
- Sidley
- White & Case
- [Where is Baker & McKenzie, you’re asking? They’re in the corner of the assembly hall reserved for—Baker & McKenzie, a firm unlike any other, in their own distinct category of one.]
- Very strong US firms with less of a global footprint:
- Cleary
- Kirkland & Ellis
- Sullivan & Cromwell
- Weil Gotshal
- The new strivers, of whom the only fair thing to say is that the jury is out, but they’re making valiant efforts:
- K&L/Gates
- O’Melveny
- Orrick
- Reed Smith
The point is not to try to compile an exhaustive taxonomy, but to get one thinking about different places firms fall on the strategic/reputational/-mindshare 3-D space.
The more interesting question, and the one we started off by approaching obliquely, is: How did they get where they are?
I submit that it was through the conscious, disciplined, and forceful exercise of business leadership over time. That’s why the two texts we commenced with make such a strong pair, together. Here’s how "The Talent Show" summarizes the state of the art vis-a-vis those notoriously labeled "non-lawyers"(emphasis supplied):
"Extraordinary changes are happening in the legal market — whether in technology, globalisation, the advent of ‘Tesco law’ or the financing of firms — and the survivors will be those that find a sure way to keep their existing clients and find profitable new ones. […] In most cases — especially for large commercial firms with any pretensions to sophistication — there is nothing for it but to apply a bit of intelligence, use modern management methods and recruit specialists in fields such as finance, human resources (HR) and IT. Oh, and then, of course, the firm needs to treat those specialists well enough to hang on to them.
"The best advice for most firms is to study their own commercial clients. How do successful organisations recruit the best talent? They get a good reputation in their field; they show that they are reliable, long-term employers; they make themselves transparent enough that potential recruits can understand why they are successful and trust the messages that are being shared; they offer career development; and, increasingly, they try to keep their workforce stimulated and proud of the fact that they work for that organisation."
And returning to the piece on how law firms reward leaders, the difference between law firm land and corporate land is not only that there is no institutional market for law firm leaders, the difference is that in corporations leadership is, without question, seen as intrinsically valuable. Leaders deserve rewards, and that means money.
Just this morning I had breakfast across from Grand Central with two leaders of a firm that has just in the past few years grown to the point where they can no long take for granted that they are or will remain a "one-firm firm." They’re wondering what they can do to retain that indispensable attribute. Part of the challenge they’re facing is that (with two exceptions) each of the dozen or so people on the management committee maintains essentially a full-time practice, and the compensation system has just recently been tweaked to recognize that contributions to management should be recognized, with cash.
Contrast this, I asked them in an out-loud thought experiment, with GE: Did it ever occur to anyone that Jack Welch might not be that valuable to the firm since, after all, he wasn’t actually building or designing aircraft engines?
As hard as these findings may be to believe, I must recite them here for your edification and so that you can reflect on how breathtakingly backwards we are as an industry in recognizing and rewarding leadership. The authors set out to determine how leaders of AmLaw firms are compensated and how they spend their time. They report that:
- Just 40% of the firms link their chair’s compensation primarily to leadership;
- 60% pay the chair just as they pay all other lawyers, based on individual performance as a lawyer.
- Now, of those 40% that provide some link in pay to leadership:
- Half reward the firm chair exclusively based on leadership, and
- The other half tie 50—80% of the chair’s compensation to leadership.
Now, the flip side: What do firm chairs spend their time doing? They spend 90%+ of their time managing, not practicing. (Many, of course, wisely so, do not practice at all.)
So the situation reduces to this: While firms expect their chairs to devote themselves all but exclusively to management, only 20% pay the chair exclusively based on performance as a manager.
A friend likes to joke that we will know law firm management has finally adopted the corporate model when a vacancy occurs in the managing partner’s job and a firm hires someone to fill the slot from another firm. Just like corporate America steals rising stars from that famous business manager finishing school in Fairfield, Connecticut: GE.
And they don’t hire the guys making the jet engines.
