In this environment, one of the most insightful resources on management in
challenging times has been Prof. Don Sull of the London Business School, who
publishes a column under the
auspices of the Financial Times.
He recently observed:
“In
the recent boom, many managers mistook macroeconomic tailwind for organizational
horsepower. Now that the winds have shifted, they recognize that their organization
is not as good at executing as they believed. The top imperative for many
businesses right now is this-to rebuild their company’s execution engine,
while sailing into strong headwinds.This task is neither easy nor impossible. The economic crisis opens a window
of opportunity to drive fundamental change through an organization. Over the
past decade, I have studied how leaders transform organizations to execute
effectively in volatile markets.”
This strikes me as a nice encapsulation of the position many law firms find
themselves in today. It’s “neither easy nor impossible” to change
the way we address this economic downturn, but it helps to have some adult
supervision and professional guidance on how to avoid common pitfalls in execution.
I’ll condense the recommendations and make them germane to law-firm land:
- The “Tower of Babel,” or diverse and promiscuous geographic expansion model,
won’t cut it. Favorable economic times can hide the cost and instability
of the failure to integrate new offices in different time zones, but ultimately
you must be a “one-firm firm.” - “Chase too many rabbits.” A Japanese saying has it that
if you chase too many rabbits, you catch none. Beware of entering too
many new markets and piling new priorities on top of well-established existing
objectives. - If you think you have a strategic plan, I ask you this: What
are you not going to do? Strategy, at bottom, means saying
no. This we do not and will not do. Do you shy away from making
hard choices? Have you never seen a dollar of revenue you didn’t like? Do
you reward partners for declining unprofitable or marginally profitable business?
Harvard Business School’s Working Knowledge has a complementary article,
“Uncompromising Leadership
in Tough Times,” which studied companies that had (a) performed in
the top half of its industry for a decade and (b) evidenced a high level of
commitment on behalf of its leaders to engaging employees in the vision and
purpose of the firm. (In MBA-speak, they call these criteria, unfortunately,
“high performance high commitment,” with the inevitable “HPHC” acronym. Pretend
you didn’t hear that.)
The relevance to “tough times” is the empirically-driven discovery that CEOs
of “HCHP” companies manage downturns differently from the norm:
The CEOs were quite different in personality, background, and leadership style.
But they were similar in what they saw as the purpose of the firm. They shared
the view that a firm has a larger purpose than simply profit and increasing
stock price, though they were all laser-focused on profitability and saw it
as essential to achieving their larger purpose for the firm. They had a multi-stakeholder
view of the firm as opposed as a shareholder view. The purpose was to add value
to employees, customers, community, and society–not just shareholders.These CEOs operate from deep beliefs and values. Their purpose is to leave
a legacy of a great firm.
The authors acknowledge that firms are “economic as well as social institutions,”
and that economic survival is of course prerequisite to to leaving a legacy
of any firm whatsoever, much less a great one. Yet they insist that the
HCHP CEOs “think very differently about their employees:”
They see them as an asset, and care about them as people and work hard to
frame the mission of the firm in a way that creates meaning. Consequently they
manage downturns very differently. […]First, they do not merely focus on cost cutting and layoffs when a crisis
arrives. While they may lay off employees (though with a different process
than average companies), they continue to develop the organization and its
people. So they do not cut all training and education. Nor do they cut employment
without a lot of open communication about why they are doing it, often traveling
to all parts of the company to communicate about these matters personally.
Some keep people when others are firing and take lower profits, thereby gaining
the advantage when the economy turns around.
They tell the story of Dreyer’s Grand Ice Cream, a $1-billion company which
ran into a confluence of nasty circumstances in June 1988: A long-planned
expansion cost much more and took much longer than expected; the price of butterfat,
their key ingredient, rose to historically high levels; a key customer threatened
to cancel a long-term distribution contract; revenue from a new product began
slipping; and its chief competitor began an aggressive discounting program,
putting pressure on prices and margins.
This combined to put Dreyer under pressure from the capital markets–not
a challenge we face anytime soon–but think of the capital markets as
a proxy for pressure to restore PPP to pre-meltdown levels. But rather
than “begin restructuring and cutting costs immediately,” senior management
went on a communications campaign, flying all around the country to talk with
every one of the 400 employees. “They reassured us,” said an account
executive, “by calling it straight… they informed us of their game plan
and that they needed us… you looked and these [senior managers] and thought,
you’d run through a wall for this guy.”
Quaintly, an (800) number was set up so employees could call in and hear CEO
Rogers’s recorded speech about the situation and his plans (this was pre-Internet
era, but their hearts were obviously in the right place). And critically
important signals were sent: Perhaps most notably, the firm continued
to invest in the “Dreyer Leadership University,” showing a commitment to continued
employee development. Spending another million dollars on “DLU” in these
circumstances “created a high degree of comfort and confidence that we’re
focused on what really matters,” said a senior VP.
And in terms of those nasty capital markets?
The stock rose from 9.88 in 1988 to 36 in 2001 to 71 in 2003 (up 720%). Yet
the executives said they’d done nothing unusual:
“It was a common trust and sharing the facts–openness … we weren’t
sugarcoating anything, putting a Hollywood spin on anything … we were honest
and clear … people believed the story and they understood … there was an
enormous amount of pride and optimism.”
None of this is to remotely imply we can get through this passage without
pain. “Life is not a fairytale,” as one managing partner recently and
sternly remarked.
But ever since this crisis began, I have believed we are holstering a weapon
of immense power, and I don’t fully understand (although yes, there are reasons)
why we don’t take it out and deploy it. That weapon is: Shared
sacrifice.
People rise to occasions. They do extraordinary things, quite willingly,
in pursuit of a cause they can believe in.
Even our good HBS professors seem to subscribe to this. In
times of crisis, they recommend downsizing “[only] as a last resort.” Instead:
- Inasmuch as possible, rely on attrition to right-size.*
- Use redeployment and retraining.**
- Ask for volunteers who might want to take an extended vacation, a sabbatical,
or a leave of absence.*** - Consider across-the-board pay cuts.****
- Lend employees to non-profits and pay a portion of the difference in wages.*****
My observations:
- *: There is no attrition, zero.
- **: You can only redeploy people to areas with actual demand. If
you know what those areas are, please clue me in on the secret. - ***: Many firms have already “volunteered” (military sense) their
incoming associate classes for one-year and longer deferrals. - ****: To the extent firms are cutting associate pay across-the-board,
we’re of course doing this. And partner “pay” has auto-adjusted in
its own magical way with the new normal levels of PPP. - *****: See: Skadden, Simpson-Thacher, etc.
Lastly, try to treat both survivors and the departed with generosity and goodwill. Don’t
skimp on severance or outplacement for those who must move on. And for
the survivors, make it clear that the departed are being treated well and that
you will keep them fully and transparently informed of all the measures the
firm is taking to deal with the crisis.
Where does this leave us?
Recall the words of the Dreyer CEO: “common trust,” “sharing the facts,”
“openness,” “honesty and clarity.”
This is the knife-edge of communication you must tread.
“Knife-edge? Say
what!?”
Yes, “knife-edge,” because you must be simultaneously open, honest, and
clear about the unprecedented economic stresses and challenges your firm
may well be under, and the tough, nasty steps required, and also and at the
same time be the optimist-in-chief, the #1 cheerleader, the one with a strong
and compelling vision of a brighter and stronger future.
You can get to the other side. But it will almost surely
be the management and leadership challenge of your career.
