As most readers know, one of the irregular—but always popular—kinds of columns we publish are in the form of interviews with people who pass our rigorous 10-point test are intrinsically interesting.
Recently I had the luck to get to know Herb Thomas, who immediately lured me in by saying he had once printed out much of the archival content of Adam Smith, Esq. for reading while traveling. In any event, Herb, based in Baltimore, gets to New York quite regularly and we had a chance to sit down together recently.
Q: For benefit of our audience, describe your background in a nutshell.
A: I came to the law late, after life as a salesman, teacher, and writer. I was down at UVA working on a doctorate in English literature when I had my damascene moment and moved across campus to the law school. I spent 10 years at Debevoise as a securities litigator, and saw my first novel published, and then left to become Executive Director of a not-for-profit operating inner city schools in Baltimore. When I returned to the law, it was on the management side as CAO of LeBoeuf Lamb. A whole new business model was emerging in law firms. I was actively involved in the merger with Dewey, ended up as Chief Business Development & Marketing Officer of the combined firm, and left in the summer of 2011 to co-found a company delivering mobile technology solutions to museums and cultural institutions.
Q: What has been the greatest change you’ve seen come to Law Land during your career?
A: A number of changes have been fairly dramatic – fee pressure, new career tracks, movement of lateral partners, emerging management models, the sheer size of so many firms. But if I had to pick one thing? The end of the boom years.
Q: What’s the greatest threat to law firms in the wake of the Great Reset?
A: The pace of change. It’s accelerating, yet not always immediately apparent. Month to month, business can look like it always has, with clients, matters, associate recruiting, training, billing, and everything else percolating along in familiar rhythms, even if numbers are down. But fee pressure, low cost providers, reduced leverage, and lateral hiring are moving in swift undercurrents. And many firms have been conditioned to look to the future for redemption. For decades they grew in response to constantly increasing demand. It was largely passive growth in the sense that it served to confirm and reinforce existing ways of doing business. There was no need to change. Firms looking for signs of a reawakening economy, for a return to growth, are losing valuable time. It’s more insidious than Mr. Micawber waiting for something to turn up. More like a captain looking through a spyglass at a horizon when the enemy is all around him in submarines.
Q: What’s their greatest weakness in meeting that threat?
A: Even firms that see the need to adapt may not be able to respond quickly enough. Law firms rightly have reputations for being immediately responsive to clients. Just about any firm can gear up with breathtaking speed to meet client emergencies. But the business model is weighed down with long-term commitments to compensation, recruiting, and career tracks. And beyond that are a whole lot of seemingly reasonable excuses for caution – fear of making mistakes, fear of revenue loss, or loss of prestige. George McClellan had a reputation for being slow to move and overthinking everything. Lincoln finally had to throw him out. This is more a time for Ulysses Grant and his ilk. Bulldog strategists who see the risks but attack aggressively anyway.
Q: And their greatest strength?
A: The greatest army of legal talent in history.
Q: If you were managing partner of a major law firm and could change just one thing about the firm, what would it be?
A: Tying hourly rates to actual expertise and skill sets. I make a case for it in “Inventing the Future,” which I wrote as a response to “Growth is Dead.”
Q: It’s been remarked that each law firm’s governance model sits somewhere on a spectrum from Marine Corps command and control to Athenian Democracy (we caricature, but you take the point). Where in your opinion should governance ideally fall on that spectrum, or is that the wrong question?
A: A firm needs significant management authority if it is going to move fast enough to adapt. But there’s another way to approach the question. Everything starts with clients. In the same way that lawyers are there to serve clients, management is there to serve lawyers serving clients. A model of law firm governance can follow from client-driven decisions. For example, open or closed compensation? Does an open comp system lead to competition among partners that puts upward pressure on compensation and fees? Does it lead to fractures among partners that inhibit cross-selling? If so, then a closed comp system serves client interests. Is that authoritarian management? Maybe. Here’s another example. Does voting by an entire partnership on a merger promote a sense of unity and shared purpose? Does that in turn foster cross-selling? And is it democratic? Maybe. But can both these management choices co-exist in one firm? Absolutely.
Q: In the UK, the Legal Services Act recently took effect, permitting outside investment in law firms and non-lawyers practicing in firms as well (Alternative Business Structures). So far, the regulatory authority has received several hundred applications for ABS status. What impact if any will this ultimately have in the US?
A: Law firm cash flow can be a growth inhibitor, even more so in a flat economy. At the first sign that UK firms are taking advantage of outside investment to expand global capabilities at the expense of US firms, expect US firms to push hard for comparable advantage.
Q: If you couldn’t be in the legal industry, what would you do instead?
A: Seeing as how you’re taking me back more than 20 years, I would have invested heavily in Microsoft and Manhattan real estate.
Q: A few questions about law schools and entry level recruiting:
If you were redesigning legal education on a blank sheet of paper, what would it look like?
A: A 2-year course of law school study to earn a J.D. Then, after leaving law school, two more years of highly specialized – and paid – training or internships, followed by a bar exam.
Q: How would you resolve the impasse that (a) clients are refusing to pay for junior associates, but/and that (b) young lawyers need to get trained somehow by someone?
A: It all goes back to hourly rates. If all along young associates had been charged out at, say, paralegal rates, I doubt the client pushback we’ve seen would be as strong. I continue to believe a 2-year training period is salvageable, though at much lower rates and correspondingly lower comp.
Q: Are there too many law schools and/or too many JD graduates in the US?
If so, will some law schools actually close?
A: There is clearly overcapacity, but predicting the future is a tricky business. In purely evolutionary terms, the will to survive is potent. And I’m not so sure there’s an obvious limit to the number of law schools. After all, just about every school with graduate programs offers degrees in English and history. A law school doesn’t have to close to adapt. It might be smaller, or perhaps more specialized. In the same way that not every firm has to be all things to all clients, not every school has to be all things to all students.
Q: Can you identify any examples of true innovation in Law Land? “Sustaining technologies” (to use Clayton Christensen’s phrase) like smartphones, the web itself, and even knowledge management don’t count.
A: Two things come to mind. The first is Axiom. The enormous growth at Axiom isn’t a response to growth in the market for legal services. It follows directly from its commitment to innovative staffing and pricing. What that says is that Axiom’s business model is speaking loudly to clients.
Second is the recent detailed financial disclosure by K&L Gates. That a firm of its size felt compelled to publish a detailed financial profile is news, but it’s also a clear attempt to change the conversation. Both internally for the folks working there and externally for clients, law students, and laterals, it gets beyond mission statements and marketing aspirations. Just as clearly it’s a challenge to other firms to do the same. It will be interesting to see who feels confident enough to follow the lead.
Q: Your best friend’s son/daughter asks your advice about going to law school today. What do you say?
A: The same thing I’ve always said. I never understood the hurry to go straight to law school after college. Unless you’re driven to it, wait. Go get some life experience. If you have no idea what to do, spend a couple years teaching. It’s a way of getting perspective on your own education, you’re young and can live on the salary, and there’s just no rush. Take time to give something back. The world will still be here in two years.
Now, Herb and I didn’t talk about this as part of our back and forth, but I’m the publisher here, so I’m adding this coda, which is the verbatim content of an email I got from Herb just a few days ago, after the conversation I recounted above. I include it because I would like to believe it nicely encapsulates much of the market reaction I’ve been getting to the publication of Growth Is Dead: Now What?
Bruce,
Having spent as much time as I have reading and thinking and writing about the ideas in “Growth is Dead,” I thought the signed copy I picked up at last week’s launch would find an honored place on my bookshelf. After all, I have a “working copy,” which I created some time ago by cutting and pasting each of the twelve chapters into a Word document, and which I have returned to again and again. Instead, I found myself sitting down with the paperback this week and reading it through yet again, and, despite a promise to myself to keep a clean copy, reaching for a pencil along the way and underlining. It remains fresh and compelling.
Your description of GID as reframing the conversation around the new normal is right and apt, but I would go further and call GID a compelling argument with an inescapable conclusion: it is time for active innovation in BigLaw, because for a great many firms the certain risks of not innovating will far outweigh the uncertainty and risks of innovation.
Other observations:
§ Ch. 10 on Clients remains my favorite, and in itself is a platform for a great retreat program. The stats are eye-opening, and the importance vs. performance highlights are sobering.
§ Ch. 8 is a close second, and combined with Ch.10 (plus passages on differentiation) is the answer to the Managing Partner who asks, But what do I do?
§ The call to action with which Ch. 12 concludes is as inspiring as when I first read it.
All the best.
Bonus Round
One of the questions I get most frequently in response to Growth Is Dead is, “So what do I do?”
I would like to believe chapters 8 through 12 address that, but Herb has written an insightful and pull-no-punches monograph of his own on the topic, Inventing the Future: Practical Strategies for Law Firm Innovation, and it’s my pleasure to bring it to the attention of a wider audience by publishing it here on Adam Smith, Esq.
Herb has many smart things to say, including (just a sampling):
- How about tying hourly rates far more to experience, and far less to seniority?
- “The challenge for a law firm is to demonstrate value, not collectively across seniority bands, but lawyer by lawyer.”
- Relevant questions at review time include:
- “He’s a good M&A lawyer? On how many matters was he the led? For what size companies? In which industries?” etc.
- Relevant questions do not include:
- What are we paying him?
- What do we charge for other partners at his level of seniority?
- Wasn’t he a good soldier spending four months in the Singapore office?
- And why are those the rigiht (and wrong) questions?
- Because clients don’t care what it costs…you
What it adds up to is how to act on the great wisdom of Peter Drucker, who said “The greatest danger in times of turbulence is to act with yesterday’s logic.”
I commend to you the whole thing.
