“Is all of that work worth it?”
[Parenthetically, Ted observes that Freshfields followed the same path—he discovered later through archival research—during the Great Depression. The firm’s carefully preserved books and records showed that salaries went down but headcount did not in those awful years. So obviously they chose mutual and shared sacrifice over laying people off.]We think so. By preserving partnership, you get the hearts of your partners not just their wallets. I have heard some law firm leaders say that the corporatization of law firms is inevitable so don’t bother avoiding it. I disagree with that. I want our partners to regard our firm as more than a good professional platform and a good paycheck. I want their long-term commitment. I want them to be willing to invest in something that may not pay dividends until after their retirement. I want them to embrace the concept of holding the firm in trust. You might be able to get that in a corporation but I think it’s most easily achieved in a partnership.
I think that we might be the largest business in the City of London [over 2,000 employees] to go through the financial meltdown without laying off more than a single digit number of people and we’re proud of that. Could we have improved profitability by doing so? To be sure. Would it be the right thing to do? Releasing loyal people into a horrible job market? No. Would the partners think better of themselves and of the firms to let people go? No. Would it make a material difference to their take-home pay? Not really. So that was our approach and none of our partners disagreed. They were looking beyond the economics.
The key is to get hearts on board, not just minds; this is the only route to sustainable success.
I heard someone from another firm say recently, perhaps with some hyperbole, that his partners only care about their pay this year and next and will leave if it’s not enough. That’s incredibly depressing! I would be the first to say that financial success is very important; you neglect that at your peril. But too much of a focus on short-term profitability is the enemy of sustainable success and strategy. I hope that will never be the case at Freshfields.
“But you mention that the need to respond quickly is probably growing. What is changing?”
Well, you have described it yourself. The clients have more choices.
Imagine this, Ted says: For years, you went to a department store to buy a suit and were told that you can buy that suit only if you take this shirt, these shoes, this tie, and these socks along with it. And every department store in town hewed to the same policy. Law firms were like that; all of their services were bundled together and the clients had to take it or leave it. And clients took it. Why? The alternative was to build up an enormous inhouse capacity that would lie fallow 80% of the time. so the lesser evil in the clients’ eyes was to take the bundled services of the law firms..
Now that model is history.
“So how has Law Land evolved since 2008?”
I think of it in terms of the concept from evolutionary biology of “punctuated equilibria;” the idea that there are long periods of stasis punctuated by brief crisis periods of intense speciation. This is what we’re going through, I think, prompted of course by the financial crisis and, perhaps more importantly, by technological advances.
Law firms didn’t change immediately after the crisis. In the first couple of years, many firms were swamped with crisis work or were hunkered down dealing with serious over-capacity. But starting a couple of years ago many firms began to emerge from their caves, blinking into the light and thinking hard about their strategies and business models. We’re seeing some of these firms start to go in different directions and take pretty bold steps.
Of course, there isn’t a single right strategy or model for any firm and we clearly see multiple strategies and models succeeding in the legal sector. But I do think that some firms are facing a strategic trap. Many seem to want to shrink and that seems the right answer if you want to preserve or enhance profitability and if you believe that the demand for high end legal services has shrunk. But shrinking in size may also mean that you can’t adequately meet your clients’ global needs. That creates a strategic dilemma.
Bruce: One impetus for periods of intense speciation, if I recall Stephen Jay Gould accurately, is the abrupt entry into the ecosystem of foreign invaders—like the Asian carp in the Great Lakes. You surely know about how firms like Kirkland are coming into the New York and offering top-of-market compensation to marquee partners, which is antithetical to lockstep. How does this play out?
