A few highlights from The American Lawyer’s just-released annual law firm leaders survey:

  • Five years in to the Great Reset, the way clients buy legal services has settled into a new normal:
    • In-house capabilities are expanding;
    • Price/fee pressure is relentless;
    • Work is being pushed to cheaper suppliers (which, yes, includes LPO’s, but also most definitely includes boutiques, and smaller and regional firms with kinder and gentler cost structures);
    • And the battle for market share is on.
  • We as an industry are running out of running room on cost-cutting our way to profitability.
    • As Cooley’s CEO Joe Conroy says, “We’ve played this game as an industry for a number of years where we’ve gotten leaner and meaner, but there’s a limit on stripping our costs and lowering rates.”[Here’s where you really have to start paying attention]
  • Four out of five expect the economic “recovery” in the US to remain on the same pace in 2014 or—get this—slow down, while 70% believe the same for EuropeLawFirmLeadersSurvey
    • I have a question for the 30% who think European growth will speed up: Please explain to me how a 28-member bloc of countries (17 of whom have adopted the euro) can have a single currency without political, socioeconomic, or central banking harmonization. So far it’s not working. And Latvia’s knocking on the door.
    • Maybe this would be easier: Explain why this chart makes you more optimistic about the Eurozone than the US:

  • Yet, remarkably, two-thirds of respondents said they were “somewhat optimistic” about their own firm’s outlook.
  • And 80% expect profits per partner to grow in 2014, one fourth of them at a rate greater than 5%.
    • They plan to do this not by doing anything new—what might seem logical and even, dare I say, advisable, given that the status quo is producing less than compelling results—but by:
      • Raising rates (98% of respondents), eventhough
      • Realization rates are under 85% for three-fourths of firms in 2013.
  • Is there hope in any particular practice area?
    • The AmLaw report points to M&A, second only to litigation as the most popular practice for firms’ increasingly frenzied and desperate pursuit of laterals, which might make sense sense merger market activity was up 22% for the first three quarters of 2013—unless you subtract out the once in a lifetime thunderbolt of the Verizon/Vodafone deal, in which case the M&A market us, oops, down year over year, and still roughly at 2008/2009 hibernation levels.
  • But at least we all have our own houses in order, right?
    • Actually, 85% are very or somewhat worried that partners are not billing enough hours (12% can’t make up their minds, leaving a resounding 4% [2 in 50] saying they’re “not worried”)
    • Meanwhile, two out of three are worried that some partners are hanging on too long before retirement
  • Well, we can solve that by having hard conversations, right?
    • Maybe not: Half of firms have no plans to de-equitize partners, this year or next, regardless of performance.

Reality check time, folks.

Lately I’ve been reading Brad Stone’s The Everything Store: Jeff Bezos and the Age of Amazon, and if you learn nothing else about Bezos’ astonishing rise and rise and rise as a business leader, you learn that he has a blistering insistence on the unvarnished truth. He will not tolerate anything less.

During the critical Christmas shopping season for Amazon, Bezos held daily “war room” meeting with about 30 of his senior management team to go over critical issues. As sales started ramping up in 2000, hold times on Amazon’s phone lines began growing longer. Bezos began one meeting by asking Bill Price, the VP of customer care, how long the hold time actually was. Less than a minute, Price told him.

“Really? Let’s see.”

Bezos called the Amazon 800 number on the speakerphone in the middle of the conference table and set his watch down beside it. One minute, two minutes, three minutes—four and a half brutal minutes later, the line was finally picked up. “Thanks, just checking!,” Bezos said and hung up. Price was soon gone.

If you don’t want to rely on Bezos as an example, take Churchill. During the worst depths of the Blitz, when it looked as though the US would never help and Britain was abandoned to her own resources in the face of the Third Reich’s onslaught, in January 1941 Churchill created the “Central Statistical Office” as an independent entity outside the control of his ministers, who he feared would filter the news coming to him. He said that only if he knew exactly what was really going on in terms of armaments, men, territory, and so forth, could he sleep well at night: “Facts beat dreams.”

Now, we don’t seem to be following the same commitment to insisting on the unvarnished truth.

It seems to me the possibile explanations for what’s going on—the disconnect between managing partners’ expectations of yet another year of harsh reality, and their optimism about their own firms’ prospects—are three:

  • A. They know something top-secret about their own firm that assures it will outperform the market in the coming year, but of course they can’t reveal what it is;
  • B. They have nothing special up their sleeves but are wishing and hoping and praying and feel compelled to rally the troops with an optimistic battle bugle call (think of this as deluding themselves);
  • C. Or they know it’s bleak and can’t bring themselves to say it (this is deluding others).

Now, answer A would be honest and impressive and an exercise in managerial excellence. The problem is it can’t possibly be true of a majority of firms in a flat to slightly down market. We can’t all be Lake Wobegone children. So A is inadmissible as an explanation of these industry-wide statistics. (For readers unfamiliar with the US author and humorist Garrison Keillor, Lake Wobegone is the fictional Minnesota town of his invention “where all the women are strong, all the men are good looking, and all the children are above average.”)

Answer B: Understandable, and something we can all sympathize with as human beings. But sympathizing with an emotional inclination, and a soft and self-indulgent emotional inclination to boot, is not a substitute for clear-eyed, decisive, and effective management. Good folks they may be, but undeserving of the jobs they’re in or the compensation they’re collecting, in this environment.

Answer C: Cowardice, pure and simple, and there will be a price to pay, as there always is.

Lest you think I exaggerate, here’s “cowardice” elaborated:

Cowardice is a trait wherein fear and excess self-concern override doing or saying what is right, good and of help to others or oneself in a time of need—it is the opposite of courage. As a label, “cowardice” indicates a failure of character in the face of a challenge.

The problem with keeping bad news from people—elevating their expectations to a level where they’ll all but certainly be dashed—is that, as Jamie Dimon remarked at the height of the financial crisis, “Bad news doesn’t age well.”

Delivered any bad news lately?

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