And while we’re at it, we impose potentially unrealistic expectations on the lateral arrival.
Succession planning? Evidently it’s for wimps. Actually, it’s for firms who believe that strong and effective management actually matters, a bedrock presumption in the 98% of the economy outside Law Land, yet one that most lawyers are instinctively suspicious of.
A particularly wise law firm leader I know believes we will only achieve maturity as organisations when we actively seek and recruit senior managerial talent from other firms, so as to have a deep bench of available leaders ready to step forward. You scoff? Have you looked at what major corporations do every week? When they need a new chief executive, they either have internal candidates who’ve been groomed for just this event for decades, or they hire fresh chief executives from the likes of General Electric, McKinsey and – yes – the competition. I for one am loathe to jump to the conclusion that law firms are right and the rest of the business world is wrong. Then again, that’s just my opinion and lawyers are convinced they do in fact know better than everyone.
And what, exactly, is the point about the aforementioned morphing composition of lawyers at large law firms? Simple, I believe:
- First, that shrinking pool of associates. Associates require investment in training, professional development and, yes, time write-offs. (Don’t be tempted to jump to the conclusion that firms have merely responded to client preferences by cutting associates since 2008, when clients began to get serious about refusing to pay for juniors. The decline at top 250 US firms was almost entirely before that, from 2000 [55%] to 2008 [48%].)
- Yes, associates can cost money, but they are, or ought to be, the future of the firm.
- Equity partners, also down, are costly in another way: to firms’ reported profits per equity partner (PEP). If the top line and the bottom line are essentially flat year after year (putting aside inflation and headcount growth), what’s a body to do? Cut the denominator of the PEP calculation.
- Non-equity partners and ‘other’ lawyers, both up dramatically, can provide a particularly quick jolt to the income statement. Realisation rates for both are high, because experienced non-equity partners enjoy few write-offs and ‘other’ lawyers are inexpensive to begin with. Firms can plausibly and sincerely claim they are simply being responsive to the market – clients like experienced lawyers with kinder and gentler rates than full partners – but what do they contribute to the next generation of leadership?
Worse, keeping a large swath of non-equity partners around too often results from managerial failings when it comes to performance reviews, or a cowardly preference for avoiding awkward conversation. Yet their growing ranks deprive associates of complex work, short-circuiting the associates’ professional development, impeding their career paths, and ultimately contributing to voluntary and involuntary attrition. Yet again, we have found an ingenious technique to pay the present while mortgaging the future.
Speaking of pay, what are the key ingredients in your partner compensation system? At an increasing number of major global law firms, the uber-variables are billable/collected hours worked and new client originations – primarily if not exclusively for the 12 months immediately past. Note a familiar theme? True, this model is still more American than European in character, but it has been increasingly imported into the old world through the steady expansion of European branches of US advisers over the last 15 years. There is a clear pressure and direction of travel and it is not in favour of long-term thinking.
Contributions to firm-building for the long run, including mentoring and professional development, community and civic leadership, and even institutionalising the bonds with existing clients, are relegated to exercises in self-abnegating volunteerism. It’s actually worse than that.
Self-preservation dictates that far too many partners actively avoid unrewarded firm-building investments. They fear it could cost them not just monetarily, but at a more existentially threatening level, in their very stature at the firm in the eyes of their colleagues. At firm after firm over the past couple of years, I have heard managing partners express – always in confidence – that one of their greatest fears for the future is senior partners’ hoarding key client relationships, deliberately or passively managing not to share, in order to ‘keep their numbers up’. And given the rules of the compensation road that most firms have laid down, they’re behaving entirely rationally. It is we who are engaging in the irrational, potentially self-destructive, behaviour.
Now, it would be fair of you to ask, how would I propose we do things differently?
Resurrect the concept of stewardship. At the start of our careers, each of us comes into a firm we did not create and have not built, but we inherit an inescapable moral (yes, moral) obligation to contribute to the greater wellbeing of that institution, or leave. Monetary rewards need to be sufficient, compensation needs to be fair and I would be the last to suggest anyone shortchange the firm’s financial success – you do that at your peril – but they aren’t why people get up and come back to the same elevator the next day.
Loyalty to a firm, and inspired and creative work there, depend on a purposeful sense of building something greater than oneself. The measure of achievement shouldn’t be entirely the size of one’s bank account or the covetousness one’s possessions can inspire. Nor should it be for our firms the comparison of this year’s income statement over last year’s.
I mentioned that in our youth we all joined firms we didn’t create. But some individuals did create them, some still living and some dead for generations. Despite enormous differences in time and place, in circumstance and opportunity, in motivation and in temperament, I can guarantee you one thing all those people had in common: a long-term and not a short-term outlook. Take heed.
Bruce:
How very old-fashioned: Stewardship? Next thing, you will be talking about honor… Outstanding piece.
An essential component of stewardship theory (in modern circumstances) is that it arises out of committed membership in a community. In most applications, stewardship is a positive responsibility of all members of the community, though in different measures under different circumstances within the community. Fruitful management of what we have been given in common heritage: it seems like it should be a natural concept in most enterprises, and with its relationship to fiduciary responsibilities, specifically to the Law.
Which is all very well in theory, but how would we structure our own organizations so that there is a voluntary, implicit commitment to operating in ways that will advance the general welfare within the traditions of our community?
Active stewardship is self-generating in circumstances that maintain the tradition: those associates (declining proportion though they may be) need to learn what stewardship means as part of their professional development. And it raises immediate questions when considering the issue of lateral transfers: How does a lateral transfer become part of our community? When we ask a senior person to join us, are we asking ourselves and her/him, is this a person who will be able to commit to our community, who will not only understand what makes this community unique and worthwhile, but be willing to commit a portion of his/her gifts to preservation, indeed growth, of what is uniquely ours as a community?
As you rightly point out, that is a sort of question – and a mutual commitment – that makes sense only in a long-term context. If we cannot imagine reaching past the next Quarter, the next year, or 2-3 years, then “stewardship” will not be an appealing or even a very coherent concept. On the other hand, if only that context is meaningful, our situation must be pretty dire.
Mark
Bruce,
The problems you describe seem like a classic negative feedback loop to me. Management of the firm is shortsighted in its approach in response to senior partners who feel entitled to reap the rewards of long service. Senior partners feel entitled because of a sense that the next generation is binging at the trough. The next generation is binging at the trough because management is shortsighted in its approach. Each fueling negative behavior in the others.
Breaking a negative feedback loop generally requires a change in the parties’ perspectives that enables each to accept short-term sacrifice for long-term gain. For those at the top, especially those contemplating retirement, the incentives to accept short-term sacrifice are especially difficult to identify. Additionally, everyone will have to be operating with confidence that those not similarly situated within the firm will act in good faith and not abandon ship when the sailing gets rougher.
Bringing in outside talent to manage a firm adds additional obstacles to overcome, beyond just breaking the negative feedback loop. First, outside talent can be very expensive and has had a rocky history to date (think DLA). Second, outside talent creates additional problems in that attorneys, particularly those at or near the top, tend to overvalue their individual contributions to the firm and the “personal capital” they have built up over their careers. Finally, what is likely needed is non-attorney management, and that is statutorily difficult due to the sharing of fees for any performance based compensation structure.
Bearing that in mind, it strikes me that the paradigm shift may be occurring naturally through the growth of in-house legal departments. These departments will force counsel into close proximity to the business methods and philosophies of “98% of the economy outside Law Land.” I would expect that the exposure to these business leaders to decrease the instinctive suspicion of their well honed business methods. I have always believed that this suspicion of businessmen in Law Land stems from the fact that they only consult attorneys when they are needed, and they are needed most when something goes wrong. As such, attorneys rarely get to see how many things successful businesses get right. Perhaps greater involvement in a functional, smart business culture will ease those suspicions.
My question to you is whether you have identified any practical measures that could help to break this log jam.