We’re just back from a week in London—coincidentally smack in the middle of the UK firms’ earnings-release season—and for reasons far more profound than that annual roll call of bragging rights, the level of preoccupation with the future in the great City has never to us seemed higher to us. A telling, and extremely representative, moment came when one managing partner we were meeting with started to enumerate the threats facing his (very solidly performing) firm as, “One,…., and two…., and—oh hell, there are threats everywhere!”
Even the Magic Circle are looking over their shoulders. One is tempted to blurt out, “Imagine that!” but one need imagine nothing; it’s real.
And this overwhelming attitude of uncertainty—call it concern if you’re prone to understatement, nervousness or fear or existential questioning if you’re otherwise inclined—was quite palpable to us and widespread. We’re calling it simply the Age of Anxiety (with the obligatory bow to Auden).
Nor, we hasten to add, is it a UK phenomenon; it’s alive and well, thank you very much, in New York, Chicago, California, DC, etc., and doesn’t discriminate by size of firm or market niche.
Now, what are the sources and causes of this level of anxiety?
We have some candidates.
- Margins for error are shrinking. Once upon a time, when firms suffered a rough patch, they had breathing room, time to rally the troops, reassure the clients, calm the markets, and regroup. No institution—they’re all made up of human beings, for heaven’s sake—is immune from the occasional misstep, and in general there’s nothing to be alarmed about. For firms it used to be the same as it is with individuals and their health: For the vast majority of aches, pains, and passing bouts of the sniffles, the best advice is simply take a bit of a break and it will all get better by itself.
As we said, “once upon a time.”
Today, the centrifugal forces which are always latent within law firms can be reinforced and take on frightening accelerated power through a combination of unprecedented external scrutiny, all-time-high lateral partner mobility, and the widening, and accelerating, gap between the haves and the have-nots.We’ll take each in order below, but what this all adds up to is the imperative to address negative developments faster and more forcefully than ever; to put far greater focus and invest far more time in the glue that binds the firm together as a coherent whole; and to pay continuous and vigilant attention to pruning accretions within the firm that are no longer fit for purpose.
- Unprecedented external scrutiny. As someone with a reasonably well recognized publishing platform (at least within the micro-precinct of the mediasphere that addresses Law Land), you might expect self-interest to dictate that I would proclaim enhanced information transparency an all-around Good Thing, and self-evidently a boon to humankind.
Well, don’t be so hasty to jump to conclusions on this one.Never before have there been so many voices, platforms, and reporters covering our world, but quantity and quality are, even in the 21st Century, two very different things. The insatiable hunger for content can itself be temptation for lazy thinking, sloppy reporting, and hastily jumping to conclusions. And the more widely I read—across the entire mediasphere, not picking on Law Land—the more true to me rings Joe Klein’s observation that “cynicism is what passes for insight among the mediocre.”
Heightened scrutiny operates, if you will, in both dimensions of news coverage: Speed and depth. Speed matters because, well, for the obvious reasons in a competitive 24/7 media landscape. And depth has never been greater because the ease, anonymity, and efficiency with which one can obtain the leaked memo or other incriminating or embarrassing document has risen to new heights. (Damning YouTube video of atrocious inebriated behavior is less common in Law Land, but don’t count it out some day.)
Would I have it otherwise? Not on a dare. I subscribe firmly to the notion that the best antidote to untruth is truth, and
more strongly to the hope that the Net is the greatest contribution to the advancement of widely distributed knowledge since Gutenberg and movable type. That doesn’t gainsay the pressures it imposes.
- Lateral partner mobility. Never higher. Some would argue the Original Sin in this area was Steve Brill’s invention of The American Lawyer‘s profits per partner, later of course universally embraced by media outlets and (yes) law firms alike, but that’s a question for legal historians and nothing could be more irrelevant for managing partners in the heart of the arena today.
Whatever the root cause, if you follow statistics on lateral partner movements, it seems to be a rising straight line without appreciable deceleration—even some upticks—in the aftermath of the Great Reset.Far more important than raw statistics—heads hunted, not to be delicate about it—is the attitudinal change.Partners today, especially those with desirable practices and books of business, are more mobile than ever, and they know it. Their colleagues know it, their managing partners know it, and the managing partners of competing firms know it.
The era of free agency is upon us, only without the constraints of salary caps and Scott Boras long-term contracts impeding frictionless marketplace liquidity.The upshot is all around us: As soon as there’s instability in a firm, those with the most options think about leaving. (Did I mention the circling of the headhunters? Didn’t think I had to.)Although it’s not a strict analogy, the dynamic that can ensue bears comparing to the economic concept of the tragedy of the commons, which the Princeton economics department helpfully describes as:
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone’s long-term interest for this to happen.
[The first example of the tragedy of the commons was] sketched in an 1833 pamphlet by William Forster Lloyd of a hypothetical and simplified situation based on medieval land tenure in Europe, of herders sharing a common parcel of land, on which they are each entitled to let their cows graze. It is in each herder’s interest to put the next (and succeeding) cows he acquires onto the land, even if the quality of the common is temporarily or permanently damaged for all as a result, through over grazing. The herder receives all of the benefits from an additional cow, while the damage to the common is shared by the entire group. If all herders make this individually rational economic decision, the common will be depleted or even destroyed to the detriment of all.
We know how this ends.
Again, what’s different is not the existence of lateral partner mobility, which has been with us now for three decades and more, but its magnitude.
- Widening gap between the haves and the have-nots. And the concomitant desire not to be left behind in the “everyone else” crowd.
We’ve been observing this for several years now, and in the wake of the GFC it has accelerated markedly.The American Lawyer noted it formally for the first time a couple of month’s ago in their release of the 2014 AmLaw 100, when they segregated 20 “super rich” firms in the top 100 from 74 “everyone else”‘s (and six vereins, rightly relegated to a mongrel category of their own).No one wants to be in the trailing pack; everyone wants to be in the top firms putting distance between themselves and the rest.
To state this desire is to invoke the Lake Wobegone fallacy: 80% of firms will not be among the 20 super-rich.And make no mistake: The statistical differences between the Super 20 and the 74 Everyman’s are striking:
- RPL 150% greater
- PPP 250% greater
- Compensation of all partners 300% greater
- Profit margin 150% higher
All of this adds up to tremendous pressure on firms never to miss a step. Scrutiny is high; partners can decamp; performance differences are tremendous.
“The Age of Anxiety”? Perhaps well-justified.
Where does this leave us?
- Trust has never been more important, within the partnership and running up and down from top to bottom.
- Leadership matters more than ever.
- That in turn means strategy matters more than ever, and knowing who you are has morphed from nice-to-have to business imperative.
- Rigor and discipline in execution are now table stakes. This is tough in autonomy-seeking partnerships, we know; get used to it, folks.
- Glue matters.
“Will we see more large law firm failures?,” we’re frequently asked, usually to the delight of the questioner, as if this were a novel or insightful query. We usually demur, but here’s the real answer, Dear Reader: Of course we will.
Not because the BigLaw model is broken or inherently flawed, but because BigLaw firms are made of fallible human beings (see above), because competitive rigors have never been tightening faster, and because the margins for error have never been slimmer. Of course we’ll see more failures. With luck we’ll also see more births (Quinn Emanuel, Boies Schiller, Kobre & Kim, just for instance).
The more interesting question is how we’ll adapt to beginning to look the tiniest bit more like the rest of the mainstream economy, where firms are born, grow, shrink, die, and morph into something new, every single day.
Let me leave you with this question:
Is what you care about the survival of firms as we know them, or the survival of our notion of exceptionalism as a profession and an industry?