Comes now an example from recent history about culture in financial institutions, specifically too big to fail banks. Simon Samuels, a member of the Financial Stability Board “enhanced disclosure task force” writes under the headline “A culture ratio is more important than a capital ratio” (on the op-ed of the Financial Times):

Think of three pairs of superficially similar banks pre-crisis: Citigroup and JPMorgan Chase; Royal Bank of Scotland and Barclays; Belgian-Dutch lender Fortis and BNP Paribas. In each case, when crisis struck, the first needed a taxpayer rescue; the second did not. Yet here is the odd thing. Entering the crisis the capital strength of each pair was near identical. The overall risk culture, and not capital levels, explained their divergent fortunes.

He notes drily that Tim Geithner realized Merrill Lynch’s risk culture was less than ideal when John Thain (then CEO) could not name his chief risk officer—sitting next to him at the time. Yet without such a blinding red light signal, how do we evaluate a bank’s culture? Samuels readily admits the challenge:

But it is hard to measure risk culture. Some weaknesses are, in retrospect, obvious. Citigroup’s board included the chief executives of a galaxy of famous US companies who between them had hardly any banking experience. However, a good risk culture is more complicated than knowing who your risk officer is or having banking experts in the boardroom. Entering the crisis, the directors of RBS included a healthy compliment of extremely experienced bankers who – at the time – regulators,  investors and analysts regarded as suitably qualified. Between them the five critical boardroom lieutenants of Fred Goodwin, chief executive, had almost 150 years of relevant banking industry experience. Yet, apparently, the culture was not one that encouraged challenge.

For Banking Land, Samuels has some suggestions, including having regulators make their own direct, albeit subjective, assessment of the strength of the institution’s “risk culture,” aligning chief financial risk officers’ compensation with the firm’s long-term viability by tying it to debt instruments, and disclosing actual loss ratios and records vs. projections. None has the least analog in Law Land.

I noted somewhat casually that culture matters “to the ultimate question,” but my thrust was not casual in the least.

The elements of internal law firm culture that are already becoming increasingly pivotal on the issue of that ultimate question center around issues such as:

• The much-bruited “glue” of the partnership; is it real or is it aspirational (or delusional) thinking?
• The real importance of the values of stewardship within the firm: Do people recognize their obligation to those who came before and attempt to reciprocate by leaving the place better than they found it?
• What is the short-term/long-term horizon “quotient” of your firm’s partners? Is this akin to a marriage, where we’re all in it together for the long run, and relatively petty crimes and misdemeanors should be forgiven in light of focusing on the complete package? Or is it professional sports free agency?

Questions that management and leadership can pose to itself don’t get much more serious than these.

It’s time to stop treating “culture” as a throwaway line on your firm’s home page and start thinking about, and working hard on, ways to enhance and sustain it. Not for the sake of your clients. For the sake of your firm.

Update 27 November:

Coincidentally, Harvard Business Review just published a new article, “What Airbnb Gets About Culture that Uber Doesn’t,” which details how widely (and wildly) different these two startups’ cultures are.  We all know that Uber just ignited a self-inflicted media bonfire when one of its senior execs talked of doing “oppo research” on unfriendly journalists while another used its “God view” to track a separate reporter.

Meanwhile, did you know that Airbnb just threw its first-ever “host convention,” for 1,500 of its most active providers? Airbnb also facilitates host groups for sharing knowledge and best practices, has a host app that embeds standards and guidelines, and sponsors standalone meetups. By contrast, the only time you see Uber drivers congregating is usually to protest some new unilaterally-imposed Uber policy.

Consider how similar the companies are in terms of business structure:

• They have each received extremely handsome levels of VC funding and eye-opening valuations;
• Both are something even beyond a conventional franchise: Not only don’t their drivers or their home “hosts” work for them, they don’t even control them, short of admission/expulsion. And needless to say, they own neither cars nor homes and apartments.
• Both confront legacy regulatory structures at the state and local (not federal) levels and both have hired big-deal DC veterans to work on those problems.

And a few highlights of how different they are in terms of culture:

• Airbnb works hard at foster community and a sense of engagement; the three co-founders go so far as to regularly stay at the homes of key hosts around the world.
• Uber seems to be working equally hard at distancing itself from its drivers. Pricing changes occur unilaterally with no advance notice, much less consultation with its drivers. “Community building?” What’s that?, might be Uber’s response.
• And it shows: Airbnb “hosts” are displaying increasing pride in doing what they do and being part of the Airbnb platform, while Uber drivers’ attitudes have turned markedly towards the negative in the past two years.

The author concludes with a lesson worthy of inculcating in everyone who has any degree of responsibility within your firm:

[I]t seems important for the platforms to realize there is a difference between branding strategy and the actual creation of a world-class brand. The former is an exercise in marketing and PR; the latter comes from creating a great product or service experience, delivering it at a consistently high quality over many years.

If that’s too abstract for your partners, just tell them to walk the walk.