Now, it’s easy, and simplistic, to rail against lawyers and their, uh, distinctive personalities when it comes to confronting change, but our friends over at the Harvard Business Review just wrote (“How loss aversion and conformity threaten organizational change,” 25 November 2016) that we may not be alone in this.

Picture a management team, composed of highly accomplished individuals with long tenures at the company, gathering at the annual planning meeting. The CEO has been in place for five years, business performance has been strong and Wall Street has rewarded shareholders handsomely. Yet the CEO has a nagging perception that forces gathering in the marketplace threaten the company’s long-term outlook. Choices made now will determine the ability of the organization to respond in the future. What is his team likely to do?

To condense the author’s conclusion somewhat brutally: “Not much.”

But why? Aren’t these by hypothesis rational business leaders at the peak of their careers, attentive to data, dialed into marketplace trends, and with a primary responsibility of assuring the company’s continued prosperity after they step down?

Yes, they are; but they’re also human beings subject to all of the irrational (and worse, unspoken and even unconscious) syndromes of loss aversion and social pressure for conformity that Daniel Kahneman explained to us and won the 2002 Nobel in Economics for his pains. (Kahneman has of course, nearly 15 years later after blasting into public awareness with the Nobel award, many many fellow travelers, most utterly worthy.) I will boldy assume that regular readers of Adam Smith, Esq. are familiar enough with our tendency toward loss aversion—most people require nearly twice the potential reward as potential loss to accept a bet with 50/50 odds of paying off, when homo economicus of the General Model should be indifferent at a 1:1 payoff to loss ratio—but a word about conformity. It’s powerful.

We needn’t go into profound territory such as the historic phenomenon of seemingly willing converts to brutal regimes once the handwriting is on the wall—the “good Germans” of World War II or their collaborationist kin in occupied France—to demonstrate the power of conformity. A simple psychological experiment conducted in 1955 showed a small group of college students one card with a plain vertical line and one card with three plain vertical lines—one of the three the same length as the first line and the other two not—and asked each student in the group, in the order they were seated, to identify the same-length line.  100% of the time they got it right.

Then the curveball was thrown. Now all but one student was covertly instructed to identify one of the two “wrong” lines. When the innocent victim’s turn came, 35% of the time they went along and voted for the wrong line as well.

Back to you, Managing Partner. How can you attempt to counteract these baked-in biases?

Here are a few:

  • Never let an opportunity go to waste. That is to say, if an unusual event in the life of the firm occurs—you’re newly elected, for example—seize the moment to reset expectations and declare what the new normal is going to look like.
  • Point out, loudly and often, that sticking with the status quo itself can entail losses, starting with failure to maintain pace with competitors or clients’ expectations. In other words, redefine stasis as itself risky.
  • Find champions of change and visibly celebrate them. Make sure that the nonconformists in your ranks are recognized for their acuity and vision not dismissed as out of step or pushing their own hobbyhorse ideas. If you as leader of the firm aren’t conspicuously and continuously behind the change mandate, incrementalism and apathy will seep back in as surely as entropy always does when left unopposed.
  • Finally, we’ve all heard of “skunkworks,” separate spaces, mentally and physically, where pilot programs, experiments, and research can take place. Lockheed, Boeing, NASA, IBM, and many more have proven they work. Are we so much smarter that we can dismiss them as not invented in Law Land?

One more thought: You might point out for those who don’t think about these things for a living (your partners) that industry leadership, while it changes slowly in Big Law, does change. I dare say you can name half a dozen firms off the top of your head (we’ll be merciful here and not suggest any out loud) who are not what they used to be a decade ago.

See? It’s possible, even in what we’d prefer to view as our cloistered world.

It does require you to start campaigning for your partners to agree to change before the roof falls in, however.

Or, you can always decide it’s not your problem.

Risk Aversion 2

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