There is only one valid definition of a business purpose: to create a customer.

–Peter Drucker, The Practice of Management (New York,: Harper, 1st ed. 1954); Routledge, 2012, at p. 37

Urban legend has it that a Harvard Business School professor (who is never identified) had a habit of torturing interrogating his students with the koan-like question, “What is the one thing every business has to have?”

Eager volunteers would typically answer “a product or service,” “employees,” “an idea,” “cash,” “a market,” and so forth, but all were wrong in our remorseless unknown and perhaps apocryphal professor’s judgment.  The answer he was looking for:  “A customer.”

And in our work with law firms a splendid adage is “client first, firm second, self third.”  But then it gets complicated.

In fact, matters often go south in a hurry.  A few fact patterns you probably have seen yourself:

  • One of the leading causes of malpractice claims against firms is partners’ practicing outside their area of expertise because they can earn origination credit for a matter that they’ll forfeit if they let their colleagues who actually know the area take control.  Self>firm>client.
  • An almost universal objective of re-examining partner compensation systems is to increase cross-firm collaboration.  Shared origination credit would presumably help, but the menace is in the details.  For example, is the “default”–the rebuttable presumption–that credit is shared unless someone provides good reason otherwise, or the reverse.  It’s often the reverse: Management/the partner who wants credit/the office head/someone else has to ask for credit to be shared, and if and only if they can exercise sufficient powers of moral and formal suasion will they prevail.  Self>firm>client.

Here’s a more dramatic example.

Not so long ago, we were invited to meet with a law firm at something of a strategic crossroads.  The firm (medium-sized, in the upper reaches of the AmLaw 200), had grown for historic and not any longer terribly germane reasons into one large group of lawyers pursuing a high rate, high realization practice operating in a national  marketplace, and a comparably sized group specializing in a low-rate, price-challenged practice where competition played out in metropolitan or very circumscribed regional areas.

Quite predictably, reality on the ground for this firm–the way partners, associates, business professionals, and management experienced life within the firm day to day–was that of two very distinct businesses which had no need and little desire to interact, with incongruent career paths, professional development requirements, client bases and target markets, utilization and profitability, operational and managerial exigencies, and frankly cultural and work-life balance preferences.  In other words, two fundamentally different economic models and structures.  Need we add that compensation season was hell?: Guaranteed to alienate all from all, with no equilibrium solution in sight, soon or ever.

In the evaluative process the firm was running among potential strategy consultants, we, and I assume the others, were asked for our initial thoughts.

We suggested a spin-off: Break the firm in two.  We didn’t see any reconciliation of the two internal groups remotely in sight; they couldn’t possibly square their economics without torpedoing one or both practices; the partners in one group weren’t working with those in the other and on the firm’s current course never would be, and compensation time would continue to be an annual bacchanal of resentment, irreconcilable figures, envy, and simmering rivalry.  If there was a spin-off, or simple separation, everyone would be happier, more productive and less distracted, focused on what they did best, and, most important of all, liberated to serve clients.

Now, spin-offs are a well-worn page in the corporate playbook: Have you been following GE for any part of the last two years?

But the law firm was not, shall we say, receptive.  We weren’t privy to their internal discussions, but they could not have taken long.  We did not win the assignment.

What could explain this instinctive rejection of the foreign object–a spin-off–into the law firm’s internal deliberations?

We don’t do psychology at Adam Smith, Esq., but we do do strategy.  It’s impossible to square this decision with client first, firm second, self third.  We leave it to you to choose the ranking of your preference, but for our money client has to start in third and last place, and whether it’s hard to see how the lawyers’ individual self-perception doesn’t trump that of the firm(s).  The firm, or the two firms under one roof, were doing a suboptimal job of serving clients (firm>client) because….?  Because, we can only surmise, the individuals preferred not to upset the established order.  So self>firm.

In other words, clients’ role is to keep the firm in business, and the firm exists to serve the preferences of its lawyers.


So ask yourself this:  Is Drucker’s “customer” the raison d’etre of your firm?  Or is the true client–the highest priority and the constituency whose satisfaction is most devoutly sought after–actually your partners?

 

With thanks to the Art Nouveau Lucerna Palace in Prague

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