THERE was never any thing by the wit of man so well devised, or so surely established, which (in continuance of time) hath not been corrupted: as (emong other thinges) it may plainly appere by the common prayers in the Churche, commonlye called divine service.
—The opening of the Preface to The Book of Common Prayer of the Church of England (1549)
Chapter 2 of my book Tomorrowland: Scenarios for law firms beyond the horizon develops the scenario that nothing fundamental changes about law firms despite the market crying out for change. (Chapter 1 presents the scenario that nothing fundamental changes because nothing needs to change.) And what blocks meaningful change in Chapter 2’s scenario? The title of the chapter says it all: “Lawyer psychology and the partnership structure.”
As the world embarks on its frustratingly sputtering and tentative—but, we predict, relentlessly accelerating—steps to move beyond the Covid-19 pandemic, it seemed timely to revisit the train of thought presented in Chapter 2. Why? If you subscribe—with us—to the hypothesis that, akin to the Global Financial Crisis of 2008/’09, the Covid-19 crisis will powerfully accelerate some trends and developments already in the works, then change may be a-comin’. Can law firms embrace it? And if not, what might get in their way?
I won’t spend much time today on the “lawyer psychology” part since I think it’s well-trod ground now for most of us. Compared to the rest of humanity—or even white-collar American professionals—lawyers rank sky-high on skepticism and urgency and low on resilience. This means they are distrustful, jump to conclusions, and take setbacks on the chin. These traits are highly functional in zealous representation of clients—that’s why they’re adaptive, and strongly selected for in lawyers who get to the top of the profession—but they can be disastrous when it comes to internal firm management, governance, and leadership.
These characteristics might be annoying (or even amusing in small doses) but essentially harmless in your typical corporation, run basically as a top-down, hierarchical organization, but the thesis of Tomorrowland’s Chapter 2 is that they can be dysfunctional and even destructive in law firms because of the partnership structure.
From Tomorrowland (p. 34, emphasis original):
I believe the partnership form as lived and experienced today in the vast majority of law firms is a mighty weight on the side of reinforcing the status quo—no matter how strong the rational evidence suggesting a change of course might be. Partnership exerts its potent gravitational pull towards the most conservative approach through the mechanism of instilling a conviction in every partner that he/she is an owner, therefore has a voice, and therefore should be able to veto any proposal posing an upset to their preferred and established way of doing things.
The first problem with partnership as an organizational form begins when law firms grow from small, simple monoline practices typically operating out of a single office to complex poly-functional organizations with expertise in dozens of specialty operating across a regional, national, or global footprint. The problem is simple: Partnerships don’t scale.
[Some of our favorite clients of all time—you think we jest??—have been small partnerships of a dozen or fewer who have despite all odds being in favor of a tight-knit jolly band have chosen as their model the massively dysfunctional largeish family with centers of power in attics and basements and among young and old. Why, oh why? But they do it. Dysfunction and optimal function are not just numbers games. Still, you know where the betting man would put the chips.]Our idealized notion of a tight-knit partnership draws on the metaphor of a family, and while you can have five close family members, or maybe even ten or fifteen, you can’t have 100, 500, or 1,000.
Evolutionary psychology and anthropology have actually confirmed numerical limits on how many people you can have a meaningful relationship with: The number is 150, a/k/a the “Dunbar number”—after Robin Dunbar, an Oxford scholar who stumbled across the number looking at the Christmas-card sending habits of English families (in the pre-social media era) and then began finding it everywhere as a cognitive human reality reflected in everything from the size of hunter-gatherer clans to army companies to, yes, Twitter followers and Facebook friends.
“So what?” you ask: “BigLaw today is in reality organized as top-down, centrally managed hierarchical entities.” Yes, to the extent that the trend of BigLaw becoming BiggerLaw seems relentless, but No if you’ve ever worked in even a smallish corporation. (We’ll come back to this momentarily.)
The gradual movement of BigLaw along the spectrum from Athenian democracy to United States Marine Corps is undeniable. But the top-down controls are highly selective; they’re not impinging on the autonomy of Type A professionals. This was once expressed succinctly and memorably to us by an impatient practice group leader as “You can have your own trial strategy but you can’t have your own billing policy.”)
I have another take here. I’m not sure if it is correct, so possibly more speculation and musing than any sort of concrete hypothesis. But here goes. Large law firm partners, maybe more than any other professional service save consultants, have seen the ruthless realities of the corporate form up close and personal. I am talking brute form capitalism at its finest that we are all familiar with from the pages of the Journal or FT. Which has just been ratcheting up exponentially since the turn of the century as globalization took off. Slashing 2,000 jobs because you missed earnings last quarter? Yeah, we can help you with that. That merger is going to create worldwide “redundancies” that will have to be phased out? Yep, we’re on it. Not to mention all the trouble that corporations get into that requires a heavy duty litigation clean up squad as a result of chasing every last dollar for shareholders. Lawyers are well familiar with the excesses of the corporate form. Maybe they see that and say, yeah, I’d rather we not have that here. Say what you want about its drawbacks, but partnership in practice is usually a bit gentler organizational form. Underperformers given a bit longer runway to shape up or ship out. Since they are so flat, the top of the organization is that much closer to the bottom. Which allows for more human connection when it comes to things like cost reductions. Are there some costs to it? Yes. Do we make less money? Depends. Is the “safety net” a little larger for all participants? Quite possibly. It’s an alternative to corporate life, which has its own set of drawbacks. I realize I am generalize, but a possible explanation.
Now there are some interesting cross-currents brewing on this front in the corporate world. Stakeholder capitalism is out in general circulation (a debate for a different day). But do partnerships kind of bend in that direction more naturally? Maybe that is what Judge Rifkind was really getting at in his statement of principles?
On a related note, it really does all come back to psychology, doesn’t it? And psychological change at an individual level is probably one of the most difficult things to accomplish in this world. I’m not sure law firms really have the tools to do it.
Partnerships originated 700 years ago as agreements under which the partners, as you point out and Judge Rifkind alluded to, pooled their talents and energy in a common enterprise in the hope of making a profit to share. Not “compensation,” but profit. I’ve sometimes thought that a firm that has a “Compensation Committee” to determine the shares of its owners has missed the point, or is training its owners to think of themselves not as members of a common venture but as compensated (well-compensated, usually) employees who for tax reasons get a K-1 each year instead of a W-2. The result is that those “partners,” as you mention, think of themselves as owners when they want to exercise rights and as employees when they want to avoid responsibilities. They conflate their relationship inter se as owners of a business with their employer-employee relationship with the business itself.
I designed my current micro-firm as a corporation specifically to be able to separate the compensation of employees from the profits of owners. I did that even though for the first several years I was the only shareholder. Could a megafirm do the same? Perhaps, though the firm would have to retrain its current owners in a new model.