Knowledge @ Wharton has an
enlightening interview with William Weldon,
CEO of Johnson + Johnson, on the challenges of leadership in a decentralized
company. You may think the scale of J&J (120,000 employees, $61-billion
in revenue, operations in dozens upon dozens of countries) means there’s no
analog between what he does and what you do, but I think his insights into
how you manage a fundamentally decentralized organization harbor valuable learning
for law firms. If you’re inclined to agree, read on.
First, a word about the analogy between J&J and a large law firm—whether
or not you’re international. Your offices, practice groups, and even
individual client teams operate with a very high level of autonomy, certainly
by the standards of corporate America. That’s why I think it instructive
to listen to someone as thoughtful as Weldon talk about leadership in that
context, where the sheer fact of J&J’s over 200 operating companies means they’ll
be operating autonomously: Even if he devoted a full day to each operating
company, it would take him the entire year to cycle through all of them before
starting over. Is, then, running such an enormous organization fundamentally
impossible or impracticable? Not at all; he sees advantages to it.
"I think there are pluses and minuses to decentralized and centralized.
I think J&J is probably the reference company for being decentralized.
There are challenges to it, and that is you may not have as much control
as you may have in a centralized company. But the good part of it is that
you have wonderful leaders, you have great people that you have a lot of
confidence and faith in and they run the businesses."If you look at Japan, for example, we have the local management running the
companies. They understand the consumer, they understand the people they are
dealing with and they understand the government and the needs in the marketplace.
Whereas it’s very hard to run it from the U.S. and to think that we would know
enough to be able to do this. […] But, with
our credo and the value system that we work under, we feel very confident about
our leadership and our management — and you have to have trust and confidence
in them."I think the other thing that decentralization does is that it gives you a
tremendous opportunity to develop people. You give them a lot of opportunity
to work in different areas, to work in smaller companies, to make mistakes
and to ultimately move to larger companies."
There’s much in here. Listen again:
- You sacrifice control but you gain great people, who develop into leaders,
assuming you have "a lot of confidence and faith in them." - You get your operations closer to the ground, closer to the customer, and
for that matter closer to the regulatory authorities. - But—and this may be challenge #1 for law firm leaders—you have
to be realistic about ceding control and realistic about people "making mistakes." (Don’t
tell me you never made a mistake in all your career?)
And also listen to what he has to say about mistakes:
"The challenge really… I see it as a great benefit, rather than a challenge.
This is because the problem with centralization is if one person makes one
mistake, it can cripple the whole organization. This way, you’ve got wonderful
people running businesses. You have to have confidence in them, but you let
them run it — and you don’t have to worry about making that one big mistake."
In the current environment, haven’t we seen firms that have made "one big
mistake?" Betting bigger and bigger on markets just as they were
becoming frothy? (Or, in the previous dot-com downturn, betting
on Northern California at the top.)
Perhaps the supreme and ongoing challenge for J&J is maintaining the pace
of innovation. Law firms don’t face this to the same degree, but I believe
inventing new legal forms (new types of financing vehicles, for instance, or
creative new covenants) is one of the few ways firms have to create an enduring
impression in clients’ minds that they are not only unlike their peer group
but unlike their peer group in a most admirable and "unlawyerly" way: They’re
legal entrepreneurs.
How does Weldon describe how J&J pursues innovation?
It starts with decentralization: "Where decentralization helps in innovation
is that it allows different people with different skills, different thoughts,
to bring together different products and technologies to satisfy the unmet
needs of patients or customers." Not that it’s without its challenges,
and they are the familiar ones of expense (which is highly manageable if you
believe in this), but more importantly the challenge of getting people to,
even briefly, let go of the familiar (emphasis supplied):
"It’s the ability to work across the boundaries
that really brings true innovation,
and is going to take some real breakthroughs and will bring real breakthroughs
in the future. But, it also does take some coordination and some sacrifice
from the individual. That is the toughest thing, getting
people to get outside of the silos that they work in and work across the groups."
Yet isn’t this precisely the way innovation works? The most famous legal
innovation of the past couple of decades, Marty Lipton’s poison pill, arose
at the intersection of newfangled, gunslinging, hostile M&A and plain old Delaware
corporate law. Securitization (which will return—make no
mistake) was initially a sort of weird child of banking regulatory law and
bond indentures sprinkled with pixie dust.
What then might we do?
- Don’t be afraid to set people free, even to the point of making mistakes. Even
the most quality-obsessed companies in the world (Lexus, for example) recognize
that defects are a fact of life. "Zero defects" is a recipe for paralysis. The
question is not achieving zero but dealing constructively with defects that
arise. - Prod people to get out of their comfort zones and work—at least episodically—with
other practice groups or other offices. Barrels of ink have been spilled
on how "Creative Companies" (IDEO, Apple, Google, et al.) ensure that employees
run into people outside their group or function all the time—typically
with something as simple as architectural design and layout of the offices. Next
time your firm is planning a move, you might interview a designer who has
created spaces like these firms have. - Finally, understand that letting people expand into their own leadership
roles will only happen if they have a functioning ethical and professional
autopilot. Recall what Weldon said at the start of his conversation:"[B]y being decentralized; what you do lose is control. But, with our credo
and the value system that we work under, we feel very confident about our leadership
and our management."
The key phrase is "with our credo and value system." Is that
something you can say with equal confidence about your firm? The Johnson
+ Johnson Credo (crafted
by Robert Wood Johnson in 1943 just before the firm went public) is a vibrant
document today. Whether or not your firm has anything similar written
down, do your partners, associates, and staff live your firm’s values?
Because if they don’t, decentralization is not a workable option for you.
