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Post #694 – February 3, 2014
The Compensation Impasse
At our Compensation ThinkTank last week in New York with
some 50 firm leaders, one of my fellow speakers spoke eloquently and presented
insightful statistics on the degree of excess capacity, stagnant demand and
suicidal pricing pressures that firms are currently facing. At the conclusion of his talk he offered “a
five-step program for your partners.”
His five steps consisted of:
• Denial: Snap out of it; understand the world has
changed. We’re not all going back to
• Anger: Is fruitless.
Your clients have done nothing wrong.
• Bargaining: With the managing partner, the compensation
committee, and your friendly local headhunter will get you nowhere;
• Depression: Let us
know when you feel like behaving as an adult again; and
• Acceptance: You’ve had an insanely great 25-year run, how
about a little gratitude?
When the request for questions arose, I could not contain
myself from offering an observation:
These five steps all assume one thing – that when dealing with your
partners on money issues, you are dealing with RATIONAL people! I would respectfully submit that that may NOT
be the case.
Exhibit One. At a
time when many firms have come off a year of flat revenues (at best) and fairly
flat profitability, one of the common stories that I’m hearing from managing
partners is about having to confront the partner with the big book of business
who wants more money this year. When
informed that the firm’s revenues and profits are flat and indeed that even
this partner’s billings and performance was on only par with last year, the
response the firm leader gets is that the partner still feels they deserve
more. When asked why they feel that way
given the statistics, the demanding partner informs you that their book of
business is obviously worth even more
to the firm now than it was last year.
Conventional wisdom, as well as economic theory, tells us that the more
of something we have, the less of it we want . . . but that is not the case
with money! According to some brand new
research released in January by Jeffrey Pfeffer (professor of organizational
behavior at Stanford’s Business School), money earned through our individual
labors is more important to us than money that comes from other sources like
investments. And the more money paid for
each hour of work, the more important that money becomes. According to Jeffrey’s research paper, “When Does Money Make Money More Important”
money is like an addictive substance in that it raises the bar and leaves
people always wanting more. We generally
believe that our compensation communicates our self-worth. The higher the compensation, the more importance the person places on
Now I don’t know what the answer is and we certainly did not
get any magic bullets from either the five step suggestion above or from any of
the other discussions during the day, but it would seem that leaders who focus
on money as THE reward are going to have to give more and more of it to have
any motivational effect.
What do you think?
Rant #693 – January 22, 2014
How Important Is Leadership In Law Firms?
I recently received a
research report from the folks at Service Performance Insight (SPI),
a global research and training organization, entitled “Just How Important is Leadership in the Success of Professional
Service Firms?” For the past seven
years SPI has been analyzing leadership metrics, across a number of
professions, in their annual benchmarking initiatives. They ask a number of questions, which are
subjective in nature, yet provide insight into the importance of something as
difficult to measure as leadership.
The questions include the degree to which:
• the firm’s strategic direction is clearly communicated and
• partners have confidence in the firm’s leadership;
• it is relatively easy to
get things done within the firm;
• leadership communicates
• leadership embraces change
and is nimble and flexible’
• leadership focuses on
innovation and is able to take advantage of changing market conditions; and
• everyone has confidence in
the future of the firm.
The clear result of their
seven years of research is that firms with strong leadership – those scoring
highest in answering their questions (on a 1 to 5 scale) evidence far stronger
results in areas like: higher revenue growth, client service efficiency, and
percentage of new business derived from new clients, among other key
performance indicators. In other words,
firms with leaders who truly lead their firms, with higher levels of
communication and collaboration, grow their organizations at a much higher rate
than those lacking these qualities.
Now this research, to the
best of my knowledge, measures leadership in consulting, engineering and other
professional service firms, but does not include any law firms. In law firms, we seem to have a different
mind-set towards how important leadership really is. That mindset was on display this past week
within two published news articles.
First there was the
Citibank/HBR 2014 Client Advisory, which provided a commentary under the title:
The Leadership Challenge. According to this report, “One
development which gives us concern is that some of the newer breed of leaders
continue to maintain busy, full time practices. In this scenario, their clients’ needs are
likely to take priority, to the detriment of the management of the firm. If we could see any change, it would be that
firms recognize that to be effective, the firm leader is best performed as a
full time role.” My own surveys have
shown that there is a significant reduction in the number of full-time firm
leaders since 2004, with many of the new incumbents looking to maintain a minor
practice (minimum of 500 to 1200 hours) that they can go back to when their
At the extreme other end of
the spectrum is an AmLaw Daily report, last week, on the defection of a couple
of practice group leaders at Dorsey & Whitney. In any law firm your practice groups
constitute the fundamental underpinnings of your organization. I have long joked with managing partners that
what you are managing is not one homogenous organization, but rather a
portfolio of very different businesses.
So, when any of your business unit leaders depart, especially if they
are going to a competitive firm, it is a pretty significant event.
about the losses, Dorsey managing partner downplayed their impact by saying,
“We have more than 60 practice groups here, so we give out a lot of titles.”
a bit of research I find that there are 248 partners at Dorsey, but not sure
how many of those are equity partners.
Looking to my latest 2014 issue of the Yellow Book I see entries of 40
practice groups - so maybe only two-thirds of all of their groups. But 26 of those groups (65%) have co-chairs
(and one with three co-chairs) therefore providing for a further listing of 67
practice group leaders. Projecting these
numbers out, one can assume that with “more than 60 practice groups” over 100
of the 248 partners at Dorsey are in practice leadership positions. But wait, that’s not all! Then there is the firm management committee,
an elected board, and we must not forget the 13 office managing partners. It looks like the majority of partners at
Dorsey are all in some kind of leadership position . . . which leaves us only to wonder
who there is left that is being led.
How important is leadership
in law firms? I’ll let you decide.
Post #692 – Friday, January 10, 2014
What Do You Know In Your Heart?
In a recent email exchange amongst a group of firm leaders,
GCs and other colleagues talking about the challenges ahead in 2014, my old friend Richard Susskind offered this observation:
This is what the leaders in top law firms know in their
• the volume of price insensitive work (where the fee is not
an issue) is reducing steadily;
• the price insensitive work that remains will be
• there are new players in the market, who are making
headway at the low end and are hungry to move up;
• the laundry bills in BigLaw are certainly going up because
the party will soon be over, but
. . . not that soon because law firm leaders can rely on most of their clients
not to push them too hard;
• given the still modest pace of change, the revolution need
not happen on their watch so, most GCs remain inexplicably supine; and
• most managing partners are trying to hold out until
retirement before all this stuff engulfs them.
What do you think?
Post #691 – Saturday, December
The Irony of Predicting
I’m always amused by the numerous
forecasts offered at this time of the year by various journalists, pundits and legal
consultants who feel compelled to weigh-in on what they think the coming year’s trends
will be and how they are likely to impact our profession.
For example, a story
appeared last week in The Triangle Business Journal entitled, “Experts Predict
Top 2014 Trends For Law Firms.” It
begins, “Alternative billing arrangements, R&D and lateral hiring will be
among the top law firm trends for 2014, according to the experts at legal
research firm LexisNexis.”
Now I’m not sure what you mean when you use
the word trend, but I tend to think of something that is just “beginning" to
show itself as a gradual change or development capable of producing some
particular result. If that accurately
captures the definition of trend, then someone needs to inform the experts at
LexisNexis that alternative billing arrangements became a trend with the
publishing of Beyond The Billable Hour: An anthology of alternative billing methods . .
. in (wait
for it) . . . 1989!
Anyway, as coincidences curiously happen, I was clearing out
some old papers and came across the outline to a presentation I delivered on
legal trends to a meeting of the ABA’s Law Practice Management Section. In this hour-long presentation I identified
eight major trends and then went into some detail on each, as to why they were
important and the implications for law firms.
The eight major trends I identified were:
1. Firms will
learn to stop promoting what it is that they have to sell and start giving
client what they’re looking to buy. (I was referring primarily to client’s wanting more
specialized industry knowledge)
2. By the end of the decade 33 to 50% of most
firms revenues will come from providing services that they do not currently
provide. (I was making the case that with the pace of change the
marketplace was experiencing combined with the challenge for firms to continue
growing, more firms would focus their efforts on identifying and dominating
lucrative micro-market niches)
3. Creating a
sustainable competitive advantage for the individual lawyer will depend upon
continually building skills. (My premise here was to have lawyers continually assess
whether they are learning any new skills that would make them more valuable to
their clients or simply spending their days in the office just doing the same
clients will care only about the total cost of a legal transaction – and not
about rates, hours, the geographic location of the service provider or
alternative billing procedures. (I had the audacity to suggest that the balance of power was
shifting to legal buyers)
5. The quiet revolt
against the costs of litigation will see business disputes largely adjudicated
through the use of advanced technology, the application of artificial
intelligence and mandated mediation.
6. In future
litigation clients will be more demanding of their lawyers that they share
proportionately in the downsides of a client’s results, just as they have
traditionally shared in the upside.
will become ever more intense – from in-house sources, from technology-based
self-help programs and from accounting and consulting firms offering substitute
8. Issues of
growth, individual lawyer motivation, profitability and practice development
will coincide with building strong practice groups and strong practice group
Now how many of those trends sound somewhat current?
You see, what caught my attention as I glanced through these
notes was the year . . . 1993!
Post #690 – Tuesday,
December 17, 2013
often asked about my consulting practice, what kinds of assignments I get
called in on, for what sized firms; what I’m currently researching and writing
about, and just generally how I spend my professional time. I looked back
over my various activities during this past year. With some of these
items (like clients served) activity is not a sufficient measure; results and
the client’s satisfaction are really what matters (and to that end, you can
find numerous client testimonials and commentary throughout this web
site). But for purposes of looking at where one’s time is invested, here
is what 2013 looked like:
/ FIRMS SERVED
Nature of Assignments:
developing / implementing strategic plans
governance and leadership issues
6% client relations and marketing projects
Firm Size Range:
firms of over 500 attorneys
firms of 300 to 500 attorneys
firms of 100 to 300 attorneys
6% corporate legal departments
Participated in 5 Workshops & MasterClasses
Chair & Presenter – Practice Management 2.0 Conference (September in
– Practice Group Leaders Workshop (January in San Francisco, June in New York &
November in Atlanta)
– First 100
Days Masterclass (August in Chicago)
Authored or Contributed to 26 Articles in Publications including:
Lawyer Magazine / AmLaw Daily
The Business Magazine for Lawyers (Canada)
360 – Legal Industry News
Angeles and San Francisco Daily Journal
Counsel – Legal Practice and Management Report
– Cooperative Legal Weblawg
Partner Magazine [UK]
Legal Intelligencer – Practice Column
For Success [UK}
Two new issues (Spring & Fall) of my International Review 24-page glossy magazine
were produced and distributed to 2000 firm leaders.
Contributed Articles and Materials to Four (4) New Books:
Chapter in Law Firm Strategies For The 21st Century (International Bar
Introduction for How To Engage Partners In The Firm’s Future - August Aquilla /
Robert Lees (Bay Street Group Publishing)
Chapter in Targeting Profitability: Strategies to Improve Law Firm Performance
Chapter in Practice Group Leadership for Lawyers (Ark Publishing)
Participated on Dr. Jim Hassett’s legal project management advisory board.
DOUBLED the size of my Linkedin site – Law Firm Leaders – to more than
250 members. Law Firm Leaders is the ONLY social networking site
exclusively for the chairs and managing partners of firms of over 100 lawyers
in size - with 62% representing leaders from firms of 100 to 300 lawyers; 16%
from firms of 300 to 500 lawyers and another 19% coming from firms of over 500
Received numerous “UNSOLICITED” LinkedIn Endorsements for my strategic planning
expertise from firm leaders and senior professionals from major firms
Hardy & Bacon
spite of the challenges we face in the world, I am extremely thankful for the
privilege of doing what I do. I might call this brief snapshot my Personal Annual Report.
To everyone: I want to say thank you for allowing me to serve and spend time with
you; for your confidence and your commitment.
To my valued clients: I look forward to being of service to you again
in the future.
To my colleagues and friends: thanks for being a gift in my life.
wish you and your families the Very Best for 2014.
Post #689 – Sunday, December 1, 2013
Join Our Compensation Think-Tank
On January 30th, I
will be joining old friends Mike Roster, co-chair of the ACC Value Challenge;
Professor Bill Henderson from Indiana University; Don Lents the Chairman of
Bryan Cave; writing collaborator Ed Reeser and numerous others in a
“Compensation Think-tank” – a forum for discussion and debate concerning ways
to adapt to the emerging procurement environment and design reward systems that
will attract and retain key lawyers while also incentivizing them to do more
with less and in ways that will accrue to the benefit of the larger
Does the average rank and file partner
understand that the years of ever-escalating compensation have come to an
end? How can firm management address the
pressure to deliver on unrealistic expectations? Of course many see the problem differently -
or don't see the problem at all. No
compensation system is perfect. But any
sound compensation system will remove impediments to good management and be
flexible enough to address the current and future strategic needs of the
How do we make sure that the culture of the
firm, perhaps the single most important component of a thriving organization,
is not only tolerant of change, but in fact complements and is reinforced by
For more information on attending a think-tank focused on aligning
compensation systems with current and future business realities and
the goals and objectives of your firm - go here Compensation [re]Design For Law Firms
Post #688 – Sunday, December
Watch Your Use of Jargon
corporate speak may make meetings seem amusing it can seriously undermine
effective communications. Reading an
excerpt from Flat Army: Creating a Connected and Engaged Organization by
Dan Pontefract over the weekend reminded me of how using jargon undermines a
person’s ability to lead.
out clichés and over-worn vernacular may give you the feeling as though you’re
effectively leading, but in reality it brands leaders as shallow and lacking
true leadership depth,” Mr. Pontefract said.
way of a few examples:
Certain terminology can spur unintended reactions. Continually harping about "getting your hours up" can send a message and drive behavior that you didn't mean to emphasize.
And, consider the numerous acronyms that some lawyers throw around. Those same
acronyms can undermine your communications effectiveness, especially when using
terms that your clients aren’t familiar with.
Meanwhile, from Glain Roberts-McCabe, founder and president of the Executive
Roundtable, the issue is less about jargon and more about juvenile word
choices, such as “my bad.” “Saying
‘oops, my bad’ when you’re in a leadership role makes you sound like an
adolescent and, depending on the severity of the situation, can make you look
like you’re blowing it off with a shrug.
Cutesy phrases don’t make you sound strategic.
Post #687 – Monday, November
Leadership Succession Done
In early 2007 I initiated a
survey and asked
firm leaders to reflect upon the various Managing Partners that they had met, observed and / or read about, from across the country,
and report back their answer to this question: “Aside from your own law firm,
please tell me the name of that law firm Managing Partner / Chair / CEO you most admire for their management
/ leadership competence?”
Far and away the most
admired law firm leader was Robert M. Dell, Chair and Managing Partner at
Latham & Watkins. The announcement
this past week that Bob would be retiring after 20 years as Latham’s firm
leader reflects a loss that will not be easy to fill. That said, the steps the firm is taking should
serve as a role model for any firm that takes management and leadership
Let’s take a look at just a
few of the steps that Latham’s is doing right:
• Dell gave the firm over 13
months advanced notice that he would be stepping down
• To oversee the
identification and election process, Latham has appointed a succession
committee that consists of a diverse group of partners from a variety of the
firm's offices and practice groups.
• Once the new managing
partner is elected, Dell will work with the individual for about 6 months to
help ensure a smooth transition.
• Following this
transition period Dell plans to leave the firm in order to “get out of the way" of
whoever succeeds him. "When a new
person is coming in, following a person who has been doing it for two decades,
I think that new person deserves a lot of space," he says. "So, my
view is it's best for me to retire and to let that person create his own
successes, or her own."
Now contrast this example
with the one reported at Reed Smith. On
October 5th, the firm announced that their Global Managing Partner of 13 years,
Gregory Jordan was leaving (immediately) to become executive VP and GC at PNC
Financial Services. As a replacement, Sandy
Thomas, the firm’s Litigation Department Chair, was anointed (with no
opportunity to deal with his personal practice or be properly oriented into a
job of this magnitude) to take over. According
to the media spin . . . Besides being an "exciting opportunity" for him to join
PNC's leadership team, Mr. Jordan said the time was right to hand over the top
job at the law firm to Mr. Thomas. Asked
how he feels transitioning from his role at the top of Reed Smith to be part of
a team of executives at PNC, Jordan said, "I feel great about
Now think about you
personal investment portfolio. Imagine
the corporation in which you hold the largest number of shares suddenly
announcing that their CEO was fleeing the post.
As an owner, stakeholder and investor - Would that he a “buy” signal for
you or a “sell” signal?
Post #686 – Tuesday,
November 12, 2013
Continuing Anemic Growth
The following is excerpted
from today’s Wells Fargo report (as contained in the AmLaw Daily and written by
Sara Randazzo) together with the commentary from a former AmLaw 100 managing
partner who is interpreting “the story behind this story.”
bank's report—based on a survey of 125 law firms, including 60 in The Am Law
100 and 45 in The Am Law Second Hundred—found gross revenue up 2.5 percent on
average for the first nine months of the year compared to the same period in
2012. At the same time, demand, measured by hours billed, was down 0.75
percent, the report found. The nation's top firms, which Wells Fargo defines as
those with profits per partner of at least $2 million, saw their gross revenue
increase 5 percent on average during the year's first nine months, group senior
director of banking Jeff Grossman says. Among all Am Law 100 firms surveyed,
the average increase was a more modest 2.7 percent. The Second Hundred firms
polled, meanwhile, eked out a 1 percent average uptick in gross revenue.
(That is a very elite
group of law firms. Removing their performance influence on the average
AmLaw 100 firm performance, it means that there will be many firms headed to a
year where revenue performance is down from 2012)
results, Grossman noted, cut against a recent buzzed-about study from
LexisNexis that showed work moving from the largest firms to those clients
consider "big enough." As The Am Law Daily previously reported, that study found
the nation's largest law firms—those with at least 750 attorneys—had seen their
share of outside counsel spending slip in the three-year period that ended June
30, 2013, with firms within the 201-500-lawyer range appearing to pick up much
of that work.
(Don't confuse these firms
with the elite...the largest firms by headcount tended to be among the lower
per partner income platforms in the AmLaw 100, and they did not have a large
plate of high value work).
the demand side, the difference from top to bottom varied slightly, with demand
down half a percent on average among Am Law 100 firms and 1 percent among the
(We should not lose sight
of the survivor bias to reporting in 2013 either. Remember that the Dewey
firm collapsed and at least $700 million of revenue relocated to other firms,
most of them in the AmLaw 100. That was not 'growth' for those firms that
took on the refugees with business to buy their new partnership positions.)
survey suggests that partners, both equity and non-equity, are struggling to
find a satisfactory amount of work. Hours
per lawyer were down 1.1 percent across the board through September, to 1,615
on average. That figure average dropped
into the mid-1,500 range for equity partners and to the high-1,400 to low-1,500
range for income partners.
(The issue here is partly
a demand challenge, but also a compensation adjustment task. Income
partners are very easy to price at a profit...a significant profit. Just
because their hours are in this range does not mean that the firm is not making
a robust profit from them. Likewise, the exploding spread in equity
partner compensation ranges reflects a compression on lower and middle tier equity
partners and a redirection of distributable income to senior levels. They
are converted for the most part to not being true 'partners'. The
compensation adjustment has been made in most firms. It isn't the
management problem that these bankers are saying it is. Most are being
less than they contribute already.)
under-productivity is largely centered in the partner level of all the law
firms," says Grossman, who notes that associates are logging many more
hours than partners.
(Yes, but they are not
being billed, or there are significant discounts when they are billed.
The realization rate on associate hours remains typically poor.)
continues to be one of the biggest challenges law firms are facing. ... Not
enough partners are being asked to leave."
(It isn't that easy.
Dump a partner with a modest book of $1.5 million....and it probably reduces
the distributable income for the firm.)
Grossman says, average hours would be in the 1,800-range based on historic
norms. Meanwhile, the survey shows,
firms have managed to somewhat offset the decline in demand by raising billing
rates yet again. Blended rates are up 4.1 percent, according to Wells, with
effective rates (those actually being paid by clients) up 3.6 percent.
(Part of the demand
problem is that clients stop complaining about rates, and move the work.
If rates are up net 3.6%...but demand is dropping, one is on very perilous
ground. To the extent that associate headcounts are reduced from
lower numbers hired and more attrition, relative to higher rate income and
equity partners, there will be an average rate increase from that dynamic
concern for firms, in Grossman's view, is that expenses and revenue are rising
at the same 2.5 percent rate.
(An expense growth rate of
only 2.5% is unexpectedly low)
he says, is in part a result of slight increases in head count—though not on
the legal secretary front, which continues
to see its share of layoffs. A minority of firms also told Wells
they expect to reduce head count in the future, with 15 percent saying they
expect to cut partners and just under 10 percent saying they plan to thin their
(The cutting of staff at
the levels being reported is a last resort and bespeaks a much lower
utilization. Normally a firm will stop hiring, and normal attrition from
retirements, moves away, and performance review cuts is satisfactory or close
to it. When partner groups leave, if they don't take their support
secretaries, they are now cut rather than redeployed. When partner groups
come, the number of support secretaries taken is severely restricted.
When all that together is still not enough, and group layoffs are
required....there is a lot less work, and that suggests there will be a round
of attorney cuts to follow.)
Wells survey also polled firms on how much debt they are carrying, and found a
6.5 percent drop in line of credit usage. Rather than turning to banks, it
appears, firms are keeping their coffers stocked by tapping
(This was predicted to be
the trend in 2013, pushing full recourse debt on capital borrowings at the
partner level, in exchange for cutting working lines at the firm level.)
survey found average capital levels among the firms surveyed up 4.5 percent, to
an average of $285,000 per equity partner (and $335,000 per equity partner in
The Am Law 100).
(Basically, firms on
average just tapped the partners for an extra $15k-20k. Expect it to keep
There is nothing in this
initial report on the WF perspective that is a surprise, or out of trajectory
with how the year has gone to date. Clearly, things picked up a bit for
some firms in the third quarter, and that is good news. But the big
question is . . . with so little positive change, what are firms going to do now to
readjust to the prospect of what the banks have been saying now for three
years . . . the good old days are not coming back, what are you going to do to
develop a sustainable profit generating enterprise that partners are happy to
be a part of? It isn't a trick question, and it is not an easy one to
Post #685 – Sunday,
November 3, 2013
Law Firm Strategies For The 21st Century
I am delighted to have been asked and contributed to a new
book, due to be released later this month, exploring the complexities of law firm strategy. Published in
association with the Law Firm Management Committee of the International Bar
Association (IBA), this practical title is the first in a Globe Law and Business series on the business of law dedicated to exploring strategic development in
Law firm partners have long resisted the
notion that they need a strategy. However,
markets change and the landscape has become increasingly competitive. Law firms that want to remain competitive need
to think about and engage in strategy development; those firms which have done
so are now undeniably in a better position than those which have not.
This book is organized around the market
and the resource side of law firm management, and offers new ways to think about
strategy and how to discuss it in the context of a partnership. Whether you are a managing partner of a
small, large or international law firm, this book offers points of views which
have never before been aggregated in a single volume. This volume addresses, in a most practical
manner, those questions that are of relevance to today’s law firm management
To download and read a sample chapter, have a look - here.
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