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Firm Leadership

Rants, Raves, Rebuttals, Reflections, Revelations & Ruminations


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Post #735 – Friday, May 15, 2015

Structure Your Practice Groups For Performance

I had an interesting and lengthy telephone discussion the other day with some folks from a 500-attorney firm spread over a dozen offices.  They related to me how they have now changed out all of their practice group leaders to newer and younger candidates.  And they were telling me about all of the internal training that they have been conducting - from developing internal tutorials (on staffing and financial reports) to bringing in some expert on cultural competence (what ever that means?) to Professor Heidi Gardner to speak to them on collaboration (see her latest article in the March HBR and my Blog Rant #733).  They then reported that some of these activities, unfortunately, seem to have generated less than glowing feedback.  

When I inquired as to why they thought that was the reaction, they reported that it would seem that these new practice group leaders wanted some pragmatic guidance on what the job of being a practice leader was really all about, some basic leadership skills, some help in determining how to balance their producer/manager roles, and some “substantive take-aways” (rather than just theoretical lectures).  Can you imagine?  

Of course I asked some fundamental questions – questions like whether these new practice leaders had been given written job descriptions and whether they had any clarity around how much specific non-billable time they would be expected to devote to their new leadership roles.  And the resounding answer was . . . “No!”  

So much for the fresh start, or for their experiment in getting PGL 2.0 on track within this particular firm.  

But the real tragedy?  After the call, when I happened to check my files I noticed that my notes indicated an almost identical discussion, with a different cast of characters from this same firm, in November 2003 as they attempted to get serious about “launching a more effective practice group structure.”  Now that is sad.

For my part, I’m becoming obsessive about trying to help firms get this right.  So, if you are interested in learning more about how to effectively address this issue in your firm, come and join me at our Ark hosted Webinar on June 4 – Law Firm Practice Management 2.0: Identifying and Implementing the Structural Neccessities for Effective Practice Management.



Rant #734 – Monday, May 11, 2015

Why Law Firms Need Non-Executive Directors

Until recently and certainly before the failure of Howrey and then Dewey & LeBoeuf, the bankruptcy of a large law firm had been regarded as nearly inconceivable.  In examining what went off track and in my article, Malignant Leadership, I reported that: too often, boards and/or executive committees facilitate firm failures by denying, overlooking, or ‘working around’ crucial issues.

In that same piece I cited a number of governance steps that firms might consider.  One of the notable differences between the top U.K. law firms and top U.S. firms is that almost one-in-four (24%) of the U.K. firms now employ one or more Non-Executive Directors (NED) on their boards.  Even more interesting, in a study released late last year, those law firms with at least one NED have seen revenues grow by one-third more than those without.  In yet another research study, this one commissioned by BDO and published in April: Nearly one-third (33%) of the global firms had at least one NED on their board.

Law firm NEDs have often been drawn from a pool of retired law firm leaders, accountants and management consultants.  None of the U.S. firms surveyed had any independent advisers involved in their firms’ governance.  U.S. lawyers continue to be skeptical about the value an outside expert might bring.  Yet, the use of non-executive directors has grown significantly. Lovells was known to have appointed the first non-executive director back in the early 1990s and attested to the benefits of taking such a move.  In raising this topic with Fred Lautz, Managing Partner at 480-lawyer Quarles & Brady, he offered this observation:

We have assembled a few partners who we call investment partners. They are attorneys who were partners in the firm at one time, and then went on to become business executives. After retiring or otherwise completing their executive roles, some of them have been willing to commit some portion of their time, under contract, to assist us in business development. We ask them to leverage their significant business contacts and community and business profiles to help position us to be in front of developing legal needs which fit our strategic imperatives. I frequently confer with a number of these investment partners on matters of firm business, service delivery, client relationships and Firm growth. I find their experiences in the business side of things (and in some cases as purchasers of outside legal services), coupled with their knowledge not only of the business and operations of a professional partnership generally, but of ours in particular, provide terrific perspective and insight for me as I lead our Firm. So, while we have not formalized any advisory board of outside business folks, I can certainly affirm the value of tapping into people with this type of experience.

I believe an NED can provide any law firm with a number of benefits, such as:
    providing a dispassionate external view of the firm together with business experience and new concepts;
    making a contribution to the firm’s strategy and market performance;
    acting as a vital sounding board and an outside voice to challenge current thinking and practices;
    strengthening the firm’s management and providing an objective view;
    delivering a fresh perspective and opening up opportunities for how the firm might access new revenue streams; and
    objectively assessing the firm’s performance and making recommendations for improvement.

Key areas that NEDs might be consulted on include governance, complex partnership matters, areas of risk management, changing partner performance evaluation, financing policies, along with many of the marketing and strategic challenges that today’s firms are facing.  The ‘right’ NED can also be engaged in the role of leadership coach, helping the Managing Partner who may be an excellent attorney, but with limited leadership and management experience.

It is important that NED’s are focused on matters at the Executive Committee or Board level and should not be involved in the day-to-day operations of the firm.  An outside NED should have a more objective view of external factors affecting the business than the partners and should not be afraid to comment and contribute accordingly in the longer-term interests of the firm.

Lawyers recognize that it is good practice for their clients to involve external non-executive directors on their boards, yet law firms seldom adopt this practice themselves. It is often claimed that only partners really understand the business or enjoy the necessary respect, and that elected partners don’t have the necessary oversight function.  Yet non-executive directors are perfectly capable, in the corporate world, of commanding respect and of calling management to account on behalf of the shareholders.  They can also use their outside experience to advise, and to challenge the sacred cows which tend to develop in any inwardly-focused organization.  Thus they can help the board to see things from a different perspective, and to spot unforeseen risks and opportunities.

Perhaps it is time for law firms to adopt a similar strategy to what most of our corporate clients have been doing for decades.  Indeed, many partners believe that their own firms need to apply a few more of the proven rules of good governance that they themselves recommend to their clients.



Rant #733 - Saturday, May 2, 2015

Barriers To Collaboration

An interesting article on collaboration in professional service firms, written by Professor Heidi Gardner, appeared in both the March 2015 issue of the Harvard Business Review and also in American Lawyer magazine.  My candid response to Professor Garner’s article was published, in part, on page 19 in the May issue of HBR but unfortunately, did not elicit any response from her.  Here are the entire comments I shared with Professor Gardner:
 

RE: Why It Pays To Collaborate With Your Colleagues (March 2015 Issue)

The subject of collaboration within professional services firms is a critically important topic and I believe worthy of a couple of supplementary points.

Firstly, while the number of practice groups serving a client should definitely increase a firm’s revenues as Gardner’s research suggests, simply adding more revenue does not necessarily translate into increased profitability.  And professional service firms have been notorious for chasing revenues without really giving sufficient attention to whether those revenues, practices or clients are profitable.  And unfortunately today, there is also a strong correlation between the number of practice groups that a client uses translating into the increasing power of that client and even stronger demands for fee discounts.

Secondly, Gardner accurately observes that one of the things that gets in the way of collaboration is compensation systems that favor individual contribution rather than team work.  What she does not acknowledge is that the partner’s compensation spread in many large law firms is now anywhere between 10 to 1 and 20 to 1.  That means that if you hear about how some major law firm is enjoying profits per partner averaging $1 million, you may rest assured that half of those equity shareholders are taking home about $500,000 or less, while some of their fellow partners are being paid $8 to10 million.  Now in the typical professional environment where any form of recognition, other than money, is hard to come by (and so the common mindset becomes “pay me a dollar more than that turkey and I’m a happy camper; a dollar less and I’m underappreciated”), I would welcome hearing how you solve this collaboration hurdle.

Gardner’s suggestion that “leaders need to resist the temptation to bring in high performing but selfish partners” is technically correct but not grounded in firm behaviors. These professional service firms go out into the talent marketplace looking for some professional who has a big book of business.  And they tell that professional that if he or she comes with their firm they will have a bigger platform to practice in, significantly more opportunities, and they will do so much better . . . and of course we will pay you commensurate with the number of clients and revenue that you bring across to our firm. Then when you get over to our firm, we immediately want you to share your book of business and your clients (all the things that initially attracted attention and made you a valuable candidate) with the rest of your new partners.  Yeah, right!

The other related factor that is not acknowledged is the difference between an ‘open’ (every partner knows what every other partner makes) compensation systems and a ‘closed’ (only a handful know) compensation systems and how each of those can either enhance or impede collaboration.  For example, about 90 of the top 100 largest accounting firms have transitioned over the past to a closed system while 90% of the large law firms still favor the open system.

Thirdly, I had really expected Gardner to proffer some client-centric approach as one of her prescriptions for enhancing collaboration.  To be specific, many professional service firms, and most every law firm, structure themselves based on the particular disciplines they were trained in (Consulting – marketing; Accounting – auditing; Law – litigation). So as Gardner correctly observes, when you structure your firm in a vertical manner, it becomes rather challenging to have professionals collaborate across independent silos. That said, every industry study that we’ve seen over the past two decades clearly informs us that clients choose their professional provider based on an entirely different criteria. The number one selection criteria is based on “demonstrated understanding of my industry.”  Read that to mean that those practice groups comprised of multi-disciplinary professionals, all serving a common industry (BioTechnology Group) do not suffer the same collaboration problems or the persistent pleadings from firm management to “please try to cross-sell your fellow partner.”  So one example in the article is a firm that “creates a cross-selling SWAT team.”  In my 32 years of consulting to large and international professional service firms I’ve heard that attempted many times, but have yet to see it work.

Finally, here is yet another wrinkle:  A new study just released by Stanford Graduate School of Business professor Jeffrey Pfeffer revealed that although reciprocity (paying back a courtesy) is still an established norm in private lives, its importance at work has significantly diminished.  This lack of reciprocity is observed among colleagues.  Reciprocity at work is a calculated and benefit-seeking task.  Thus colleagues tend to pay back favors ONLY if they can benefit from that individual in the near future.

“If you do a favor for me, as one human being to another, I feel a normative obligation to repay the favor, even if you aren’t going to be very useful to me in the future,” Pfeffer said, as reported by Insights by Stanford Business.  “But we found almost the exact opposite in an organizational context.  There, it’s all about calculations.  If we don’t feel repaying the favor will benefit us much in the future, we won’t do it.”

Consequently, this mindset sadly reduces the possibilities of collaborate undertakings between certain partners in any professional service firm.



Post #732 – Saturday, May 2, 2015

Signs The U.S. Economy Has Stalled

I received this from an economist friend that points to no less than ten intriguing signs that aren’t noticeable if you read the mainstream media:

• We just learned that U.S. GDP grew at an anemic 0.2 percent annual rate during the first quarter of 2015

• If you strip a very unusual inventory buildup out of the GDP number, U.S. GDP would have actually fallen at a -2.5 percent annual rate during the first quarter

• Our trade deficit with the rest of the planet is absolutely killing our economic growth.  U.S. economic growth would have been a total of 8 percent higher since the end of the last recession if we actually had balanced trade with other nations.

• According to numbers that were just released by the Bureau of Labor Statistics, in one out of every five American families nobody has a job.  So how in the world can the “unemployment rate” be sitting at “5.5%” when everyone is unemployed in 20% of all families in the United States?

• The rate of homeownership in the United States has just hit a brand new 25 year low.  How can anyone claim that the middle class is “healthy” when the percentage of Americans that own a home is the lowest that it has been in more than two decades?

• In 2013, 31 percent of all Americans said that they did not anticipate buying a home “for the foreseeable future”.  Now, that number has risen to 41 percent.

• The student loan bubble is clearly bursting.  According to Bloomberg, only 37 percent of all student loan borrowers are actually up to date on their payments and reducing their balances

• Procter & Gamble has announced that it will be cutting up to 6,000 more jobs from their payroll; while McDonald’s plans to permanently shut down 700 “poorly performing” restaurants over the course of 2015.  Why would they be doing this if the economy is “getting better”?

• It is being projected that half of all fracking companies in the United States will be either “dead or sold” by the end of 2015.

• Retail sales, wholesale sales, factory orders and credit requests all have declined at a rate not seen since the last recession.

One might conclude that the past few years have been a period of relative stability for the U.S. economy.  A lot of people have been lulled into a false sense of security during that time.  These people have become convinced that the problems have been fixed.  But these signs would suggest that they haven’t been fixed at all.  In fact, these problems are far worse than they were just prior to the last financial crisis.



Post #731 – April 9, 2015

The Spring 2015 Issue of International Review is Now Available

International Review is my 24-page glossy, printed magazine distributed to over 1600 law firm chairs and managing partners throughout North America.

What happens as a firm leader when something goes sideways, espcially when it is the result of something you did . . . or even did not do, that perhaps you should have.  Recovering From A Leadership Misstep is another collaboration between me and my good friend and colleague, Ed Reeser proposing some remedial courses of action for when the worst that could happen, happens

In The Leadership Succession Process, I set out the three fundamentally different approaches to leadership succession, together with their respective advantages and disadvantages.  This article is an excerpt from the Introduction to my newest work, The Changing of The Guard: Selecting Your Next Firm Leader.  You will find more information on this NEW instructive guidebook on pages 12 and 13.

Stimulating Innovation In Your Firm had it’s origins in a Webinar that I was privileged to participate in with Andrew Smulian, Chairman at Akerman LLP; Ken Grady, CEO of SeyfarthLean; and John Paris from Williams Mullen’s Innovation Committee - while Inquiring Leaders Want To Know offers you ten questions to jump-start your strategic thinking.  Hopefully both of these offer some pragmatic advice to those interested in either subject.

Finally, When Job Descriptions Don’t Do The Job is an article that I hope will provoke you into taking action on job descriptions for your practice leaders.

As always, I sincerely hope that you find some practical ideas, tips and techniques here that you can put to use immediately.  Please send me your observations, critiques, comments and suggestions with respect to any of these articles. 

 Click on the Cover to download your complimentary PDF copy of the magazine.



Post #730 – March 25, 2015

My Newest Book Is Available For Pre-Order

Every firm eventually finds itself in need of a new leader.  The executive committee or board must seek to replace the current incumbent as that individual comes to the end of their term of office, announces a return to their practice, or perhaps is contemplating retirement.   Every year we also see firm leaders step down because of a loss of partner confidence, an unexpected disability, a tempting career offer from a prestigious corporate client, or even, on occasion, being laterally recruited by a competing firm.  While each firm’s situation is unique, the necessity for determining a succession process that will work is critical.

The Changing of the Guard: Selecting Your Next Firm Leader is a strategic guide to effectively managing the leadership succession process.  Supported by practical action points, real world examples, and expert insights, this text is broken down into 5 distinct parts:

Part One: Making ready
+ Choosing a nominating committee
+ Developing your timeline
+ Identifying the challenges your next leader will face

Part Two: Identifying criteria 
+ Develop/refine the job description
+ Identify your selection criteria
+ Identifying specific performance requirements
+ Develop a formal written application form and process

Part Three: Calling for nominations
+ Invite your partners to nominate candidates
+ Host candidate town hall meet and greets
+ Invite confidential input
+ Design and structure a formal interview process for candidates
+ Analyzing a candidate’s strengths

Part Four: Making the decision
+ Reporting on results of interviews and confidential commentary
+ After selecting your new firm leader

Part Five: Managing the role of the outgoing leader
+ Creating a transition/integration plan

The Changing of the Guard also features a series of exclusive interviews with law firm leaders on their succession planning experiences, these include:
• Stephen J. Immelt, chief executive officer at Hogan Lovells
• Vincent A. Cino, chairman at Jackson Lewis
• Carter G. Phillips, executive committee chair at Sidley Austin
• Timothy E. Powers, managing partner at Haynes and Boone
• Kim Koopersmith, chairman and managing partner at Akin Gump Strauss Hauer & Feld

Regardless of your current approach to, or role in the succession planning process, The Changing of the Guard is critical reading.  The Changing of the Guard: Selecting Your Next Firm Leader will be available in mid-April.  Pre-order your copy before 5pm April 8th and save $100 making your copy $295 (normally $395)

How To Order:  To pre-order your copy at the discounted rate of $295 simply email Daniel Smallwood at Ark Publishing: dsmallwood@ark-group.com quoting the ordering code DS-E1 (Orders must be received by 5pm April 8th)



Post #729 – Wednesday, March 18, 2015

Hedge Funds Are Betting Big on Lawsuits

According to an article today on Bloomberg Business the lawsuit finance market is continuing to grow in spite of the US Chamber of Commerce warnings of wasteful litigation and corruption.

Hedge funds and others speculating on litigation are making more and larger bets.  Some corporate lobbyists warn that the new financial engineering encourages wasteful courtroom warfare, but investor demand for fat returns—and big law firms' appetite for business—guarantee the spread of litigation finance.

Burford Capital, the largest player in the litigation-finance business, reported that their revenue rose 35 percent, to $82 million.  Burford has built a $500 million arsenal, and thus far made 32 investments that have generated $209 million in gross recoveries. Burford mainly finances litigation initiated by major corporations and handled by big corporate law firms. Among the well-known law firms that have been involved in Burford-financed cases are Simpson Thacher & Bartlett, King & Spalding, and Latham & Watkins.  Burford’s CEO is a former Executive VP and GC of Time Warner.

Meanwhile, Australian-based Bentham IMF reported funding 10 deals in 2014, including "contract disputes, a patent-infringement trial, partnership disputes, and five law firm case portfolios."  Bentham says that for the year it had gross returns of $31 million in the U.S.

The U.S. Chamber of Commerce’s Lisa Rickard (president of the chamber's Institute for Legal Reform) condemns all of these developments, alleging that they lead to "more lawsuits, more litigation uncertainty, higher settlement payoffs to satisfy cash-hungry funders, and in some instances, even corruption."  Others unabashedly advertise their commitment to financing suits by the "little guys" against large corporate interests.  

This looks to be an area that is going to continue to experience increasing hedge fund investment attention.



Post #728 – Sunday, March 8, 2015

The Case For Psychometric Testing of Leadership Candidates

I’ve been a touch absent from this blog over the past two months as I’ve been scrambling, between client obligations, to complete the manuscript for my newest book, tentatively titled: The Changing of The Guard: Selecting Your Next Firm Leader and expected to be published sometime in April.  The chapters include specific guidance on everything from choosing a Nominating Committee and identifying your selection criteria; to designing and structuring a formal interview process and analyzing a candidate’s strengths.  And I suspect that it will be this last item analyzing strengths that will be the most controversial as I reserve no hesitancy in strongly recommending the use of psychometric testing.  Here’s a short excerpt from my manuscript:

So should your one consensus leadership candidate or all of them undergo psychometric testing?  

The vetting process in some firms has become more intense and my investigations have determined that more firms are beginning to believe that it is useful.  For example, in the recent selection of one new Firm Chair for an AmLaw 100 firm, five finalists were shortlisted from an original 11.  They were then all then subjected to six hours of psychometric testing, including a battery of online questions and an interview with a consultant.  

Meanwhile, Mark Rigotti, Chief Executive Officer at Herbert Smith Freehills reported to me: 

We have used testing as part of the selection of the most senior leaders, via an external provider.  This included two psychometric tests and in depth interviews intended to identify capabilities, preferences and potential for the role ahead.  As some one who went through these I found them very helpful in thinking about first how I would go about my role and secondly about the people needed on the Executive team to have a diverse balanced set of skills.  We also use some tests to assist with leadership development, rather than selection of leaders.  The experience with theses has been reasonably good with a number of people finding them helpful in working out what to leverage and what to work to improve their individual effectiveness.  Of course all these tests and tools don't make decisions or guarantee perfect leaders - they can enable improvement.

And from Fredrick Lautz the Managing Partner at 450-lawyer Quarles & Brady, I was told: 

During my term as managing partner, we have had two instances of which I am aware where we used psychometric testing.  Several years back we put a cohort of younger partners who we thought had leadership potential (roughly 30 attorneys) through a multi-day leadership training program with coaching follow-up.  And then two years ago, in the course of considering more regular leadership training for our current and pipeline leaders, we engaged a psychologist to conduct psychometric testing on a pilot group of current firm leaders, including attorney leaders and staff leaders.  In evaluating the attributes and qualities of our pipeline leaders and looking at the current stages of their careers (most of them have fairly long careers ahead of them and are not in a position to give up their current practices to run the firm), we decided we needed to reshape our leadership structure to design roles with responsibilities, expectations and levels of commitment which better fit those who we would expect to succeed to the leadership roles. 

Finally, from William Henderson, Professor of Law at Indiana University I received an incredulous query – 

WHY is a law firm wating until election to leadership to use psychometric assessment?

I have a lot of experience using these types of tools, both as an educator and doing projects for law firms.  Their primary value is in lawyer / leadership development.  Firms ought to be developing their leadership (and their lawyers generally) through psychometric tools that map onto an overall talent model.  That said, when it comes time to make a selection decision, there is nothing better than past performance data based on clearly delineated standards. Apply those standards to past performance data and the promotion decision becomes both obvious and accurate. Cravath understood this in the 1920s.  McKinsey then copied the model in the 1930s from first-tier law firms.  The short-term focus on revenue generation has obscured this logic.  Yet the logic pays enormous long-term dividends.

I firmly believe that if the role of your Nominating Committee and Board is to assist these candidates in building their self-awareness to be the best firm leader they can be, it is a very valuable exercise.  Your next firm leader’s self-awareness builds from honest self-appraisal about emotional strengths and vulnerabilities; values and attitudes, personality traits and unresolved conflicts.  You best candidate is a total person, not just a set of skills performing a role.



Post #727 – Monday, February 2, 2015

Three Little Questions To Stimulate Innovation In Your Firm

In a recent Webinar I participated in, I was asked, “From your experience, what one key thing is central to stimulating innovation in professional service firms?”

If I had to choose only one thing, and at first blush it may seem simplistic, it would have to be shaping your firm’s culture to embrace innovation.  And obviously, it has to start at the top – with the firm’s leadership.

The way I think about culture is that it’s all wrapped up in our habits (meaning, what behaviors are we prepared to tolerate) and our language (specifically, how do we use language to shape our collective thinking).

For example, in an earlier life, I was a Vice-President and Director of a Canadian-based, public company in the telecommunications industry.  I had the good fortune of working with a rather progressive, very successful CEO who held some very strong beliefs.  One of those beliefs, that he preached to all of his senior team, repeatedly, was that upon first being presented with any idea or proposed course of action – he would say,  “You have ‘no intellectual integrity’ voicing a personal opinion that suggests that you know whether it will work or not – because the reality is that you do NOT know for certain – and even if that same idea has been tried before – say, only last year – in this firm or some other firm and failed.  That still is not determinative of whether the idea will fail here and now”

He taught us that you only display intellectual integrity by asking and answering three sequential questions:

#1        NOT: Will this work?  BUT: How do we make this work? 
(which you will notice provokes a whole different mindset).  He believed you start with a focus on “possibility” not “profitability”

#2        What’s the worst that could happen?  (let’s be realistic, where might the crap hit the fan); and finally,

#3        Where is my backdoor if the worst that could happen, happens?

Unfortunately, winning the debate, arguing well, finding the slightest little flaw in the ideas of others is often the behavior that seems to be held in great esteem within our firms.   And allowing that behavior rarely builds trust or inspires innovation.   So to shape a culture that embraces innovation, I believe starts with the firm leader making it socially unacceptable to EVER offer an immediate opinion on whether any new idea will work.

In fact, in a number of the practice groups that I have worked with, they have, with my encouragement, adopted a group protocol (a rule for self-governing their collective behavior) that states: “in our group, we will LOVE every new idea . . . for five minutes!”

___________________________________________________________

Remember to Join Andrew Smulian (Chairman and CEO of Akerman LLP), Ken Grady (CEO of SeyfarthLean Consulting), John Paris (Chair of Williams Mullen Innovation Committee) and me for a one-hour Webinar on Stimulating Innovation in Law Firms  – this Thursday February 5th hosted by Ark.



Post #726 – Saturday, January 17, 2015

Join Our Compensation Think-Tank

On February 11th, I will be joining old friends Mike Roster, co-chair of the ACC Value Challenge; Professor Bill Henderson from Indiana University; writing collaborator Ed Reeser and numerous others in San Francisco at our “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 partnership.

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 firm. 

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 it?

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  -  Compensation [Re]Design For Law Firms.


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