Adventure of Strategy

The blog Energy & Capital has a post by Sam Hopkins today titled: Where Half of the World's Wealthy Invest. He makes an interesting point. Energy, he says, isn't a chart ... it's a culture. Hopkins illustrates by pointing out that Amsterdam's roads (previously clogged with motor cars) are now full of bicycles, while Beijing's roads, previously full of bicycles, are now clogged with cars.

The point of his post, though, is to discuss Merrill Lynch and Capgemini's World Wealth Report 2007, released in June, which shows amongst other things where the world's high net worth individuals (those with value > $1 million excluding their homes) invested last year. Clean and renewable energy investments feature high on the list.

Hard on the heels of the Managing Partners' Forum strategy survey results (see slides here) indicating that UK law firms have a more sophisticated approach to strategy than North American firms, comes the news that 18 out of 19 firms in a Legal Week survey achieved double digit revenue growth this past year, with several exceeding 20%.

Nobody would dispute that sound strategy and growth in headline earnings go hand in hand. Here is empirical evidence that (some of) the top UK firms are getting it "very right."

Here are the Top 10, by H1 growth achieved:

The Managing Partners Forum have launched a new, free service called MPF Pulse, which allows MPF members to canvass each other on management issues. The responses that are received to a question being posed are then posted on their web site.

A recent query that was posted read:

"We are a multi location multi discipline firm and have traditionally run the business by business unit (location) with a strong bond at the top between the business unit managing partners. Each location is a well bonded team having worked together for a long time but they do vary in size considerably the largest being 200+ people and the smallest 30. Each unit is supported by central services covering HR, Finance, IT and Marketing.

I am starting the process of exploring whether the business should be restructured by discipline and would appreciate any feedback from those that have been through the process and the lessons learnt. What I am uncertain about is the potential damage that could result from changing the way the business unit is run and the impact on the authority of the business unit managing partner and whether this is offset by a more focused approach to running the business by discipline. Are there pitfalls, if so what are they and how do I avoid them. Who has authority over the staff location or discipline? If this is a topic that a number of us have an interest in, I would be more than happy to host a dinner to discuss. Any and all assistance would be much appreciated.”

Five responses were received. To read them, click here.

I suppose that it had to happen sooner or later, what with the increasing convergence of diverse data sources. If I understand things correctly, this company, netfactor, offers to install software on your system that will track the IP addresses of computers that visit your web site, cross reference those IP addresses with databases recording computer ownership to determine who owns the computers and then cross reference that data further to provide addresses, telephone numbers, etc. You then get a spreadsheet detailing everybody who has visited your web site, without their having identified themselves (consciously at least.)

If this is real, then a whole new generation of spam may be about to emerge, with an approach that starts: "We notice that you visited our web site yesterday ..."

Could be great for marketing and competitive intelligence, though, if it is not abused.

Hat-tip to MBA Depot.

The Managing Partners Forum is a resource for leaders / chief executives of professional service firms that is headquartered in London but which spans the Atlantic with a growing presence in the USA. It has just published a report titled The MPF Global 500 Annual Report 2007, which lists the 500 largest professional services firms in the world. It makes fascinating reading.

I played a bit with the figures in the report to see how the 'spend' amongst the top 100 firms was split up by profession. The result is the pie chart above. (Click on the image to see a larger version.) Professional services worldwide is a trillion dollar segment of the global economy. The 100th largest firm has a turnover of about a billion dollars. The largest (PricewaterhouseCoopers) has a turnover of nearly $22 billion. The world's largest law firm, Clifford Chance, is number 45 with $2.3 billion turnover and law firms makes up less than 5% of the total professional service spend by clients with the 100 largest firms.

Says Nigel Knowles, Joint CEO of DLA Piper (no. 57 on the list) and MPF chairperson:

"Our initial estimate was that the total annual fees [of the Global 500 firms] would total US$200bn; the reality is well over $500bn. If insiders can get it that wrong, it must mean that the industry is a complete  mystery to most."

The Managing Partners Forum intends publishing this report annually. Over time, it will no doubt make a very valuable contribution to understanding trends and patterns in professional services worldwide.

To obtain a electronic copy of the report, click here, or for a hard copy contact the MPF through their web page. If you are a professional service firm CEO / managing partner / leader, you may do well to consider joining the organization, too.

At Edge International, we don't disclose who our clients are (except with their specific prior permission,) let alone blog about them. But here's something that shouldn't go unmentioned (and yes, I do have specific prior permission to disclose....)

One of my South African law firm clients, Webber Wentzel Bowens, has just "cleaned up" both top Corporate Finance Legal Advisor awards (and second in the fourth places in M&A) at the annual Dealmakers Awards in South Africa. They were the only law firm to be placed in the top four in all four categories. Specifically, they won:

-  General Corporate Finance - 1st place : legal advisors (transaction flow).
-  General Corporate Finance - 1st place : legal advisors (transaction value).
-  Mergers & Acquisitions - 2nd place : legal advisors (deal value).
-  Mergers & Acquisitions - 4th place : legal advisors (deal flow)

Superbly well done, to David Lancaster and his colleagues!

Holland & Hart has joined the small but growing ranks of law firms with a dedicated practice group focused on legal issues surrounding climate change / global warming. This according to an article in the Denver Business Journal. I haven't time to search anything like a comprehensive list of other law firms that have established climate change practice groups, but to date they include Pillsbury Winthrop Shaw Pittman, Morrison & Foerster, Davis Wright Tremaine. If your firm also has a climate change practice group, or you know of any others, please post the details in comments below so that readers of this blog can take note.

The Department of Geosciences at the University of Arizona has a truly excellent interactive set of maps, one of the whole world and one of North America, that illustrate the levels of inundation that will occur with different degrees of sea level increase. It is truly terrifying! Even with just a three foot (one meter) increase, for instance, much of Florida disappears. (See below.) Countries like Bangladesh and the Maldives would cease to exist.

If you are watching this blogging thing with interest and wonder whether there isn't some use that you could make of it, but don't want to become a full-blown "blogger," then Dennis Kennedy's post Lawyer Blogging Basics - How to Use Blogging Software Without Becoming a "Blogger" will prove a useful read.

Does your firm perhaps use a computer system to collect descriptive data about people that allows those people to indicate other people with whom they have a personal relationship?

Perhaps you even use that descriptive and relationship data to reveal the series of social relationships connecting any two individuals within a social network?

Bizarre though it may seem, you may be breaking the law! Unbelievable? Well, hold onto your hat .... (?!?!)

Dennis Howlett has a piece on his blog AccMan Pro (which is aimed primarily at professional accountants) called How Number Crunchers put a Value on a Name. Like my posts of a while back How Much is a Law Firm Really Worth and External Ownership of Law Firms, he seriously questions the legitimacy of discounted cashflow (DCF) models for determining a value for a professional service practice. Important reading for British law firms that may be thinking of finding somebody to sell themselves to, once the legislation allowing this is enabled later in the year.

Dennis also comments on the IFRS implications of value measures.

Interesting .....

The issue of overworked and overstressed associates in law firms seems to be gathering momentum. Bruce MacEwen over at Adam Smith Esq has just blogged about it, quoting David Childs and Tony Angel, managing partners of Clifford Chance and Linklaters respectively. Certainly, there is no shortage of material on this. I blogged about it recently myself, here, following a winging email from an associate at a Magic Circle firm that was leaving because he couldn't take it any more. "Shocking place," he said, "I'm off!"

That's all well and good, I suppose, but juxtapose that with my friend and colleague Ed Wesemann's recent tale of the associate that kept an inflatable camp bed in his office because he found his work so cool that he was afraid that he'd miss something if he went home. Clearly there are many lawyers that thrive on a constant diet of intellectual adrenalin and pressure. The trouble is: there are not enough of them to populate the firms that need their lawyers to thrive on a constant diet of intellectual adrenalin and pressure....

The "rush" for sub-Saharan Africa's legal services market is being dominated by two international firms. South African firms are juggling a frenetic local market with the need to serve their clients who are expanding northwards into Africa, and several other internationals are also casting an increasingly interested eye over the previously "dark continent."

Ever heard of Dave Ulrich? A professor of business administration at University of Michigan, he has just been rated the most influential HR (Human Resources) practitioner in the world. Read the article in the British HR magazine here. The list was produced from names submitted by readers - and then ranked by the top 100 themselves. The Top 25 are listed below. Thanks to Tom Peters (listed at number 22) whose blog provided the link to the article. I see Chris Bones, the principal of my alma mater, Henley Management College in England, is also listed (at number 15.) Several other instantly recognizable names, too.

01. DAVE ULRICH - professor of business administration, University of Michigan
02. NEIL RODEN - group director HR, Royal Bank of Scotland
03. CHARLES HANDY - writer, broadcaster and lecturer
04. WILL HUTTON - chief executive, The Work Foundation
05. CLARE CHAPMAN - Group HR Director, Tesco
06. JIM COLLINS - Business researcher, teacher and author of 'Built to Last' and 'Good to Great'
07. LYNDA GRATTON - associate professor of management practice, London Business School
08. HENRY MINTZBERG - Professor of Management Studies, McGill University, Montreal
09. VANCE KEARNEY - Vice-President HR, Oracle EMEA
10. PETER SENGE - Senior Lecturer, MIT Sloan School of Management
11. SIR DIGBY JONES - director general, Confederation of British Industry
12. CARY COOPER - professor of organisational psychology and health, Lancaster University Management School
13. ALEX WILSON - group HR director, BT
14. RUTH SPELLMAN - CEO, Investors in People
15. CHRIS BONES - principal, Henley Management College
16. ROSABETH MOSS KANTER - professor of business administration, Harvard Business School
17. STEPHEN COVEY - '7 Habits' author
18. CHRIS ARGYRIS - author and organisational learning guru
19. JOHN KOTTER - author and leadership guru
20. FONS TROMPENAARS - culture guru
21. BOB STACK - chief HR officer, Cadbury Schweppes
22. TOM PETERS - author and management guru
23. DANIEL GOLEMAN - author and emotional intelligence guru
24. STEPHEN DANDO - group HR director, Reuters
25. ANDREW FOSTER - former director of workforce, NHS

Dan Hull over at What About Clients? has created a database of non-US blawgs (scroll down the left hand frame.) Why? To quote Hull:

First, many jurisdictions around the world - especially in Europe and Latin America - have legal systems remarkably similar to America's for historical and cultural reasons. Some don't. But as many more of us and our clients dive into the new international mix, it's good to know something about these jurisdictions legally and especially culturally.

Second, American lawyers with corporate and high-end practices in solo shops, boutiques and firms under, say, 300 lawyers should be especially interested in "meeting" lawyers and businesses headquartered outside of the U.S. There are opportunities to do U.S. work domestically on behalf of these entities. You don't need offices in London, Brussels or Beijing to obtain or do that work.

Finally, this could be great fun.

Today's (31 May 06) The Lawyer.com published in London contains an article titled A Leap Into The Unknown commenting on the upcoming changes to the legal landscape in England and Wales. The new bill was unveiled on 24 May and is currently undergoing "detailed scrutiny by a joint committee of the Houses of Parliament, comprising six Law Lords and six MPs. The committee is to be chaired by Lord Hunt of Wirral, the Conservative peer and former senior partner of Beachcroft, and includes Serle Court head Lord Neill of Bladen QC as well as a number of other former barristers and solicitors."

This is a topic that any law firm with interests in England and Wales needs to be sure that they are well and truly 'up to speed' on.

A few days ago, I blogged about Ernst & Young's retracted report on non-performing loans in China. One of the mysteries of the episode was that copies of the report also apparently vanished into thin air, so there has been a great deal of speculation flying around (as is usual in the absence of facts) and little on which to base sound strategic decisions.

China Law Blog has just managed to secure a copy of the actual report, which they have posted here. I have not read it yet, but figured it was more important to provide a link to it without delay so that those with a real interest could study it and draw their own conclusions.

Is this a simple matter of double-counting $250 billion? Or Not? Read the report and decide for yourself.

So Ernst & Young has retracted a report that it released showing that bad loans in China's big four state-owned banks had reached a massive $358bn. (See a brief article from the Financial Times and a blog posting from China Law Blog.)

Ouch!

Beijing will be pleased, especially as Bank of China is hoping to raise $10bn from international investors next month. The trouble is: E&Y's original view was very much in line with several other independent parties, including PWC. What happened?

Thoughtful observers of large law firm mergers will be interested in Leigh Jones' article in Law.com's Large Law Firm about the Pillsbury Winthrop Shaw Pittman merger, one year in.

"One year after the merger, the firm is about 100 lawyers smaller, with an East Coast office shuttered and some strong players gone. Pillsbury's leader for the last eight years will step down at the end of this year, and profits per partner slumped in 2005, even though Pillsbury slashed its number of equity partners before the merger." (Although "slumped" is perhaps too strong a word for revenues down only $5000 per lawyer and profits per partner down from $780,000 to $760,000. Neither is overly surprising given the merger costs and disruption incurred in 2005.)

Mary Cranston, chairperson of the firm, says: "The marketplace is changing, and a lot of firms are unwilling to take a little discomfort." This is one of the quintessential challenges facing professional service firms in general and law firms in particular. Top fee earners are highly mobile and defections often do not take much, especially given the constant barrage of tempting headhunter calls that the good people get.

The result? Investment in the future tends only to be made where this is possible without reducing the magic "profits per partner" metric. This is a little bit like bourse-listed corporations only being measured on the basis of their quarterly earnings!

Comments, as always, are most welcome and may be posted below.

Things that happen in the UK tend to have a ripple effect in South Africa a year or two later. Hence, law firms at the southern tip of Africa have been watching the Clementi Review process with interest, especially the bits about possible external ownership of law firms. The concerns that would be raised in South Africa would almost certainly be very similar to those that have been raised in England. There is, for instance, the matter of practicality of external ownership of law firms. South Africa has a very recent example of where such external ownership was not a resounding success. In 1999, South African banking group Nedcor bought the law firm Edward Nathan & Friedland for 400m rand (about $65m / £40m.) In 2004 the firms' directors bought it back for just 50m rand (about $9m / £4.6m.) The case study has important lessons both for UK firms considering "selling themselves" to external entities next year, when this becomes legally possible, and those that would like to "own" one.

Question: Which is the second biggest trade hub in Asia, after Hong Kong?

a.Shanghai
b.Tokyo
c.Sydney
d.Singapore
e.Kuala Lumpur

Answer is "d." In 2004, Singapore had official foreign reserves of $184 billion and an economic growth rate of 8.4% (14% for the manufacturing sector.) 365 vessels passed through its port per day (133,346 for the year) and 423 aircraft per day (154,346 for the year) passed through Changi Airport.

Not bad for an island measuring just 26 by 14 miles (42 x 23 km) with a workforce of just over 2 million people. (For more fast and useful facts on Singapore, click here.)

A current The Lawyer.com article reports that Philadelphia-based law firm Duane Morris is opening an office in Singapore. They will be following a well-trodden path, with other top US firms including Jones Day, Latham & Watkins, Morrison & Foerster, Sidley Austin, Skadden Arps Slate Meagher & Flom, Weil Gotshal & Manges and White & Case already there; along with UK firms such as Clifford Chance, DLA Piper Rudnick Gray Cary, Herbert Smith, Lovells and Norton Rose.

Does Corporate Social Responsibility (CSR) have a place in the strategy of a professional service firm (PSF?) David Maister ponders this question in his blog with a posting titled Should PSFs do CSR?

(David's web site is a veritable gold mine of other resources for the PSF strategist, too.)

Information Technology is inseparable from strategy, so a posting on Richard Susskind's lecture to The Society for Computers and Law this past Monday does not stray beyond the ambit of this blog's chosen subject matter. In his address, Susskind addressed the likely changes that will be enabled in law firms through emerging technologies over the next decade.

"By and large, most lawyers have now got their BlackBerry machines, they Google regularly, and they think they are on their way - the transformation has occurred. And my argument is that it is the plumbing," he said. "The plumbing is in place, the infrastructure is in place, and the really exciting stuff that will go to the heart of legal services, the heart of legal process, is coming in the next decade."

From Asterix in Britain

It has been described as the most significant upheaval in the legal profession in England and Wales since the Romans found the weather too depressing and went home, yet a column in The American Lawyer of December 2005 described it as "a big ho-hum on both sides of the Atlantic." Herewith (below) links to the actual White Paper and several other documents regarding the upcoming changes to the legal profession in the UK. Examine them at your leisure and then make your own call about which side is right about their likely impact. Personally, my money's on the former.

If there is one blog that any thoughtful observer of the economics of law firms needs to add to his aggregator, then it is Bruce MacEwen's ongoing discussion on that topic, Adam Smith Esq. I am delighted to have been able to hook up with Bruce for coffee twice in the last week or so as I passed through New York, once westwards and then again back eastwards. His philosophy on blogs, that they should be a channel for carefully formulated, useful commentary on matters of importance in one's topic, corresponds exactly with mine. You will never hear from either of us what we thought of a recent movie, the current sports or social happenings, or such trivia.

One of Bruce's most recent postings on the new chairman at Shearman & Sterling, and what that great firm might do to boost its profitability, is a case in point. As is his posting How Do You Know If The Troops Got The Memo, which deals with another important emerging aspect of professional service firm strategy, namely social network analysis.

Ross Dawson, author of bestseller Developing Knowledge Based Client Relationships, is posting a series called 7 Megatrends of Professional Services on his blog, Trends in the Living Networks. His posting on a recently released report on 10 Trends for 2006+ is worthwhile visiting too. He also gives the option of downloading the entire "7 Megatrends" white paper as a pdf. If you'd like to do this, then click here.

The Brenthurst Foundation, an African strategy and policy development think tank founded by the Oppenheimer family (owners of the De Beers diamond empire) have published an important discussion paper on Chinese economic interests and investments in Africa. It makes interesting reading for anybody with strategic interests in Africa.

I was asked recently to recommend a range of books as essential reading for a professional service firm strategist (in this case, a law firm managing partner.) Not too difficult a task, I thought, speaking as one who makes a substantial personal contribution to Amazon.com's profits each year. After all, while there is a deluge of business books published every year, relatively few of them are specifically relevant to the professional service sector; fewer still on strategy in that sector; and only a handful really have anything new to say. Wow! It proved far more difficult than I thought, even after focusing the criteria so narrowly. These are the "Top 10" that I eventually decided any professional service firm strategist should have on his or her bookshelf (and, of course, actually read as well!)

Business valuations have always been regarded as a bit of a black art. Nowhere is this more true than in a professional service firm, where the primary assets reside between the ears of the people working in the firm. Law firms have additional complications such as strict Law Society rules and issues of client trust and confidentiality. Nevertheless, there are occasions on which it is necessary to value a legal practice.