Adventure of Strategy

One thing seems certain from the daily law newswires that pass through my "inbox" :  Top talent has become even more mobile than usual. Lateral hires abound at quite a few firms financially robust enough to be able to absorb the cashflow knock that laterals usually involve. Also, many firms that took cash conservation to the extreme now find that they have resources to invest in laterals and other somewhat cash-hungry tactics to an extent that was impossible a year ago .... 

A good time to re-read this excellent article that appeared in Law.com in February last year:

The Art of Retaining Laterals (or ... why some top firms do retain their laterals while others don't.)

In 2004, in the aftermath of the Enron / Worldcom / Arthur Andersen etc debacle, a book that I read by Alex Berenson and Mark Cuban titled The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America turned out to be a real page-turner. It outlined all the 20th Century financial crises, ending with the [then] most recent one. The authors concluded that executive compensation was to blame. Specifically stock options (in particular) and other aspects that encouraged executives to sacrifice long term vision on the alter of short term results. The book concluded on a sombre note, with a warning that things were unlikely to change and that short term greed would, in time, induce another crisis.

Sadly, as we all now know, they were right. This morning, there were several blog posts in my aggregator commenting on Princeton economist Alan Blinder's article in the Wall Street Journal titled Crazy Compensation and the Crisis. Here are two of them:

Greg Mankiw's Blog - Blame the Board

Mark Thoma - "Crazy Compensation and the Crisis"

Across the pond in the UK, Alice Cook's blog 'UK Bubble' presents a post titled All Debt and No Equity, showing how reluctant UK firms are to raise capital by issuing new equity. As any first year MBA student knows, equity capital is far more expensive in the long term than debt, because the latter is simply repaid without having to fund capital gains resulting from the company's growth. Debt funding, if you can find it right now, also currently costs next to nothing. Cook suggests that the real reason for the aversion to issuing new equity is the effect that the dilution will have on share prices and ..... yes .... bonuses are usually linked to share price performance, so managers have a strong incentive to keep the share price high in the short term even at the risk of long-term corporate sustainability. So, given the degree to which the credit supply has constricted, companies may be giving up growth opportunities that could be funded with equity funding instead, because executives fear for the impact on their pockets personally.

If we can't fix this, then we would be justified in wondering just how long it will be before another crisis driven by compensation systems that over-reward short-term performance drives the western world to the brink of collapse again!!!

There are models that seek to balance compensation sensibly with strategy. The balanced scorecard is perhaps the best known and I have worked with several law firms now to align their compensation systems for both partners and employees with its principles. It is as well to remember that Arthur Andersen had a balanced scorecard system too .... the "four rocks on which our firm is based" it was apparently called, although cynics reportedly called it the "three pebbles and a boulder" because of the degree to which revenues were prioritized over the others. In other words, their scorecard wasn't balanced.

As firms scramble to redesign their compensation systems and make them more performance-driven, it is critical to think carefully about the unanticipated consequences that the changes may drive. There is a great clamor at present to ditch lockstep systems and focus relentlessly on performance. I worry that "performance" in many cases is being defined in the same way as in the "Wall Street Syndrome" described above ..... short term and focused [almost?] exclusively on "the number."  Designing effective compensation systems that balance short term performance with sustained, long-term profitability and corporate resilience and agility may in fact be one of the most important strategic priorities facing law firms right now.

I'd love to hear your comments on this ....

A couple of weeks ago, I was honoured to be asked by Law South (a collaboration of nine law firms in the South of England) to address their annual conference on the topic of scenarios for the future of the legal profession through to 2015. This was the third time over the years that I have served Law South in this way. This year, the evening's entertainment was provided by a band called 'The Lawbreakers,' drawn from the ranks of the lawyers at Wilsons, which is a firm better known for its premier private client services to high net worth individuals, land development and services to independent schools.

They were very good. In fact, I recorded one of their numbers using the video function on my digital camera, intending to post it, but the camera's capabilities in recording the sound properly did not do justice to their performance so I think we'll keep to the photograph above (click here to view a larger image.) Not sure what the white orbs in the photo are .... maybe the music woke the ghosts in the magnificent old Victorian manor house (the Elvetham Hotel in Hampshire) that was the venue for the conference .... :-)

Clearly a firm of lawyers (or rather solicitors, given that we were in England) that like each other and have great fun practicing together .... which does make life's ups, downs and recessions far easier to deal with.

Ms. Juhi Garg

Edge International is delighted to announce the addition of Ms. Juhi Garg.   Juhi holds a Masters in Business Law from India's foremost law school, the National Law School of India in Bangalore and is also a graduate in media from Delhi University. With Juhi on our team, Edge International will offer our full traditional range of consulting services to Indian law firms. In addition, we will be focusing on assisting Indian law firms with their strategies to develop business in the western hemisphere and to assist western firms wishing to take advantage of the burgeoning Indian legal services market.

India is a legal services market that is attracting global attention, for good reason. It produces more law school graduates annually than any other country. Its impact with outsourced legal services in western markets has been significant and this is set to grow exponentially as western clients seek to cut legal costs in the face of the current economic recession. Also, upcoming legislation is expected to significantly relax restrictions on foreign firms and lawyers practicing in India. Several international firms have already entered into arrangements with Indian law firms in anticipation of this change.

 See Juhi's biography by clicking here.

PUNCHLINE:  If you are a firm based in Australia, New Zealand Canada the US or UK (or anywhere else) and are interested in exploring an arrangement with an Indian law firm and you would like counsel on the selection and vetting processes, please allow me, Juhi Garg or Gerry Riskin to explore helping you.

Business Pundit's post by Rob May, titled Why The Dunning Kruger Effect Is Ruining Your Business, provides a new perspective on a phenomenon that I blogged about some time ago, that bears repeating:

"Those that are most confident are often the least competent."

Rob May takes this a step further, explaining how the Dunning Kruger Effect explains why most people think they are worth more money than everyone else they work with, even when the evidence is firmly to the contrary.  In the absence of concrete performance metrics, many under-performers genuinely believe that their performance is better than their peers in the firm. Even when fixed performance criteria do exist, though, they still often explain their shortcomings away by insisting, sometimes most eloquently, that their under-performance in one area (e.g. low billing / poor client satisfaction / bad interpersonal relationships within the firm) is outweighed by stellar performance in other (usually difficult to measure) areas. The collegial, conflict-averse culture of many law firms (and firms in many other professions too) makes it very difficult for them to even have frank discussions around this topic.

This can be a real problem where the end result is that those that contribute most to the firm find themselves under-appreciated and the "confidently incompetent" are disproportionately rewarded. Inevitably, resentment sets in.

What to do about it? There are a few pointers in my previous post on this topic, courtesy of the Department of Psychology at Cornell University.  Rob adds these three:

1.    Use as many measurable standards of performance as possible. Even idiots have a difficult time refuting concrete performance goals.

2.    Encourage dissension and debate. This is tough, because if this is not handled properly, it can build a culture of negativity and risk aversion. Your goal shouldn't be to avoid risk, just to expose and understand it.

3.    Show confidence in your best employees, even when they don't have confidence in themselves.

If any of this resonates with you then, whatever you do, please don't wait until you are staring at the letter of resignation from one of your under-appreciated star performers before you grasp this nettle.

Today's New York Times (Saturday 1 December) has a great article on what some of the top US firms are doing to make the lives of their lawyers (especially associates) more convenient, happy, balanced and, above all, productive. With workdays routinely stretching into the evenings and weekends and the war for top quality talent intense, offering market competitive salaries is just the starting point in attracting and retaining that talent.

The article, For Lawyers, Perks to Fit a Lifestyle, lists a whole host of different ideas. (Click here for a PDF if you have trouble with the hyperlink.) Any group of professionals could brainstorm dozens more without even working up a sweat. The possibilities are endless. But why bother with these "soft" issues? Do they really drive profitability, or are they in reality unnecessary luxuries?

The perks seem to fit into three major categories:

1.  Those aimed at improving productivity. These include concierge services; premier quality dinners delivered to the offices; naps rooms, well equipped gymnasiums, and arranging nanny services, to free up lawyers' time as they bill up to 60 hours per week and beyond. Blackberries, laptops and other "productivity aids" that are now de rigueur in many firms also fall into this category.

2.  Those aimed at improving lifestyle. These include sabbaticals to pursue diverse interests; guarantees for home mortgages; gestures like DLA Piper reimbursing employees $2,000 when they buy a hybrid car that acknowledge greater environmental awareness amongst today's young professionals; anything from coaches and psychotherapists to masseuses to provide help in combatting stress, burn-out, depression. Also in the category are improving the quality of firm functions (better quality food and premier wines, for instance.)

3.  Those aimed at simply making people feel appreciated. In the frenetic, stressful and intense work environment that characterizes a premier commercial law firm today, it is easy for people to feel under-appreciated. This has led to some firms tackling the issue of making people feel appreciated (a spokesperson for Seattle based Perkins Coie talks of "random acts of kindness") that are executed in a deliberate rather than random fashion. These vary from financial bonuses to something as mundane as unexpected milkshakes appearing on desks.

All this serves to create a culture of:  professional excellence ... mentoring and training ... high performance ... collegiality ... concern for individuals ... balancing work and lifestyle. It binds talent to the firm and makes lawyers more productive and enthusiastic about their work.

As such, these measures are worthy of very, very serious consideration indeed.

Here's a link to a PDF of an article The Problem with the Youth of Today ... that I have just co-authored with my friend Karen MacKay of Phoenix Legal. It is being published in the current edition of Iberian Lawyer. By its name, you'll deduce that this journal is distributed to the legal profession, mostly in Spain and Portugal.

The article is about managing and getting the best from the young generation of lawyers entering the profession today.

There have been two landmark age-discrimination events in the legal profession in the past week or so. West of the Atlantic, Sidley Austin has paid out $27 million to 32 former partners, to end a suit brought by them. In England, courts ruled in favor of magic circle firm Freshfields Bruckhaus Deringer in a another age-discrimination suit brought by a former partner of that firm.

I don’t want to comment on age discrimination or the merits of either case specifically, though. To see what others have written, see here and here and here (Sidley Austin case) and here and here and here (Freshfields case.) Far more interesting, to me, is the wider strategic issue that this debate about law firm partner age discrimination has brought right out into the open.

That is:    Just what does it actually mean to be a partner? Is one really a shareholder and co-owner of the firm? Or just an employee? The Sidley case really hinged on whether partners were employees, or not. It is reported that Sidley “has had to admit” that partners are effectively employees, but it claims it has only done so "for the purposes of resolution of this matter." Continue Reading

An article in the current Hindustan Times reports that Magic Circle firms Linklaters and Clifford Chance have snapped up about 60 of the top law school graduates in Indian law schools this year. Until two years ago, the number would have nee closer to five. About 300 graduates pass out annually from the three best law schools being favoured by Magic Circle – National Law School (Bangalore,) Nalsar (Hyderabad) and National University of Juridical Sciences.

Trawling the Commonwealth countries' law schools and law firms has been a favoured tactic of London firms for years, in their battle for talent. Not only at entry level, but also mid-tier associates. The latter much to the chagrin of the local firms, who invest heavily in their associates only to see some of the most promising disappear to London just as they're becoming profitable. Far higher salaries (in Sterling) that those typically paid in the former colonies and far more high-end work make it quite easy to execute these "raids."

Of course, having both entry level and lateral hired junior to mid-level talent from across the globe does no harm at all when it comes to developing a global mindset and culture in the receiving firms. It is a tactic that US-based global firms would do well to emulate.

I blogged about the 50 attorney New York law firm Duval & Stachenfeld's innovative approach to associate compensation a week or so ago, here. Now, my friend Bruce MacEwen has unpacked that system in more detail here. Well worth a read, if you haven't seen it already, for any law firm leader wrestling with fitting burgeoning associate compensation numbers into profitability models ( ... and show me any commercial law firm apart from a handful right at the top of the profitability curve that's not!)

Further proof that there are indeed innovative solutions to balancing winning the war for talent and satisfying the old dictum "money in must exceed money out."

It is often said that social responsibility is primarily a trait of the younger Generation Xs and  Generation Ys, certainly not those Baby Boomers over the age of 60. They're the ones that polluted the environment and caused all those wars, remember? Here's a data set, though, that seems to fly in the face of that assumption. Continue Reading

Yesterday I wrote of the enormous gap in starting salaries between lawyers following career paths in large commercial law firms, and "the rest." I suggested that some commercial law firms may seek to recruit entry level talent from the stream of graduates heading for the lower, left hand peak in the graph. Here is a post from the Wall Street Journal law blog about a firm, 50 attorney New York based Duval & Strachenveld, that is doing exactly that. Graduates are paid $60,000 a year, with the promise that those who shape up will catch up to their peers in 'Biglaw' firms within a few years, once they've proved themselves.

This strategy attracts attract top-tier students from second-tier schools and second-tier students from top-tier schools. Given that neither the school one attends nor the marks that one achieves are by any means the sole indicators of later success in practice, the results speak for themselves. About half make it through to the big bump in pay.

The front page of their website reads:

We have built our firm around a central theme of treating our lawyers extremely well.

We have learnt that if we treat our lawyers superbly they will treat our clients even better.

We intend to continue with this extremely simple business model as it has been working quite well so far.

My friend and colleague Gerry Riskin has just posted a piece on his blog Amazing Firms Amazing Practices about a pin approaching the "associate salary bubble" in the USA. I agree, but only to a point. The "bubble" is a complex beast.

Take a look, if you would, at the figure below. It represents the salaries that newly minted attorneys are reporting to their law schools, that they are earning in their first year in practice.
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Tom Peters on the topic of talent. About 90 seconds. Well worth taking the time. He blogged on the topic a few days ago too, with a post titled Competing to Achieve Excellence : You Are Your Only Competitor. Hat-tip to Gautam Gosh for the pointer.

  Click image to enlarge

As they say, a picture is worth a thousand words ....

Here's a graphic that clearly illustrates an obvious but unpalatable truth (at least for firms on the left and, even more so, those off the graph with PPP of < $500,000 p.a., even further to the left.) It illustrates a piece of ALM Research that shows that while the compensation of third year law firm associates in large commercial US law firms fall into a fairly uniform, market-driven band of between $200,000 and $230,000 p.a., there is considerably more variation in what the partners take home.

It shows one thing for sure: the beneficiaries of a focused, carefully crafted, performance-driving strategy that is relentlessly executed are the partners. Nobody else. Conversely, the partners are the ones that pay the cost when strategy is woolly and unfocused.

The data in the graphic was transposed from a table called The Pain Index published in The American Lawyer.

My old friend Bruce MacEwen over at Adam Smith Esq has yet another brilliant post on his blog today. (Small wonder he's hitting 300,000 + page views per month!) The post is titled Associate Moneyball. Its about the lunacy surrounding the archaic methods that so many firms still use in recruiting law school graduates. Lunacy, because of the stellar rates that they command from the moment the ink dries on their degree cerificates. Try to join McKinsey & Co and you're probably in for up to five hour-long, mind wrenching interviews including case studies. Not so, with most law firms. Continue Reading

Those who believe that a law firm moving from an associate lockstep  compensation system based on years since qualification to a more rigid meritocracy will lead to unhappy clients (see my post of earlier today,) should also read my old friend and colleague Gerry Riskin's post of 15 June, "Genius" minus "empathy" equals "stupidity," on his blog, Amazing Firms Amazing Practices.

Consider three vectors:

1)  The increasingly stellar salaries being paid to newly qualified attorneys in the top firms, in response to demand/supply imbalances with top talent, leading to a knock-on effect with salaries for more experienced associates too;

2) The fact that superior performance at law school is not always a good predictor of superior performance in practice in a law firm and that associates do not all progress up the competence curve at the same rate;

3) Increasing demands from clients for more value in the services that they receive, especially as rates creep inexorably upwards in response to increased associate salaries.

If one were an 'independent observer from outer space' and observing trends in the legal profession today, one would not be surprised to observe pressure away from associate lockstep compensation structures, to more performance driven models. Continue Reading

One law firm that has been rated "a great place to work" for several years now, is Nixon Peabody, LLP. How do they manage it? William Simpson, their Director of Human Resources, discloses their secret in this blog post at Cultural Work Diversity.

Simpson says that there was no 'silver bullet' and that some of the things that they did were quite small, but over time they had a fundamental impact on their culture. Here's a bulletpoint summary: Continue Reading

The latest McKinsey Quarterly (a journal of strategy and management published by McKinsey & Company) has an excerpt titled Building the Civilized Workplace, from a book by Stanford Professor Robert Sutton.

Jerks and bullies in the workplace are a widespread problem. All too often, those exhibiting the behavior do so because they feel secure in their seniority or fee-earning credentials. (Which is not to say that high-performers are always jerks. Usually, quite the opposite is the case. Not tolerating poor performance, for instance, is not the same as being a jerk.) Research shows that jerks and bullies not only hinder recruiting and retention but also raise levels of client churn and damage reputations.

Firms that harbor jerks may also suffer from reduced levels of creativity and innovation, as well as impaired or dysfunctional cooperation, within and outside the organization. That is no small matter in an increasingly networked world. Continue Reading

A new year beckons! What do you plan to do in your firm, in 2007?

Are you contemplating going out into the market, to hire brilliant individuals away from your competitors, to let the magic of Dream Teams loose in your firm? If so, be certain that the magic that is released is not black magic! You may first want to read a piece by Geoffrey Colvin titled When Dream Teams Fail that was published in Fortune recently.

Dream Teams are a beguiling idea. Assemble a team made up of the very best brains and success will be assured, right.......?   All too often:  No, not really.
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Imagine giving a group of bright, talented twenty-something professionals in your firm the following test:

Question 1:    Which statement most accurately represents you:

A.    I am determined to grow my capabilities and skills as a professional and value mentoring and nurturing from senior members of my firm very highly.
B.    I aim to grow as a professional and can tolerate an environment where I have to do so on my own, but if an opportunity for a more professionally nurturing environment presents itself, I’ll take it.
C.    I am quite happy not to receive mentoring or nurturing input from experienced, senior professionals in my firm Continue Reading

Steve Denning, former CEO of the World Bank, is writing a book on leadership. Called The Secret Language of Leadership, it is due for release in mid 2007. He has released a preview of some of the chapters for public review, including a piece called How to Speak to a CEO that is of particular interest to strategists. It deals with communicating with one of those larger-than-life, egocentric, power people that so many firms have amongst their number. He likens these power people to lions.

Says Denning:

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When all is said and done, retaining the right people within its ranks is probably the most crucial strategic issue facing any professional service firm.

The ongoing conundrum of how to balance partner profitability on the one hand with the need to retain key skills in the firm has developed another layer, with London-based global law firm Allen & Overy scrapping its firm-wide bonus scheme as part of a shake-up that will hike London associates' pay by 15% from 1 November. Newly minted attorneys in the firm will now earn £63,300 (about US$117,500 at today's exchange rate) which makes it the highest paying City (of London) practice.

For more information, read the article in today's Legal Week, here.

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One of the worst things that can be said of any professional practicing in a professional service firm is "he/she doesn't fit in here." Career-wise, it's often a death blow. This is particularly true in the precision-based professions such as law and accounting (as opposed to creative/design professions, where deviancy is more tolerated and sometimes even encouraged.)

Herein lies a clue as to why these firms often experience such difficulty innovating or even changing. Probably without even realizing the impact of what they are doing, they positively stamp on anything or anyone that goes against the norm.

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An article out of the Stanford Business School highlights how diversity and work group performance are interlinked. Drawing on research by Margaret Neale, a professor at the business school, the article has important insights for how diverse teams in professional service firms can be made to be more productive.

People often think of diversity as meaning simply an issue of demographics such as gender, age or race. However, groups can be diverse in other ways, too, for instance:

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A Law.com article, Firms Act To Keep Partners From Jumping Ship says that just over 4500 US law firm partners have 'jumped ship' from their firms in the past two years. Given the onerous passage to partner in just about any decent firm and the fact that only the cream would therefore be expected to make partner, this is worrying.

Key to any strategy is to have the right people in place to be able to execute the strategy. If firms are bleeding top (partner) talent at such a rate, then this is something worth addressing.

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It's not often that one finds candid and objective feedback following a commercial failure. Too often, what is reported is heavily tainted by the subjectivity that results from people downplaying their own role in that failure.

Brad Feld has a post that links to a post-mortem of a failure that is remarkably candid and objective. The firm in question is (was) an IT start-up, but the reasons for its failure were similar to those that one might very, very easily find in a professional service firm.

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David Maister's material is always solid and worth noting, but every now and again he comes up with something that transcends even this and produces a piece that is both fundamental and truly profound.

His recent posting titled The End of Apprenticeship is an excellent example. The implications of this shift in the way that people are managed (or not) as they progress (or not) through their careers is strategically disturbing. The resulting distractions and talent leakage wreak havoc, at the very least with a firm's ability to execute strategy.

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A Quick Test:

"A firm's greatest assets are its people."

(a) True
(b) False

Give yourself a point if you marked "b." People can be both assets and liabilities, so the statement is, in itself, inaccurate. A firm's greatest assets are its good people. With the others, sometimes it is not only necessary but downright strategic to emulate Donald Trump and fire somebody.

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