DANGEROUS ADVICE FOR LAW FIRM LEADERS

During the past 25 years, law firm management consulting has grown from cottage industry to big business. In a recent Am Law Daily article, “What Critics of Lateral Hiring Get Wrong,” Brad Hildebrandt, one of its pioneers, provides a comforting message to his constituents:

“Large law firms are weathering the storm of the past five years and continue to transform their businesses to operate with efficiency and agility amid a new set of client expectations.”

Hildebrandt v. Altman Weil

Hildebrandt correctly notes that painting all large firms with a single brush is a mistake. But his general description of most firms today is at odds with the results of Altman Weil’s recent survey, “2014: Law Firms in Transition.” The summary of responses from 803 law firm leaders (including 42 percent of the nation’s largest 350 firms) offers these highlights:

– “The Survey shows clear consensus among law firm leaders on the changing nature of the legal market…. [But] law firms are proceeding without an apparent sense of urgency.”

– “Less than half of the law firms surveyed are responding to the pressures of the current market by significantly changing elements of their traditional business model.”

– “Most firms are not making current investments in a future they acknowledge will be different – and different in seemingly predictable ways.”

– “Only 5.3 percent of firms are routinely looking farther than five years out in their planning.”

Altman Weil’s conclusions comport with its October 2013 Chief Legal Officer Survey. When clients rated outside law firms’ seriousness about changing legal service delivery models to provide greater value, the median score was three out of ten — for the fifth straight year.

Hildebrandt v. Georgetown/Thomson Reuters Peer Monitor and Henderson

So what are most big firms doing? Growth through aggressive lateral hiring. Hildebrandt responds to “academics, journalists, former practicing attorneys, and countless legal bloggers” who question that strategy. Count me among them.

Acquiring a well-vetted lateral partner to fill a specific strategic need is wise. But trouble arises when laterals become little more than portable books of business whose principal purpose is to enhance an acquiring firm’s top line revenues.

“Growth for growth’s sake is not a viable strategy in today’s market,” the 2014 Georgetown/Thomson Reuters Peer Monitor Report on the State of the Legal Market observes. Nevertheless, the report notes, most firms are pursuing exactly that approach: “[Growth] masks a bigger problem — the continuing failure of most firms to focus on strategic issues that are more important….”

Professor William Henderson has done extensive empirical work on this subject. “Is Reliance on Lateral Hiring Destabilizing Law Firms?” concludes: “[T]he data is telling us that for most law firms there is no statistically significant relationship between more lateral partner hiring and higher profits.”

Hildebrandt v. Citi/Hildebrandt

Big law partners acknowledge the truth behind Henderson’s data. According to the 2014 Citi/Hildebrandt Client Advisory, only 57 percent of law firm leaders describe their lateral recruits during 2008-2012 as successful, down from 60 percent last year. If those responsible for their firms’ aggressive lateral hiring strategies acknowledge an almost 50 percent failure rate, imagine how much worse the reality must be. Nevertheless, the lateral hiring frenzy continues, often to the detriment of institutional morale and firm culture.

With respect to culture and morale, Hildebrandt rejects the claim that lateral partner hiring crowds out homegrown associate talent. But the 2013 Citi/Hildebrandt Client Advisory suggests that it does: Comparing “the percentages of new equity partners attributable to lateral hires vs. internal promotions in 2007…with percentages in 2011 reveals a marked shift in favor of laterals” — a 21 percent decrease in associate promotions versus a 10 percent increase in lateral partner additions.

Nevertheless, Hildebrandt offers this assessment:

“In the six years prior to the recession, many firms admitted far too many partners—some into equity partnership, many into income partnership. A driving factor in the number of partners in the lateral marketplace is that firms are coming to grips with the mistakes of the past. Lax admissions standards have been a far greater issue than mistakes made on laterals.”

When I read that passage, it seemed familiar. In fact, Chapter 5 of my latest book, The Lawyer Bubble – A Profession in Crisisopens with this quotation:

“The real problem of the 1980s was the lax admission standards of associates of all firms to partnerships. The way to fix that now is to make it harder to become a partner. The associate track is longer and more difficult.”

Those were Brad Hildebrandt’s words in September 1996. (“The NLJ 250 Annual Survey of the Nation’s Largest Law Firms: A Special Supplement — More Lawyers Than Ever In 250 Largest Firms,” National Law Journal)

“Fool Me Once, Shame On You…”

Evidently, most firms followed Hildebrandt’s advice in the 1990s because the overall leverage ratio in big law firms has doubled since then. His recent suggestion that “lax admission standards” caused firms to make “far too many” equity partners during the six years prior to the Great Recession of 2008-2009 is particularly puzzling. In the May 2008 issue of American Lawyer, Aric Press noted that during the “Law Firm Golden Age” from 2003 to 2007, “Partners reaped the benefits of hard work — and of pulling up the ladder behind them. Stoking these gains has been a dramatic slowdown in the naming of new equity partners.”

Meanwhile, the swelling ranks of income partners reflect a different strategy: using the non-equity partner tier as a profit center. The strategy is misguided, but pursuing it has been intentional, not a “mistake.” (Take a look at the American Lawyer article, “Crazy Like a Fox,” by Edwin Reeser and Patrick McKenna.)

Even so, Hildebrandt’s words reassure firms that are recruiting laterals for all the wrong reasons and/or tightening the equity partner admission screws. Tough love might better serve the profession.

THE ILLUSION OF LEISURE TIME

Back in January, newspaper headlines reported a dramatic development in investment banking. Bank of America Merrill Lynch and others announced a reprieve from 80-hour workweeks.

According to the New York TimesGoldman Sachs “instructed junior bankers to stay out of the office on Saturdays.” A Goldman task force recommended that analysts be able to take weekends off whenever possible. Likewise, JP Morgan Chase gave its analysts the option of taking one protected weekend — Saturday and Sunday — each month.

“It’s a generational shift,” a former analyst at Bank of America Merrill Lynch told the Times in January. “Does it really make sense for me to do something I really don’t love and don’t really care about, working 90 hours a week? It really doesn’t make sense. Banks are starting to realize that.”

The Fine Print

There was only one problem with the noble rhetoric that accompanied such trailblazing initiatives: At most of these places, individual employee workloads didn’t change. Recently, one analyst complained to the Times that taking advantage of the new JP Morgan Chase “protected weekend” policy requires an employee to schedule it four weeks in advance.

Likewise, a junior banker at Deutsche Bank commented on the net effect of taking Saturdays off: “If you have 80 hours of work to do in a week, you’re going to have 80 hours of work to do in a week, regardless of whether you’re working Saturdays or not. That work is going to be pushed to Sundays or Friday nights.”

How About Lawyers?

An online comment to the recent Times article observed:

“I work for a major NY law firm. I have worked every day since New Year’s Eve, and billed over 900 hours in 3 months. Setting aside one day a week as ‘sacred’ would be nice, but as these bankers point out, the workload just shifts to other days. The attrition and burnout rate is insane but as long as law school and MBAs cost $100K+, there will be people to fill these roles.”

As the legal profession morphed from a profession to a business, managing partners in many big law firms have become investment banker wannabes. In light of the financial sector’s contribution to the country’s most recent economic collapse, one might reasonably ask why that is still true. The answer is money.

To that end, law firms adopted investment banking-type metrics to maximize partner profits. For example, leverage is the numerical ratio of the firm’s non-owners (consisting of associates, counsel, and income partners) to its owners (equity partners). Goldman Sachs has always had relatively few partners and a stunning leverage ratio.

As most big law firms have played follow-the-investment-banking-leader, overall leverage for the Am Law 50 has doubled since 1985 — from 1.76 to 3.52. In other words, it’s twice as difficult to become an equity partner as it was for those who now run such places. Are their children that much less qualified than they were?

Billables

Likewise, law firms use another business-type metric — billable hours — as a measure of productivity. But billables aren’t an output; they’re an input to achieve client results. Adding time to complete a project without regard to its impact on the outcome is anathema to any consideration of true productivity. A firm’s billable hours might reveal something about utilization, but that’s about it.

Imposing mandatory minimum billables as a prerequisite for an associate’s bonus does accomplishes this feat: Early in his or her career, every young attorney begins to live with the enduring ethical conflict that Scott Turow wrote about seven years ago in “The Billable Hour Must Die.” Specifically, the billable hour fee system pits an attorney’s financial self-interest against the client’s.

The Unmeasured Costs

Using billables as a distorted gauge of productivity also eats away at lawyers’ lives. Economists analyzing the enormous gains in worker productivity since the 1990s cite technology as a key contributor. But they ignore an insidious aspect of that surge: Technology has facilitated a massive conversion of leisure time to working hours — after dinner, after the kids are in bed, weekends, and while on what some people still call a vacation, but isn’t.

Here’s one way to test that hypothesis: The next time you’re away from the office, see how long you can go without checking your smartphone. Now imagine a time when that technological marvel didn’t exist. Welcome to 1998.

When you return to 2014, read messages, and return missed calls, be sure to bill the time.

LESSONS FROM THE BUSINESS WORLD

The current issue of the Harvard Business Review has an article that every big law leader should read, “Manage Your Work, Manage Your Life,” by Boris Groysberg and Robin Abrahams. Unfortunately, few law firm managing partners will bother.

It’s not that big law leaders are averse to thinking about their firms in business terms. To the contrary, the legal profession has imported business-type concepts to create the currently prevailing model. Running firms to maximize simple metrics — billables, leverage ratios, and hourly rates — has made many equity partners rich.

The downside is that the myopic focus on near-term revenue growth and current profits comes at a price that most leaders prefer to ignore. Values that can be difficult to quantify often get sacrificed. One example is the loss of balance between an individual’s professional and personal life.

Looking at the same things differently

The HBR article contradicts a popular narrative, namely, that balancing professional and personal demands requires constant juggling. Over a five-year period, the authors surveyed more than 4,000 executives on how they reconciled their personal and professional lives. The results produced a simple recommendation: Rather than juggling to achieve “work-life balance,” treat each — work and life — with the same level of focused determination.

The most successful and satisfied executives (they’re not mutually exclusive descriptors) make deliberate choices about what to pursue in each realm as opportunities present themselves. In other words, they think about life as it unfolds.

According to the authors, the executives’ stories “reflect five main themes: defining success for yourself, managing technology, building support networks at work and home, traveling or relocating selectively, and collaborating with your [home] partner.”

Professional success

Defining professional success is the key foundational step and not everyone agrees on its elements. That’s no surprise.

But some gender distinctions are fascinating. For example, 46 percent of women equated professional success with “individual achievement,” compared to only 24 percent of men. Likewise, more women than men (33 percent v. 21 percent) defined success as “making a difference.” The gender gap was even greater for those defining success as “respect from others” (25 percent of women v. 7 of percent men) and “passion for the work” (21 percent of women v. 5 percent of men). (Respondents could choose more than one element in defining success, so the totals exceed 100 percent.)

On the other hand, more men than women thought that success was “ongoing learning and development and challenges” (24 percent of men v. 13 percent of women), “organizational achievement” (22 percent v. 13 percent), “enjoying work on a daily basis” (14 percent v. 8 percent). More men also saw success in financial terms (16 percent) than did women (4 percent).

Personal success

For men and women, the most widely reported definition of personal success was “rewarding relationships” (59 percent of men; 46 percent of women). (Surprised that more men than women picked that one?) Most other definitions revealed few gender-based differences (“happiness/enjoyment,” “work/life balance,” “a life of meaning/feeling no regrets”).

But big gender gaps again emerged for those defining personal success as “learning and developing” and “financial success.” In fact, zero women equated “financial success” with personal success, but 12 percent of men did.

Putting it all together

After defining success, the next steps seem pretty obvious: master technology, develop support networks, move when necessary, and make life a joint venture with your partner if you have one. But few law firm leaders create a climate that encourages such behavior. Short-term profits flow more readily from environments that a recent Wall Street Journal headline captured: “When The Boss Works Long Hours, Do We All Have To?” In most big law firms, the short answer is yes, even if the boss doesn’t.

In general, the HBR strategy amounts to tackling life outside your career with the same dedication and focus that you apply to your day job.

A few examples:

Are you becoming a prisoner of technology that facilitates 24/7 access to you? Then occasionally turn it off and spend real time with the people around you.

Are you concerned that you’re missing too many family dinners? Then treat them with the same level of importance that you attach to a client meeting.

These and other ideas aren’t excuses to become a slacker. After all, the interview respondents are high-powered business executives. Rather, they comprise a way to anticipate and preempt problems. As one survey respondent said, people tend to ignore work/life balance until “something is wrong. But,” the authors continue, “that kind of disregard is a choice, and not a wise one. Since when do smart executives assume that everything will work out just fine? If that approach makes no sense in the boardroom or on the factory floor, it makes no sense in one’s personal life.”

That’s seems obvious. But try telling it to managing partners in big law firms who are urging younger colleagues to get their hours up.

Here’s a thought: maybe attorneys should record how they spend their hours at home, too.

A STORIED LATERAL HIRE

“Are Laterals Killing Your Firm?” is the provocative title of The American Lawyer‘s February issue. The centerpiece is a thoughtful article, “Of Partners and Peacocks,” by Bill Henderson, professor at Indiana University Maurer School of Law and Director of the Center on the Global Legal Profession, and Christopher Zorn, professor of political science, sociology, crime, law, and justice at Penn State University.

Henderson and Zorn conclude that “for most law firms there is no statistically significant relationship between more lateral partner hiring and higher profits.” As I observed in last week’s post, most big law managing partners have conceded as much in anonymous surveys. Even so, the drumbeat of lateral hiring to achieve top line revenue growth persists, even in the face of dubious bottom line results.

A timely topic

One lateral hire outcome became particularly fascinating this week. On the way out of the top spot at DLA Piper is global co-chair Tony Angel. You might remember him from one of my earlier articles, “The Ultimate Lateral Hire.”

The American Lawyer 2012 Lateral Report identified Angel as one of the top lateral hires of the year — “a typically bold and iconoclastic play by DLA. For a firm to bring in a former managing partner from another firm is rare,” Am Law Daily reporter Chris Johnson wrote in March 2012. According to the article, the 59-year-old Angel was to receive $3 million a year for a three-year term.

With great fanfare, DLA touted its coup. “He’s got great values and he believes in what we’re trying to do and he shares our view of what’s going on in the world,” boasted then co-chair Frank Burch.

At the time, DLA’s press release was equally effusive: “Tony will work with the senior leadership on the refinement and execution of DLA Piper’s global strategy with a principal focus on improving financial performance and developing capability in key markets.”

Predictably, law firm management consultants also praised the move:  “It’s hard to get a guy that talented. There just aren’t that many people out there who have done what he has done,” said Peter Zeughauser. Legal headhunter Jack Zaremski called it a “brave move” that “might very well pay off.”

On second thought…

The current publicity surrounding Angel’s transition is decidedly more subdued. According to a recent Am Law article, Angel and his fellow outgoing global co-chair, Lee Miller, “will remain with the firm in a senior advisory capacity, the details of which will be worked out later this year.”

Two years, plus another 10 months as a lame duck, is a remarkably short period to occupy the top spot of any big firm. Only those who work at DLA Piper can say whether Angel’s brief reign was a success (and why it’s over so soon). Not all of them are likely to provide the same answer.

Separating winners from losers

In 2008, more than three years before Angel’s arrival, the firm’s non-equity partners found themselves on the receiving end of requests for capital contributions. According to Legal Week, “275 partners contributed up to $150,000 each to join the equity.” The move was “intended to motivate partners by granting them a direct share of the firm’s profits, as well as an equal vote in the firm’s decisions.” But it also helped “DLA reduce its bank debt.”

That equitization trend continued during Angel’s tenure. In 2012, the firm’s non-U.S. business reportedly added capital totaling 30 million pounds Sterling “as a result of the move to an all-equity partnership structure.” Again according to Legal Week, the firm’s non-equity partners in the UK, Europe, and Asia Pacific paid on average 61,000 pounds Sterling each to join the equity.”

Perhaps most new equity partners discovered that their mandatory bets became winners. After all, gross profits and average profits for the DLA Piper verein went up in 2012. Then again, averages don’t mean much when the distribution is skewed. According to a Wall Street Journal article three years ago, the internal top-to-bottom spread within DLA Piper was already nine-to-one.

Anyone looking beyond short-term dollars and willing to consider things that matter in the long run could consult associate satisfaction rankings for cultural clues. In the 2013 Am Law Survey of Midlevel Associate Satisfaction, DLA Piper dropped from #53 to #77 (out of 134 firms). That’s still above the firm’s #99 ranking in 2011.

The more things change

Management changes are always about the future. It’s not clear how, if at all, incoming co-chair Roger Meltzer’s vision for DLA Piper diverges from Angel’s. Age differences certainly don’t explain the transition; both men are around 60. Likewise, both have business orientations. Meltzer practices corporate and securities law; Angel joined DLA Piper after serving as executive managing director of Standard & Poor’s in London.

Maybe it’s irrelevant, but Meltzer and Angel also have this in common: Both are high-powered lateral hires. Angel parachuted in from Standard & Poor’s in 2011; Meltzer left Cahill, Gordon & Reindel to join DLA Piper in 2007. It makes you wonder where these guys and DLA Piper will be a few years from now.

BIG LAW LEADERS “GET IT”? SERIOUSLY?

biglaw-450

This article won the “Big Law Pick of the Week.” BigLaw‘s weekly newsletter reaches the world’s largest law firms and the corporate counsel who hire them.

The concluding lines of this year’s Client Advisory from Hildebrandt/Citi are defensive, if not petulant:

“Unlike the commentary of many observers of the legal profession suggesting that today’s senior management do not ‘get it,’ we believe the large law firms today have every capability to adjust to the changing market….”

That nifty non sequitur is also a rhetorical sleight of hand. Having “every capability to adjust” is not the same as actually adjusting. The suggestion that today’s senior law firm leaders “get it” implies that they are responding in healthy and productive ways to a period of dramatic change.

Well, most of them aren’t. Instead, they’re maximizing current income at great expense to the future of their institutions. But don’t take my word for it; take theirs.

Facts get in the way

Consider the dominant big firm strategy: lateral hiring and mergers to achieve top line revenue growth. In Citi’s 2012 Law Firm Leaders Survey, senior leaders self-reported that only 60 percent of their laterals were above “break even.” For 2013, the rate dropped to 57 percent. As for mergers, anyone who thinks bigger is always better should look at the decline in operating margins that has followed most recent big firm combinations. That phenomenon is called diseconomies of scale.

Moreover, even the self-reported “success rate” is inflated. It takes years to determine the true financial impact of a lateral hire, so most managing partners touting those efforts actually have no idea whether their recent acquisitions will benefit their firms’ bottom lines. In fact, if leaders already admit to mediocre results for the laterals they personally sponsored, imagine how much worse the reality must be.

Beyond the numbers

Notwithstanding previous failures on a massive scale, managing partners are still pursuing growth for the sake of growth. Unfortunately, it can be a loser in ways that go far beyond mere financial losses. The negative impact on a firm’s culture, morale, and long-term institutional stability can be devastating.

For example, the 2013 Hildebrandt/Citi Client Advisory reported that between 2007 and 2011, law firms increased the number of lateral partners by 10 percent. Meanwhile, homegrown promotions to partner during the period dropped by 21 percent. That trend is undermining already low associate morale.

The lateral hiring frenzy has demoralized partners, too. A loss of community afflicts partnerships of people who don’t know each other. That’s one reason that forty percent of respondents to Altman Weil’s May 2013 survey of firm leaders said their partners’ morale was lower than it was at the beginning of 2008.

Another reason for diminished partner morale is the way lateral hiring has contributed to higher internal equity partner compensation spreads. Bidding to attract so-called rainmakers has pushed the high end of the range up. So have existing partners who threaten to test the lateral market. In that zero sum game of dividing the partnership pie, the bottom end of the range has moved down. (For an example, take a look at James B. Stewart’s New York Times profile of a former Dewey & LeBoeuf partner who reportedly earned $350,000 while his “protector” earned $8 million.)

More collateral damage ignored

Accompanying the lateral hiring frenzy and short-term metrics that drive the prevailing big firm business model are destructive client silos. More than 70 percent of law firm leaders responding to the Altman Weil survey said that older partners were hanging on too long. In the process, they’re hoarding clients, billings, and opportunities in ways that block the transition of firm business to younger lawyers.

But leadership’s response to this problem is perverse: 80 percent of managing partners admit that they plan to continue tightening equity partner admission standards.

The ongoing failure of leadership also reveals itself in managing partners’ overall agendas. When asked to prioritize goals for their firms, they placed “client value” number eight — behind (1) increasing revenue, (2), generating new business, (3) growth, (4) profitability, (5) management change, (6) cost management, and (7) attracting talent.

Closer to the mark

In contrast to the Hildebrandt/Citi 2014 Client Advisory, the Georgetown Law Center/Peer Monitor 2014 Report on the State of the Legal Profession concludes that most law firm leaders don’t “get it” at all:

“[G]rowth for growth’s sake is not a viable strategy in today’s legal market…Strategy should drive growth and not the other way around. In our view, much of the growth that has characterized the legal market in recent years fails to conform to this simple rule and frankly masks a bigger problem – the continuing failure of most firms to focus on strategic issues that are more important for their long-term success than the number of lawyers or offices they have.”

The report explains that, in an effort to justify the counterproductive urge to grow, “law firm leaders feel constrained to articulate some kind of strategic vision…and the message that we need to ‘build a bigger boat’ is more politically palatable than a message that we need to fundamentally change the way we do our work.”

Similarly, the author of the 2013 Altman Weil survey, Thomas Clay, says that too many firms are “almost operating like Corporate America…managing the firm quarter-to-quarter by earnings per share.” That shortsighted approach is “not taking the long view about things like truly changing the way you do things to improve client value and things of that nature.”

Even clients recognize that most outside law firms aren’t adapting to new realities. An October 2013 Altman Weil Survey asked chief legal officers to evaluate the seriousness of their outside law firms in changing the legal service delivery model to provide greater value. On a scale from zero (not at all serious) to ten (doing everything they can), “for the fifth year, the median was a dismal ‘3.’”

Perhaps the authors of the Hilebrandt/Citi 2014 Client Advisory actually believe that most of their big law managing partner constituents “get it.” No one else does.

ART, LIFE, AND THE GOOD WIFE

The writers of the hit television series, The Good Wife, are onto something. Recently, Alicia Florrick and several senior associates left Lockhart & Gardner to form a new firm. They took a big client with them.

Art imitates life

One scene in particular is a reminder that fiction can reveal profound truth. Sitting in his office, Will Gardner concludes that Florrick and other former colleagues betrayed him just by leaving. He resolves that he’s going to get even by making his firm the biggest in the country: “I’m going to destroy the competition.”

Gardner wasn’t looking for a few talented attorneys who would serve particular client needs while enhancing the culture of his institution. He wasn’t seeking to shore up an area of lost expertise. He wasn’t even pursuing growth because it would benefit his firm financially. Rather, he wanted to preside over a big firm that would be significant – even intimidating – solely because of its bigness.

He instructed fellow partners to target rainmakers at other firms as potential lateral hires, announced the opening of a New York, and rolled out the firm’s new logo — “LG.” He wanted growth for the sake of growth. No other plan. No strategic vision. No institutional mission beyond getting bigger.

Real-life managing partners wouldn’t be so stupid, right?

Many large law firms are making news with their efforts to grow. This phenomenon is somewhat perplexing because law firm management consultants have reported for a long time that there are no economies of scale in the practice of law. In fact, they say, maintaining the infrastructure necessary to support growth pushes the bottom line the wrong way.

But in today’s no-growth era, many managing partners worry more about the top line. They want to acquire books of business through aggressive lateral hiring of other firms’ rainmakers and, in some cases, the ultimate lateral event – merger with another firm.

A path to where, exactly?

For the profession overall, the lateral hiring/merger craze is a zero-sum game. For individual firms asserting that clients somehow drive the process, it’s dubious at best.

“I’m pretty skeptical about the value these big mergers give to clients,” IBM’s general counsel, Robert Weber, said recently. “I don’t know why it’s better to use a bigger firm.” And that’s from a guy who spent 30 years at Jones Day — one of the biggest law firms in the country — before joining IBM seven years ago.

In The Good Wife, creating a big firm is part of Will Gardner’s personal vendetta. In the real world, vindictiveness isn’t the reason that most managing partners build bigger firms. But personal ego is often part of the equation. Many leaders see themselves as modern-day versions of Alexander the Great. The desire to stand atop an empire is irresistible.

In the coming weeks, Gardner will probably press ahead to create a large enterprise where name recognition alone confers an illusory prestige. Even if his fellow partners are inclined to question or, God forbid, disagree, they won’t speak up.

If Alicia Florrick were still there, she might have had the courage to challenge him. After all, she and Will had a steamy affair and her husband is now Illinois Governor-elect. But Alicia is gone and Will rules his firm with an iron fist, bare and unadorned with a velvet glove. At Lockhart & Gardner — as at many big firms – dissent is not a cherished partnership value.

There’s one more interesting aspect of Gardner’s battle cry. He hasn’t learned from his mistakes. In season two, Lockhart & Gardner merged with Derrick Bond’s Washington, DC firm. The clash of cultures and personalities nearly destroyed Gardner’s firm. Like all talented lawyers possessing the skill to distinguish away adverse precedent that doesn’t suit their current views, Gardner must think that this time will be different.

Luckily for him, Lockhart & Gardner is fictional. Notwithstanding his poor leadership decisions, the writers can craft a story line that will keep him and his firm going until the show’s ratings fall. Some real law firms won’t be as fortunate.

Failure of Leadership

The American Lawyer’s annual leaders survey reveals that most law firm managing partners are living in denial. When the changing world intrudes in ways that they can no longer ignore, another psychological state — cognitive dissonance — sets in as they try simultaneously to hold contradictory ideas in their heads. As a consequence, what is happening today at the top of most big firms is the antithesis of leadership.

Denial

In the Am Law leaders survey, 70 percent of respondents said that the sluggish demand for legal services in 2013 would continue through 2014. That’s not surprising. In 2012, only a fourth quarter surge saved many firms from the abyss. The unusual circumstances producing that phenomenon aren’t present this year.

If 2014 will be more of the same as firms compete for business in a zero-sum game, how do individual managing partners size up their situations? Unrealistically. Two-thirds of the 105 leaders responding to the survey of Am Law 200 firms were “somewhat optimistic” about the prospects for their firms in 2014. Another ten percent were “very optimistic.”

More than 80 percent expect profits per partner to grow in 2014 — and one-fourth of those expect growth to exceed five percent. They’ll use the same old model — 98 percent expect billable hour increases, even though three-fourths of respondents said their realization rates for 2013 are 90% or worse. They also said that only 18 percent of their matters include an alternative fee arrangement.

Cognitive dissonance

They can’t all be right about 2014 — for which an overwhelming majority say that “things will be tough for almost everyone else, but my firm will thrive.” More importantly, most of them won’t be right. So what are today’s leaders doing to prepare their firms for more of the harsh reality that they’ve already experienced for the past several years? Not much.

A staggering 85 percent of managing partners said they were somewhat worried (61 percent) or very worried (24 percent) about partners who are not billing enough hours. Almost 70 percent are concerned that some partners are staying on too long before retirement.

An Altman Weil Survey found similar results last summer. Seventy percent of law firm leaders said that older partners were hanging on too long. In the process, they are hoarding clients, billings, and opportunities in ways that impede the transition of firm business to younger lawyers. Yet the drive to maximize short-term profits led 80 percent of firm leaders to admit that they planned to respond to current pressures by tightening equity partner admission standards. Pulling up the ladder on the next generation is not the way to motivate the young talent needed to solve the transition problem.

Morale

All of this may be working well for some partners at the top of what remains a leveraged pyramid business model. But even among the partners, all is not well. The Altman Weil Survey reported that 40 percent of law firm leaders thought partner morale was lower than it had been in 2008. In other words, deequitizations and partnership purges during the Great Recession haven’t produced greater happiness in the survivor cohort.

The Am Law Survey confirms that this downward trend continues. In 2012, 63 percent of managing partners characterized the morale of their partners as “somewhat optimistic.” In 2013, it dropped to 56 percent — near the 2009 nadir of 54 percent.

Leadership lemmings

Every survey reveals that most big firm leaders have their eyes on a single mission: growth. Whether through aggressive lateral hiring or mergers and acquisitions, some managing partners are cobbling together entities that aren’t really law firm partnerships. They’ve forgotten that a sense of community and common purpose is essential to maintaining organizational morale. They’ve also forgotten that no law firm is better than the quality of its people.

Most leaders also acknowledge that a myopic growth strategy imposes significant financial and other costs on their institutions — overpaying for so-called rainmakers who are less than advertised; sacrificing the stability that comes from a cohesive culture in exchange for current top line revenues; incentivizing partners to hoard clients because billings determine compensation and client silos facilitate lateral exits; discouraging the development of talent that should comprise the future of the firm.

As managing partners build empires that they hope will be too big to fail, they might spend a little time considering whether their denial and cognitive dissonance are producing entities that are too big to succeed.