SECOND AND THIRD THOUGHTS?

Business school deans searching for professional models that will restore ethical legitimacy to MBA programs and principles aren’t the only ones second-guessing their earlier impacts.

At last week’s annual meeting of the Seventh Circuit Bar Association, Hildebrandt Baker Robbins participated in a panel discussion as a representative of the cottage industry it spawned: law firm management consulting. A 2010 Client Advisory on the legal profession’s immediate past and predicted future included this line:

“In our view, one of the serious misues of metrics in the past few years has been the overreliance on profits per equity partner as the defining index of a firm’s value and quality.”

Great. Now you tell us. Or I should say, now you change your mind. Or do you?

As the 1990-1991 recession decimated a much smaller version of what is now called biglaw, the National Law Journal’s annual survey of the largest 250 firms in 1991 quoted Bradford Hildebrandt, who in 1975 founded the company bearing his name:

“In most firms, current management has never operated within a recession and didn’t know how to deal with it…”

So who could save us from ourselves? Hildebrandt Inc. became one of the leading players in bringing business school principles and MBA-type metrics into law firm management.

By 1996, Mr. Hildebrandt himself had analyzed our situation and offered this assessment in that year’s NLJ 250 issue:

“The real problem of the 1980s was the lax admissions standards of associates of all firms to partnership. The way to fix that now is to make it harder to become a partner. The associate track is longer and more difficult, and you have a very big movement to two-tiered structured partnership.”

Did most big firms heed his advice? And how. It was an easy sale based on the promise of higher equity partner profits. That was the definitive metric, wasn’t it?

Now Hildebrandt offers a new metric to replace profits per equity partner as the key measure of overall firm performance: profit per employee.

What’s the new goal?

“Greater efficiency in the delivery of legal services,” the Advisory asserts.

Does the new guiding metric embody a more extreme version of an approach that has dominated most big firms for the past 20 years? Perhaps. But some proposals for individual partner evaluation hint at the need for a mid-course correction. Instead of billable hours, Hildebrandt suggests client satisfaction ratings. Rather than leverage, employee satisfaction ratings would matter.

Confused? Hildebrandt knows just the consulting firm to help implement these complex and seemingly contradictory metrics:

“As always, we stand ready to assist our clients in negotiating through these new and uncertain waters.”

Thanks so much for all of your help.

One thought on “SECOND AND THIRD THOUGHTS?

  1. This is an excellent article that puts its finger on the sore point of the last 20 years of law firm development. The PEP drive has led to firms devising billing methods, staffing structures and remuneration that boosts PEP, rather than pushing harder to help clients in the hope that this in turn will generate greater PEP. It is rather like a company that does all it can to boost its share price, but undermines its foundations for the long term.
    The rise of the salaried partner is a case in point – stats reveal they are the least productive lawyers in a firm, far less than associates, they are also far less satisfied. The ‘salaried band’ is a dumping ground for de-equitized partners and those without a client following. They are often kept there not because it is good for the clients for them to be there, but because the equity partners don’t want them to dilute their PEP. One could add that some firms exploit the fact they can market and price these in effect senior associates as ‘partners’, without having to see them take a share of the profits.
    However, the trend to focus on the client is right. The move toward remuneration based on client feedback is valid, however, how to do this is another matter.

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