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Someone should remind law firm leaders that the Fifth Amendment protection against self-incrimination isn’t just for clients. It can work for them, too. The latest Altman-Weil survey of firm leaders is proof of widespread management incompetence, stupidity, and worse.
The survey went to the chairs or managing partners of 791 firms with 50 or more lawyers. Firms with more than 250 lawyers (that is, mostly Am Law 200 firms) had a much higher response rate (42 percent) than smaller firms (26 percent). In other words, the survey results tilt toward big law firm attitudes.
The troubling big picture
The Am Law Daily’s summary includes comments from the survey’s author, Thomas Clay, who said 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.”
For example, 95 percent of respondents view increased pricing competition as an ongoing trend, and 80 percent expect shifts to non-hourly billing structures. But only 29 percent have made significant changes to their own pricing practices in the wake of the recession.
Group stupidity
It gets worse. When asked to identify their greatest challenges over the next 24 months, the item that managers cite most often is “increasing revenue.” The rest of the list is, in order: new business, growth, profitability, management transition, cost management, and attracting talent. If you’re wondering where clients fit — other than as a source of revenue and profits in items one, two, and three — “client value” finished eighth.
Long-term thinking? Forget it. The client silo mentality and resulting culture of short-termism are widespread and deep. Almost 30 percent of law firm leaders say their firms lack adequate mid-level partners to whom they could transition clients. In another set of responses, they reveal why: 78 percent say that “senior partners don’t want to retire”; 73 percent admit that “senior partners don’t want to forfeit current compensation by transitioning client work.”
Lateral incompetence
Meanwhile, lateral hiring remains the prevailing strategy to achieve growth. Ninety percent of respondents plan to hire laterals in 2013; more than 60 percent seek entire practice groups. For firms of more than 250 lawyers, the numbers are even more startling: 100 percent plan to acquire laterals; 92 percent plan to acquire groups.
How much time do lateral partners get to prove their worth? Almost 60 percent of responding firm leaders say two years or more; 30 percent don’t set a time frame.
What happens when laterals don’t meet the expectations that brought them into the firm? Two-thirds of firm leaders said that they “sometimes, rarely or never” tell unproductive lateral hires to leave.
Institutional ineptitude
Almost 40 percent of respondents say their partners’ morale is lower compared to the beginning of 2008. And those partners survived the purges of 2009 and beyond.
If you’re looking for contributors to declining morale, try these. Seventy-two percent of firm leaders report that fewer equity partners will be a permanent trend going forward. Three-fourths have either tightened their standards or take them more seriously. Meanwhile, 92 percent of responding two-tier firms don’t have an up-or-out policy as non-equity partner profit centers grow.
To summarize:
Managing partners know that change is coming and clients are demanding it, but firms aren’t revisiting their basic strategies or business models.
Growth and profits finish far ahead of enhancing client value as most law firm leaders’ top concerns.
Leaders view aggressive lateral hiring as critical to law firm growth, but when laterals don’t produce, most firms don’t do much about it.
Succession planning is problematic because senior partners don’t want to relinquish compensation that is tied to their client billings.
As senior leaders continue to pull up the equity partner ladder on the next generation, morale plummets and managing partners worry about the absence of mid-level talent to serve clients in the future.
Taking all of this together, psychologists would call it a severe case of cognitive dissonance — simultaneously holding contradictory thoughts in your head. Those who assert that most big firms are resilient and face no life-threatening problems are wrong. A crisis of leadership is already upon us as lot of supposedly smart people continue to do some really dumb things. Don’t take my word for it; they’re outing themselves.
The Belly of the Beast 
While this is certainly damning and fact-filled, the reality is that firms are not single organizations but a collection of self-interested professionals. There is nothing inherently wrong with that but for when the chasm between the leadership and the rest of the org grows too wide.
The simplest explanation is perhaps the hardest to cure. You touch on this above when you hit on older partners not wanting to retire. Why would they? The money is too good.
So there are three options. One, create a mandatory retirement policy – unlikely. Two, create an incentive for older partners to either retire (tailing comp) or reinvest in the firm (accelerated comp). This would take some creativity but could be successful. Or Three, create an energy to be reckoned with from the junior partner/associate class. This would take time but if done properly would not only set the stage for leadership movement but also equip the future leaders with more “growth” friendly skills and attitudes.
Law must be either a profession or a business; it cannot be both. Re-missioning of the law firm as a business pursuing profits and growth over clients’ interests and collegiality has destroyed the profession over the past 30 years. Pursuit of growth is ever only realized by short-termism, by definition. The law firm as a professional entity never was a “collection of self-interested professionals” but a cooperative of professionals working together for the good of their clients and struggling to suppress the natural personal greed, envy, and competition destructive of the common bonds. It is no accident that the U.S. firms that grew in size to pre-dominate the profession derived the lock-step compensation formula, reviled by the ‘Me Generation’ of the 1980’s. The rot in law does lie in the compensation, but in the “eat what I kill or I leave” structure forced by the ‘young turks’, not recognizing that personal productivity comes and goes with economic cycles, business fad, and personal exigencies. More than one ‘young turk’ took a ‘sabbatical’ in the wake of family tragedy, personal burnout, or demise of area of specialization.
Characterizing partners or shareholders, native or lateral, as “unproductive” simply feeds the internecine competition that is born of short-termism. Laterals more often are “unproductive” because their new partners were only interested in acquiring their clients and not the lawyers and thus never bring them into the fold, working cooperatively and logistically supporting the newcomers. And of course, in the ‘eat what I kill or I leave’ structure, every partner, every shareholder, and every associate is motivated not only to isolate but steal clients, doing so by undermining colleagues, forming piratical and predatory fiefdoms, and always having one foot poised at the door. Why should senior partners leave? Yesterday’s ‘young turks’, they built the rotting corpse—and never funded their firms’ pension liabilities.
It is a shame that BigLaw has devolved to this point and seems to be in a quick race to the bottom. However, it’s the New Normal. Someone woke up and found out that in a free market economy, every enterprise is a business. Yes, we can lament it all day long, but at the end of the day that’s what we’ve got. Since BigLaw has historically been behind the times in responding to market conditions, they’re playing catch up now and will make serious mistakes adjusting until the dust settles at some point.
I have no problem with partners wanting to squeeze every ounce of profit out of their firms possible — we’re all out there to earn a living. If they do it at the expense of their clients, their clients will go elsewhere and….Firm X will change or die on the vine. If they’re clueless on how to continue to run their business (I mean, firm), well, the ghosts of Dewey, Howrey, Heller etc. etc. loom. If they do it at the expense of their unproductive partners, so be it. Maybe those folks would be highly successful in-house or at a smaller firm…but not at BigLaw in the 21st century. I am a former lawyer and have been coaching and placing BigLaw attorneys for 15 years.
When I speak with law students, I ask them how many of them want to earn tons of money at BigLaw. When a bunch of them raise their hands, I then ask, how interested they are in learning to become salespeople (sans pinky ring and white patent leather shoes). For the ones that don’t raise their hands, I tell them that even though there is a place for them at BigLaw, they will always have a target on their backs; and maybe another line of work is in order. Yes, it may be cynical, but come on folks, just because we all went to law school doesn’t mean that we exist outside the general economy, as much as many of us wish that were still the case…Party’s over.