Tag Archives: Harvard Business School

THE BINGHAM CASE STUDY — PART I

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“For the first time since I’ve been in this job, we have all the pieces we need to do our job.”

That was former Bingham McCutchen chairman Jay Zimmerman’s penultimate line in the September 2011 Harvard Law School Case Study of his firm.

Oops.

Harvard Law School Professor Ashish Nanda and a research fellow developed the study for classroom use. According to the abstract, it’s a textbook example of successful management. It demonstrates how a firm could evolve “from a ‘middle-of-the-downtown pack’ Boston law firm in the early 1990s to a preeminent international law firm by 2010.”

Oops, again.

Familiar Plaudits

At the time of Nanda’s study, the profession had already witnessed a string of recent big firm failures. He should have taken a closer look at them. In fact, only seven months before publication of the Harvard Study, Howrey LLP was in the highly publicized death throes of what was a preview Bingham’s unfortunate fate.

Bingham’s Zimmerman and Howrey’s last chairman, Robert Ruyak, had several things in common, including accolades for their leadership. Just as Nanda highlighted Zimmerman’s tenure in his study, two years before Howrey’s collapse, Legal Times honored Ruyak as one of the profession’s Visionaries. Along similar lines, less than a month after publication of the Harvard study, Dewey & LeBeouf’s unraveling began as partners learned in October 2011 that the firm was not meeting its revenue projections for the year. But Dewey chairman Steven Davis continued to receive leadership awards.

Perhaps such public acclaim for a senior partner is the big firm equivalent of the Sports Illustrated curse. Being on the cover of that magazine seems to assure disaster down the road. (According to one analyst, the SI curse isn’t the worst in sports history. That distinction belongs to the Chicago Cubs and the Billy Goat hex. But hey, anyone can have a bad century.)

Underlying Behavior

The Lawyer Bubble investigates Howrey, Dewey, and other recent failures of large law firms. The purpose is not to identify what distinguishes them from each other, but to expose common themes that contributed to their demise. With the next printing of the book, I’m going to add an afterword that includes Bingham.

If Nanda had considered those larger themes, he might have viewed Bingham’s evolution much differently from the conclusions set forth in his study. He certainly would have backed away from what he thought was the key development proving Bingham’s success, namely, aggressive growth through law firm mergers and lateral hiring. He might even have considered that such a strategy could contribute to Bingham’s subsequent failure — which it did.

To find those recent precedents, he need not have looked very far. Similar trends undermined Howrey, Dewey, and others dating back to Finley Kumble in 1988. As a profession, we don’t seem to learn much from our mistakes.

The MBA Mentality Strikes Again

What caused Professor Nanda to line up with those who had missed the fault lines that had undone similar firms embracing the “bigger is always better” approach? One answer could be that he’s not a lawyer.

Nanda has a Ph.D in economics from Harvard Business School, where he taught for 13 years before becoming a professor of practice, faculty director of executive education, and research director at the program on the legal profession at Harvard Law School. Before getting his doctorate, he spent five years at the Tata group of companies as an administrative services officer. He co-authored a case book on “Professional Services” and advises law firms and corporate inside counsel.

It’s obvious that Nanda is intelligent. But it seems equally clear that his business orientation focused him on the enticing short-term metrics that have become ubiquitous measures of success. They can also be traps for the unwary.

In Part II of this series, I’ll review some of those traps. Nanda fell into them. As a consequence, he missed clues that should have led him to pause before joining the Bingham cheerleading squad.

Meanwhile, through December 6, Amazon is offering a special deal on my novel, The Partnership: It’s FREE as an ebook download. I’m currently negotiating a sale of the film rights to the book.

HUMBLE LEADERSHIP

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Over a year ago, I considered the then newly-named dean of the Harvard Business School, Nitin Nohria. He’s been an outspoken critic of MBA curriculum that fosters short-term thinking at the expense of ethics and long-term values.

Nohria’s appointment came after the economic collapse of 2008 caused many to rethink what I call the MBA mentality of misguided metrics. Business school faculty worried that they’d taught too narrowly — emphasizing the need to maximize short-term profits at the expense of important but less easily measured values. Some suggested that business management should become more like a profession, such as medicine or, ahem, law.

Unfortunately, the most visible and powerful segment of the legal profession — big law — had already evolved to mimic some of the business world’s worst features. Nohria would have to look elsewhere for guidance.

So I read with interest his recent Q&A in the Wall Street Journal. Ethics has been a centerpiece of his curriculum overhaul at Harvard. But he’s even more concerned that this new classroom emphasis won’t stick once students return to the workforce.

“[T]here seems to be a big difference between people’s understanding of their responsibilities as business leaders and their capacity to live up to those when faced with pressure or temptation,” he told the Journal.

Because those achieving power have more difficulty retaining their moral compasses, Nohria’s new mission is cultivating humility.

“Abraham Lincoln said people think that the real test of a person’s character is how they deal with adversity,” Nohria told the Journal. “A much better measure of a person’s character is to give them power. I’ve been more often disappointed with how people’s character is revealed when they’ve been given power.”

Author Jonah Lehrer made a similar observation in a WSJ article discussing one study’s conclusion that nice people have a better chance of advancing:

“Now for the bad news, which concerns what happens when all those nice guys actually get in power. While a little compassion might help us climb the social ladder, once we’re at the top we end up morphing into a very different kind of beast.”

What does this have to do with lawyers? Plenty, especially most of those who run big firms where power has become concentrated increasingly at the top.

“Before the recession,” one management consultant observed, the top-to-bottom ratio within equity partnerships “was typically five-to-one in many firms. Very often today, we’re seeing that spread at 10-to-1, even 12-to-1.”

Several months ago, one big firm leader offered the Journal this spin:

“Pay spreads widen as firms become more geographically diverse, operating in cities with varying costs of living, said Peter Kalis, chairman of K&L Gates. The firm’s pay spread rose from about 5-to-1 to as much as 9-to-1 in the past decade as it expanded. ‘Houses cost less in Pittsburgh than they do in London,’ Mr. Kalis said.”

It’s a nice soundbite, but for reasons I’ve outlined before, not particularly persuasive. (E.g., Are there no top-of-the-range equity partners at K&L Gates’ Pittsburgh headquarters?)

But here’s the larger point: K&L Gates ranked 105th out of 126 firms in The American Lawyer  2011 Mid-Level Associate Survey. The firm scored well below the national averages in morale, collegiality, associate relations, training and guidance, family-friendliness, and overall rating as a place to work.

Kalis deserves praise for inviting recruits seeking jobs at his firm to ask tough questions. They won’t pose this one, but any leader should consider it:

While those at the top of big firms have consolidated their wealth and power, does true leadership — measured by the positive energy that everyone else in the place exudes — seem absent in a lot of them?

If Nohria is correct that the test of character comes when a person gains power, many at the top of some big firms could do better. Then again, it all depends on the metrics by which they’re measured.

THE COST OF DISSATISFACTION

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This month began with the publication of The American Lawyer‘s annual Mid-Level Associate Satisfaction Survey results. The dismal descent to historic depths continues. Let’s end it with this question: Why should law firm leaders care?

Answer: Because dissatisfied lawyers are costing them money.

That’s the conclusion of Harvard Business School Professor Teresa Amabile and fellow researcher, Steven Kramer, in The Progress Principle. They reported their findings in the Labor Day edition of the New York Times. At a time when most workers feel fortunate to have jobs, Amabile and Kramer have a tough sell in convincing employers, including law firm leaders, to worry about the psychological state of their employees.

We all know the mantra: No one is required to accept any job. The market allocates resources. A labor market clears at the point where buyers and sellers agree on a price for services sought and rendered. Workers take into account the factors that matter to them and get paid appropriately for the jobs they’re willing to do. Case closed.

Not quite. Such an analysis makes dubious assumptions about the market. On the employee side, bad or incomplete information can distort outcomes. A prospective law student might hope to emulate popular media images that merge with law school promotional materials promising a secure, well-paying future. Once in school, individual financial imperatives — such as the need to repay staggering educational debt — can constrain post-degree options. Meanwhile, the anticipated job often turns out to be neither secure nor well-paying.

Likewise, employers take false comfort in the misconception that a new hire is simply exercising free will in a free market. A firm assumes that if young attorneys’ experiences diverge from rosier expectations, any resulting psychological distress isn’t its problem. Never mind that the firm’s underlying business model produces behavioral incentives and a culture that exacerbate the disconnect.

“We’re just trying to run a business,” most law firm leaders would say. “There’s no metric for assessing the impact of career dissatisfaction on performance. If I can’t measure it, how can I consider it when making decisions?”

As long as everyone keeps billing hours, the profits beast continues to be fed. As unhappy associates alone bear the burden of their discontent, leaders rationalize their indifference to growing dissatisfaction with a simplistic analysis: if it gets too bad, people can leave and find another job. In the current buyer’s market for associates, boatloads of replacements are waiting in the wings anyway.

The work of Amabile and Kramer offers an intriguing rebuttal to myopic managers who can’t see past next year’s profits. In a longitudinal study encompassing ten years and 238 professionals in seven different companies, they asked people to make daily diary entries about their emotional states. Negative inner work lives resulted in “a profound impact on workers’ creativity, productivity, commitment and collegiality.”

The findings challenge the conventional wisdom that pervades many big firm cultures, namely, that pressure enhances performance. According to Amabile and Kramer, the data suggest that the opposite is true: “[W]orkers perform better when they are happily engaged in what they do….[O]f all the events that engage people at work, the single most important — by far — is simply making progress in meaningful work.”

The authors note Gallup’s estimate that America’s “disengagement crisis” costs $300 billion annually in lost productivity. They also observe that the vast majority of 669 surveyed managers shared an important incompetence: the managers “failed to recognize that progress in meaningful work is the primary [employee] motivator, well ahead of traditional incentives like raises and bonuses.” The catalysts that enable such progress are worker autonomy, sufficient resources, and learning from problems.

Big firm leaders determine the extent to which their workers experience these three catalysts. The leveraged pyramid and its billable hour regime enslaves associates while inhibiting partners from becoming mentors. In other words, the prevailing big law model cuts the wrong way for everyone. The resulting work environment produces dissatisfaction that’s costing the equity partners money.

How much money? William Bruce Cameron’s observation (sometimes attributed to Einstein) was right: “Not everything that can be counted counts, and not everything that counts can be counted.”