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Passion, People and Principles

Are Law Firms Manageable?

post # 39 — March 29, 2006 — a Managing, Strategy post

In the April issue of THE AMERICAN LAWYER, just about to hit the newsstands, I have an article entitled “Are Law Firms Manageable?”

I’ve been asked not to post the full article on my website until April 6, but here are some highlights. [Update: the full-length version of "Are Law Firms Manageable?” is now also available in the articles section of my website.]

My core argument is that the ways of thinking and behaving that help lawyers excel in their profession may be the very things that limit what they can achieve as firms. Management challenges occur not in spite of lawyers’ intelligence and training, but because of them.

Among the ways that legal training and practice keep lawyers from effectively functioning in groups are (i) problems with trust; (ii) difficulties with ideology, values, and principles; (iii) professional detachment; and (iv) unusual approaches to decision making.

The problem of trust

In addition to fighting vigorously to preserve their autonomy, lawyers are professional skeptics: They are selected, trained, and hired to be pessimistic and to spot flaws. Lawyers carry this view into their dealings with their own partners.

It is hard to unbundle which is the cause and which is the effect, but the combination of a desire for autonomy and high levels of skepticism make most law firms low-trust environments.

A low-trust environment has plenty of unfortunate consequences—and they are readily observable in many law firms:

  • Initiatives that depend on teamwork and joint efforts will rarely be implemented well, if at all.
  • When a firm’s prevailing atmosphere is one of competition, not collaboration, partners rarely make sacrifices for the good of the firm.
  • There is low tolerance for ceding power or influence to practice group or firm leadership. The result is that even in the largest firms, executive authority can be so severely limited as to be meaningless.
  • Committees proliferate to address all topics, large and small.
  • There is a drive to seemingly objective formula-based compensation systems. These serve only to entice partners into gaming the system through hoarding work and bickering over origination credits in order to look good in the official statistics.
  • Most important, absence of trust may be a significant contributing factor to the extremely short-term orientations of many law firms.Investments of time or money that don’t yield immediate results are rarely made.
Skepticism about ideology, values, and principles.

The single biggest source of trust in an organization occurs when everyone can be depended upon to act in accordance with a commonly held, strictly observed set of principles.

When this is the case, less time is wasted in internal negotiations and posturing, strategies are implemented, and true teamwork results. Partners allow others to make decisions on their behalf or refer work to each other across the boundaries of practice groups and location because they can be confident that the other person will make decisions using the same values and principles that they would themselves use.

Law firms appear unable to achieve this level of ideological consistency. They will buy into principles—firms can have very high ideals as long as they remain ideals—but they have difficulty with the concept of enforcement. Firms are seemingly willing to adopt strategies and statements of values and mission, but are usually unwilling to specify what the penalty would be for noncompliance. Not surprisingly, that rarely results in effective implementation.

Most law firms say that the idea of tackling a rainmaker on ‘soft’ issues like teamwork, supervision and adherence to firm values is unrealistic, idealistic, uncommercial, and suicidal. While a majority of firms will vote to proclaim standards, they will usually not vote to enforce them.

Professional detachment.

As many researchers have shown, lawyers score very low in the areas of intimacy skills and sociability. They tend to prefer role-to-role interactions with people, inside and outside the firm, rather than eagerly seeking out person-to-person connections.

This can have unfortunate, if unintended, consequences. Consider this e-mail, which I recently received from Marein Smits, a Dutch lawyer:

‘At your recent seminar you made fun of me because I laughed at the idea of being genuinely interested in the industry and business of the people who are my clients. Rightly so: My laughing was cynical… The first thing you learn when you become a lawyer is not to care. The legally sound judgment, the intellectual sparkle, that is what counts. The personal, the emotional, what is right: Throw it away, because it will taint your professionalism. ‘Do not get involved’ is the credo.’

This lack of intimacy eaffects not only marketing and client relations, but also the way in which partners deal with each other and how firms are managed.

Rather than describing a highly interpersonal approach to coaching and helping each other succeed, the term ‘management’ has come in many firms to mean a cold, detached, analytical approach to business. Financial scorecards are put in place, and everyone is told (implicitly or explicitly): ‘Here’s what you will be measured on; see you at the end of the year!’

They are not helped to achieve, merely rewarded if they do, and they live in fear of what might happen if they do not. This can achieve the goal of getting everyone to work harder, but it comes at a significant price in terms of partner morale and cohesion.

Help, teamwork, and mutual support are often absent, since they depend on personal interactions. Instead, there is a system of measures and rewards.

Approaches to decision making.

In a room full of lawyers, any idea, no matter how brilliant, will be instantly attacked. Lawyers are expert loophole finders, trained to find counterexamples of or exceptions to any proposition. Accordingly, within a short time, most ideas, no matter who initiates them, will be destroyed, dismissed, or postponed for future examination.

Frequently, this leads managing partners, committee chairs, and practice group leaders to substantially overinvest in decision making.

They want to be armed in advance with a lengthy memo about every decision, so they can dump it in the lap of the complainer as part of fending off the attack.

Another common management strategy is to keep all proposals ambiguous, so that there is nothing specific to be attacked.

As a result, law firms have a remarkable propensity for half measures, launching poorly specified programs with minimal chances of success.

When lawyers reason with each other, the primary objectives are not necessarily logic, consistency, reasonableness, or fairness.

In their professional practice, whether in trial or deal-making, many lawyers are more frequently rewarded for persuasiveness, rhetoric, verbal agility, and point scoring. These habits of a professional lifetime readily spill over into internal firm discussions.

Lawyers also have a strange view of the concept of risk. In any other business, an idea that was likely to work much of the time would be eagerly explored. This is not necessarily the case with lawyers. A lawyer would say ‘Maybe, but I can construct a hypothetical scenario where it will fail to work. That makes it risky.’ Probabilities do not seem to influence the discussion, only possibilities.

There is no greater condemnation in legal discourse than to describe something as risky. Contracts, deals, and court cases must be bulletproof, not risky.

In other businesses, innovative thinking and action are considered a primary requirement for success. Companies eagerly search for strategic ideas and initiatives that their competitors have not discovered.

Lawyers are usually different. Presented with a new business idea, the first thing they ask is, ‘Which other law firms are doing this?’ Unless it can be shown that the idea has been implemented by other law firms, lawyers are skeptical about whether the idea applies to their world. If everyone has these problems, they can’t be so bad, the thinking goes. As long as we are no worse than anyone else, we don’t need to change! It’s hardly a recipe for a strategic advantage.

What can be done?

If lawyers deal with each other so poorly, why do they do so well financially? My answer is only partly humorous: The greatest advantage lawyers have is that they compete only with other lawyers. If everyone else does things equally poorly, and clients and recruits find little variation between firms, even the most egregious behavior will not lead to a competitive disadvantage.

If firms are to deliver on the visions they have set for themselves, they must address such issues as what behavior partners have a right to expect from each other, what the real minimum standards and values are, and how common values and standards can actually be attained, not just preached.

One of the central things we know about trust and collaboration is that they come mostly from repeated interactions between people who have not only a history together, but also the certainty of a future together.

Trust comes from relationships, and the expectation of continuing relationships. Over time, as they interact with each other, they as partners, practice groups, and offices may actually come to trust each other.

Unfortunately, in many of today’s firms that have been cobbled together from lateral hires and newly merged practices, the personal history that forms the basis of trust is often missing, as is the confidence that everyone will be practicing together for a long time.

In many firms, even solidly successful partners live in fear that they will be among the next group of partners to be ‘let go.’

In such an environment, the natural evolution of trust may be difficult, if not impossible. Instead, what firms need, literally, is a constitutional convention where their lawyers draft the explicit, basic law that is going to govern their firms—the precise behaviors, rules, and principles that will determine what partners have a right to expect from each other.

When thought of as aspirations (which is usually the case), firms’ values are usually explicitly articulated and remarkably similar.

However, if a value is seen as a minimum standard of behavior that all members agree to live by, then the true values remain ambiguous in most firms and vary immensely among firms.

What then will be the force that might create the need for change? Most likely, it will be client pressure on firms to act as firms—delivering seamless service, practice areas that have depth (and not just a collection of individualistic stars), and true, cross-boundary teamwork.

Many firms have collections of great lawyers. The time may be coming when clients will expect them to go beyond this and become effective organizations. Without a prior, explicit agreement on minimum standards, and the resolve to enforce them, many law firms will not function well as firms, but will remain what they are today: bands of warlords, each with his or her followers, ruling over a group of cowed citizens and acting in temporary alliance—until a better opportunity comes along.

For the full article on which this blog post is based, see this month’s AMERICAN LAWYER. [Update: the full-length version of "Are Law Firms Manageable?” is now also available in the articles section of my website.]

12 Comments

Friedrich Blase said:

David:

with much of your article I agree. Just a thin line of thought that may be relevant:

One ingredient for mastering the challenge of turning several hundred (depending on size of partnership) businesses into one business is leadership. I just wonder whether the factors you raise don’t prohibit the development of competent leaders. At least as long as the profession and its business entities remain “pure” — only lawyers are partners and have a real say. The first solution for this problem has been practiced: bring in an outside non-lawyer to run the place. But experience seems to suggest that this does not work (as a rule with exceptions); partners get even more internally focused and/or leave the boat. Yet, I seem to observe that the majority of lawyers, especially the younger partners, want to break with the history and want to create a common and collaborative business. Hence is the solution then the one where an outsider creates a law firm from scratch (as a shell) and invites those that play by the rules necessary and in place for creating the “one business”? Absurd in the past, but in future as well – with the financing alternatives in place through the Clementi reforms in England & Wales? Could this be a game changer as then, you pointed it out, lawyers no longer compete with lawyers?

Friedrich

posted on March 30, 2006

Phil Gott said:

A very interesting piece. Hard hitting though I think most law firm partners would agree with your analysis.

I wonder if you see a detailed constitution as an alternative to building trust (is trust really necessary so long as behaviours are appropriate) or as a tool to help build trust (by removing opportunities for behaviours that might undermine it).

posted on March 30, 2006

David (Maister) said:

Friedrich – I think you have made a number of very important points. First, to break out of the low-trust cycle would require a leader with a real ideology and the courage to fight for it, but as you say, the system and the culture prevent such a person emerging.

I also agree that a non-lawyer executive is NOT the answer – the whole point of my analysis is to argue that it is the training and culture of the lawyers that causes the problem, not the individual characteristics of the man or woman in charge (see my earlier blog about ‘Dangerous Rubbish about Leadership.’

I think you are completely correct that significnt change will not come fom within – innovations in business, we are taught by Clayton Christensen in The Innovator’s Dilemma) always come from upstart outsiders or spin-offs.

I absolutely expect that to happen in the practice of law. I do sense that the level of partner frustration in many firms has hit boiling point, and I think you are hinting at the same thing.

The core issue is the sad fact that so many law firms seem to think that what they have now is inevitable – and THEY don’t lke it. It’s not you or me, Friedrich, taking pot-shots from the sidelines. THEY hate it, but feel stuck!

posted on March 30, 2006

David (Maister) said:

Phil, I think that building trust is going to take a lot more than just a constitution, but I also believe that it has to start there. If we don’t know what agreements we have with each other, what we can expect from each other, what the rules are in our society, how can we begin to trust another person? Coaching, support, concern, assistanace and, yes, ultimately, enforcement will be necessary, but none of these can take place if there are no agreements on what the real rules of mebership are.

posted on March 30, 2006

Mike O'Horo ("The Coach") said:

David,

My observations of law firm governance and leadership are more of a microcosm of yours, viewed through the narrower lens of firms’ sales and marketing functions and decisions. Like you, I scratched my head at the odd combination of undeniable economic success and organizational dysfunction.

I’m convinced that law firms are not inherently unlike other organizations; they’re merely less mature organizationally. While the science of law dates from the Magna Carta, the competitive business of law arguably is only 25 years old, since the Bates decision — in historical terms, a toddler, perhaps even an infant.

It was only 10-15 years ago that law firms began professionalizing the most basic business functions: finance, HR, IT. That the profession’s operational or executive management lags far behind is no surprise, particularly given your astute observations about the control and trust issues in the culture.

I think it’s important to look at “leadership” and “management” not as baseline expectations as they have become in most other industries over time, but as new ideas, as innovation. As Everett M. Rogers argues in “Diffusion of Innovations,” (very dense; don’t bother unless you’re really curious about this stuff) innovations do not sell themselves. Rather, idea adoption follows a very predictable curve that we have all seen play out: 1) Early Adopters are motivated to try something new, for many reasons; 2) as their success is reported, others adopt the idea, accelerating the adoption rate; 3) at some point, usage reaches a critical mass, making yesterday’s innovation today’s mainstream. Systemic change is an effect, not an initiative.

In business, people initially associate out of necessity, usually to pursue a common goal. When they succeed, they create “operational trust,” which emboldens further operational change. In this context, we’re at the Early Adopter stage of many of the management concepts you cite.

We recently developed an innovative architecture to make client teams functional and prepare associates for a productive relationship with the marketplace. This includes a reward system that aligns all parties’ self-interest. We are encouraged by the number of managing partners who are embracing this approach, have told us that we’ve “cracked the code,” or are currently exploring its feasibility. We consider that an encouraging start.

We’re not going to see precipitous, systemic change in management, trust or collaboration, not because they’re lawyers but because that doesn’t happen anywhere.

posted on April 6, 2006

Andy Havens said:

Abso-freaking on point, David. You’ve managed to pull togtether many of the points that lots of us in various legal consultative roles have been making for years. In short—that law firms are, in their current incarnations, simply dysfunctional from a management and standards viewpoint.

I don’t know what can be done to really drive change in the industry. As you say, there is really no alternative to lawyers when it comes to law.

I wonder what a law firm managed by partners all of whom had had good, positive, extenxive experience at major corporations might look like?

I wonder what a law firm managed by lawyers who had been other things before becoming lawyers might look like?

I wonder what a law firm managed by the Borg might look like. Actually, I don’t have to imagine that ;)

Nice piece, David. Really, really nice. I look forward to reading the full monty.

posted on April 6, 2006

David (Maister) said:

This just came in by email from

Carl A. Singer, Senior Implementation Manager,

at Information Builders Consulting –

I enjoyed your insights about lawyers. My #2 son is completing his second year of law school and I see much of what you say reflected in him. I don’t know if it’s chicken or egg—that is did he gravitate towards law because, or has studying law changed him.

posted on April 7, 2006

Mike O'Horo said:

This whole thing reminds me of my niece’s experience with a megafirm. After undergrad, she worked for a summer at a large firm for whom her father was a significant client. At her law school graduation party last summer, in response to my question about what she thought she wanted to do, she said, “I definitely don’t want to work for a big firm.” She went on to describe the experience as so disrespectful and inconsiderate that, had she not already been accepted to law school at the time, she would have cancelled her application and chosen a different profession. She’s clerking for a judge right now, but the decision where to practice will return for her in a year or so. Will law firms be any more attractive then? We’ll see.

posted on April 7, 2006

Mel Bergstein said:

David, as you well know, your observations are not limited to lawyers. They really apply to all organizations that employ and are managed by knowledge workers. Well done.

posted on April 8, 2006

David (Maister) said:

I received this comment by email—

David: I served as chair of an AmLaw 100 firm for more than a decade. Many of the points made in your article are entirely consistent with my own experience.

When I became chair, my firm was in serious trouble. It had made imprudent investments, profits had declined significantly, and the firm had suffered a series of partner defections. To make matters even worse, the firm had borrowed to fund distributions to partners and was in default under a credit agreement.

I was asked by a group of partners whether I would run for the position of firm chair. I told my partners that I would stand for election and, if elected, would serve only with the understanding that I would treat the chair position as full-time. I felt that full-time leadership was mandatory if I were to have any chance of success. I said that I wanted authority to act quickly and decisively, similar to the authority that a corporation vests in a CEO. I also said I was confident we could save the firm if we all dedicated ourselves to that task. In essence, I ran on that platform. And I was elected.

The recovery was very much a team effort, but I’m confident it would not have taken place but for the substantial authority vested in the firm’s chair by its partners. But as the firm grew strong again, it became increasingly clear to me that the firm had been much easier to manage when it was in great difficulty than after it regained financial health.

In the early years, the path was clear — address overcapacity, reduce unnecessary expenses, close underproductive offices, weed out inappropriate clients, improve quality, strengthen risk management procedures, recruit well, and communicate with everyone all the time about everything.

While I never took advantage of the authority my partners had vested in me, neither did I wonder whether I would have partner support for difficult decisions. I believe they trusted me to make good decisions, and I trusted them to support me.

But as time passed and the firm became healthier, my job became noticeably more difficult. Many of the issues that you suggest make law firms difficult to manage — problems with trust, cultural differences, dysfunctional interpersonal behavior, and aversion to risk — came to the forefront.

One of the lessons from my experience is that the degree to which partners cede management authority to their leaders may well be inversely proportional to the firm’s current health. You ask, ‘Are law firms manageable?’ My answer is, ‘Yes, when they’re in dire straits. At other times, I’m not so sure.’

Like you, I believe there is some hope. I know another AmLaw 100 firm that has a culture I would have given anything to have had at my former firm. Most of this firm’s partners will say ‘values and culture’ when you ask what means most to them about the firm. Interestingly, this firm has a single-tier partnership. My sense is that it has suffered relatively less partner and associate turnover than many of its peers. Trust and collaboration are among the values its partners hold most dear.

Thanks for contributing to a fascinating dialogue on law firm management issues. I look forward to reading your posts.

posted on April 12, 2006

Bruce MacEwen said:

David: An invaluable piece, and a milestone (IMHO) in the literature of managing law firms.

My thoughts are here:

http://www.bmacewen.com/blog/archives/2006/04/david_maister_o.html

all the best,

:Bruce

posted on April 13, 2006

David A. Smith said:

You’re on to something here. Indeed, I would extend the reasoning to include several other elements:

Lawyers value words over numbers. Business management is all about numbers. This subject generally makes lawyers feel uncomfortable.

Lawyers are advisors; they believe in laying out endless alternatives and having someone else decide. Business management requires deciding.

Lawyers believe no risk is too small not to mention or highlight.

Business management is about knowing what to ignore.

These are in addition to your entirely valid point about that lawyers delight in the sophist argument divorced from personality (litigators are usually very nice people outside the courtroom) or equity (they argue the case rather than stepping back for what’s fair).

posted on April 13, 2006