Who or What is the Firm For?
post # 375 — May 10, 2007 — a Strategy post
The longer I think about business, the less I think I understand it clearly.
The latest issue of The American Lawyer magazine reports on the top 100 largest US law firms, and includes a number of interesting articles and analyses.
Two in particular caught my attention. One reported on the general industry trend (discussed in this blog before) of partners becoming increasingly mobile between firms. Actually a number of articles were about this – it’s probably the single most important thing going on as a structural shift in professional businesses – not restricted to just law firms.
The issues the trend raises in my mind were exemplified by the second article which profiled an immensely successful firm which has dramatically improved its profitability (among other accomplishments) in the past 5 years. The “moves” made by the firm did indeed impress this reader.
But here’s the kicker: the article pointed out that, since 2001, 37 percent of the partners (i.e. shareholders) had left the firm. Now how is one supposed to process that?
“The firm” has clearly flourished – but not for all the people that, theoretically “owned it” and worked there five years ago.
That is, of course, how business in most industries work: a “company” can be deemed successful even if (a) it is no longer in the businesses it was in when it started (b) the people who worked there no longer do and (c) the company serves completely different customers and markets than it did before.
What has flourished is the entity: it’s not clear what else has.
Now I’m not saying it’s inevtably bad (I’m a free-market capitalist who went to business school.) I am saying it’s confusing and ambiguous.
Who are we running the firm for? The standard capitalist answer used to be”for the shareholders.” But if it is not unusual for one third of them to be gone within 5 years, what then remains as the purpose? Who THEN are we running the place for? Or for what?
Mark Gould said:
This is a very interesting question, David. Before reading your post, I had also read Bruce MacEwen’s comment on the one of these articles. Without wanting to misrepresent Bruce’s position, he appears to prefer the view that firms change themselves (by shedding partners) to suit the changing needs of their clients. Does that mean that professional service firms exist to serve the shareholders of their clients?
posted on May 10, 2007