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In his book “Only the Paranoid Survive,” Intel Corp. Chairman Andy Grove refers to instances that he calls strategic inflection points. These are times when the decisions an organization is faced with are so important that how it makes them determines not only whether the organization succeeds, but often whether it survives. He concludes that successfully making a multitude of less important decisions cannot compensate for even one choice improperly made at a strategic inflection point. Washington law firms are currently at a strategic inflection point, largely because of the enormous increase in associate salaries. D.C. firms are likely to have greater difficulty passing along the cost of salary increases to their clients than their New York peers, who are more heavily oriented toward capital markets, and the California firms that jump-started this round of the salary race, who have been riding the surging Internet economy. As a result, D.C. firms face two choices: accept lower profits or find ways to reduce costs. How they react in the face of this choice will have dramatic ramifications. One obvious option is to reduce the support given to training and development activities. Thus far, virtually all law firms are thinking about this question in one of two ways. One set of firms is cutting back on training and development based on the following logic: training activities involve short-term costs for long-term returns that are difficult to quantify or even verify. Associates are moving from firm to firm or leaving the law more quickly than ever before. While they say more training will make them stay longer, it is not clear whether it actually will. Therefore, these firms reason, reducing support for training will lower costs with minimal (or no) long-term reduction in benefits for the firm. Another set of firms, including Washington, D.C.-based Hogan & Hartson and New York’s White & Case, is not reducing support for training, based on a different logic: the salary increases postpone the point at which associates become profitable for the firm. One way to offset the cost of the salary increases is to reduce attrition and get associates to stay with the firm well past the point at which they become profitable. Improved training and development programs may increase satisfaction and get associates to remain with firms longer, raising costs in the short run but improving long-term profitability. Obviously, the essential difference between these arguments is whether one believes that training and development programs reduce attrition. Unfortunately, it is virtually impossible to verify this proposition. While there is ample evidence that associates say that more training would decrease their propensity to quit, there is also reason to believe that what they say and what they do are inconsistent. For example, the same studies that demonstrate the importance of training also indicate that compensation is a virtual non-issue in associates’ career decisions, which is clearly not the case. Furthermore, because so many factors influence career decisions and attrition rates, it is virtually impossible to empirically verify the impact of any single factor. As a result, it is difficult to evaluate whether training and development will be reduced in the D.C. law firm of the future. This decision requires looking at two additional issues, one of which is being considered by a few smart law firms, while the other is being ignored by virtually everyone. CLIENTS’ GREAT EXPECTATIONS The first issue is client relationships. Put simply, clients’ expectations of associates have increased as a result of the salary increases. There are two reasons for this. First, when the costs of salary increases are passed along to clients, the result is that associates go from being merely costly to being almost ludicrously expensive in the eyes of clients. This means that whatever tolerance clients once had for rookie mistakes, inefficiency, and paying for on-the-job learning has disappeared. Even when costs are not passed through to clients, expectations change. Clients know that a first-year associate with no practical experience now costs more than a Harvard or Wharton MBA with three to five years of top-quality, pre-business school professional experience. They know the value they get from a top business school graduate, and they expect similar value from someone one year out of law school. All too often, however, new associates are utterly unable to deliver. A large part of the reason for this is that too many law firms leave new associates to sink or swim, believing that while training is important, the best type is on-the-job training. Given clients’ increased expectations, however, on-the-job training is quickly becoming downright dangerous to client relations. Smart law firms are realizing that the increased cost of associates necessitates investments in formal training programs to ensure that their associates are actually adding value to clients. These firms are also realizing that the required training goes well beyond traditional CLE and firm orientation. Perhaps the most important type of training is how to communicate with and understand clients. Business people and attorneys communicate very differently. Even when associates have the requisite legal skills, clients are often disappointed when associates do not fully understand the business issues behind transactions and disputes. All the drafting skills in the world cannot compensate for the lost confidence that results when clients realize that $175-an-hour associates don’t know what EBITDA (earnings before interest, taxes, depreciation, and amortization) is, or can’t understand how to estimate the value of damages. The firms that recognize this issue and act on it are the firms that will prosper after the salary wars. In New York, White & Case has begun to develop an entire training curriculum for their attorneys that spans accounting, finance, and business topics. Paul, Weiss, Rifkind, Wharton & Garrison is beginning to expand its curriculum to include a variety of communications, management, and leadership courses. Meanwhile, Hogan & Hartson has stated the desire for all its attorneys to become conversant in business and financial terms and issues, and the firm intends to roll out a training curriculum in these subjects in early 2001. These firms realize that training and development after the salary wars is about more than associate retention: it is about making sure your attorneys have the skills to meet your clients’ expectations. THE TRAINING PARADOX The second issue goes back to the associates themselves and is something that fewer law firms have recognized. While it is debatable whether improving training can improve retention, it is clear that reducing training hurts retention and recruiting. The attitude of Akin, Gump, Strauss, Hauer & Feld explains this seeming paradox. The firm is in the process of improving its training curriculum, and while admitting some doubt whether it will help the retention rate, the firm recognizes that today’s associates simply expect training and that continuous training is an explicit part of the compensation package provided by firms to their associates. Continuously improving training does not necessarily result in greater retention — it is the price firms must pay for being able to attract the talent they want. This approach is also taken by top-tier consulting firms such as McKinsey & Co. and the Boston Consulting Group. These organizations face attrition rates comparable to or worse than those experienced by law firms. The lifestyle is demanding, and consultants at these companies are highly sought after by corporations. Consultants continually leave for greener pastures and easier lives, and no amount of training can stop them. Yet, these firms continue to invest enormously in training and development. One reason is that they recognize the fundamental principle discussed above — that their clients expect their high-priced new hires to be able to add significant value almost immediately. The other reason, however, is that they recognize that providing superior training and development is an explicit part of the compact they have with their employees. People join McKinsey or BCG partly because they know they will get unparalleled learning and development opportunities. This is what enables these firms to hire the best people, to get them to devote themselves to work, and to create enormous employee loyalty. The result is a self-reinforcing cycle. The ability to provide superior training enables these firms to have the pick of talent, to do the most sophisticated and interesting work, and to enjoy significant price premiums. This increases their ability to invest in training and development, which increases their attractiveness to recruits. Yes, these recruits soon leave and take the skills they are taught to other employers, but this is beside the point. While top consulting firms would surely love to keep people longer, they recognize that ceasing to train their employees simply because many of them are likely to leave would erode their competitive advantage. Thus, the top firms continue to develop their people, in the full knowledge that much of the value of this development will be enjoyed by other organizations. Does the strategy work? Despite increased competition from numerous sources, the top-tier consulting firms continue to put distance between themselves and their competitors by any standard of measurement. Law firms whose training and development decisions in response to the salary wars are driven solely by retention considerations are making a mistake. Retention benefits should be viewed as icing on the cake. The real reason to increase support for training is that firms that fail to do so will inevitably be marginalized and relegated to second- or third-tier status. The process by which this occurs clearly takes time. If Skadden, Arps, Slate, Meagher & Flom, for example, stops investing in training today, it will not be marginalized overnight. Over time, however, the impact will be felt. Once upon a time, Holiday Inns were premium hotels. Many years ago, the company made the decision to invest less in maintenance and upkeep of its properties. The results were imperceptible at first. Over a number of years, however, the facilities began to appear shabby, and customers began to notice and to stay elsewhere. At the same time, management’s lack of interest in providing high-quality facilities and service became apparent to management recruits. As a result, graduates of top hotel management programs stopped wanting to work there, resulting in lower service levels. The two trends became self-reinforcing, and the result is that Holiday Inn became what it is today — a lower-end chain no longer at the center of the industry. Law firms are facing a strategic point of inflection. Firms with the courage to continue investing in their development programs will be able to meet clients’ higher expectations and will attract high-quality attorneys capable of doing high-quality work. Firms that choose the short-term gain of decreasing support for training and development will, over time, have increasingly dissatisfied clients and will lose the ability to attract attorneys capable of doing top-tier legal work. The choice with respect to training and development is not between having lower profits or lower costs. It is whether to focus on the short term or manage for the long term. Heed the words of Andy Grove and choose wisely. Some of your competitors already have. Adam Breslin is one of the founders of Pinpoint Training, a Washington-based company providing customized training programs to law firms in the areas of finance, accounting, business, and management. Courses are delivered through live instruction and the Internet. Breslin can be reached at [email protected]

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