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Q:The numbers are out for 2003, and it turns out to have been a strong yearfor some firms and a flat year for others. What can we expect for 2004, andwhat will firms be doing about it? A:Last year was a turnaround period in which the economy emerged fromrecession and corporate practices worked up a head of steam (at least duringthe last six months). This year promises to be even better. At the six-monthmark, litigation is continuing its long, strong run, and corporatedepartments’ momentum is accelerating. Even Silicon Valley, which has laggedbehind other major markets by about 18 months, is awakening. IPOs are in thepipeline. Despite business-press predictions to the contrary, I believe thatGoogle’s offering will fuel more; after all, this is the Valley. High-profile white-collar prosecutions in 2003 were followed by countlesscomplex civil litigation filings. This year prosecutors have alreadyobtained a conviction against Frank Quattrone. If they can take a few morescalps, such as those of Dennis Kozlowski and Jeffrey Skilling, they will beemboldened to go after more, and litigation will continue to be strong. Ifthose prosecutions fail, the wind may be knocked out of corporate financialfraud litigation. Increased demand is likely to push hourly billing rates at top firms a bumpaway from $1,000 by 2005. But that psychological barrier may prove hard forfirms and clients alike to break. If the barrier proves substantial, somefirms will capitalize on the opportunity by moving to premium billingstructures. The Wilmer Cutler Pickering-Hale and Dorr merger will lead many strong firmsto revisit their merger postures. For them, a crucial question will be whatsize they will need to be to compete effectively, both on a national andglobal level, over the next five to ten years. Another question will be howthey can dominate practice areas through combinations with other firms in anotherwise fragmented industry. There will undoubtedly be one or more additional strong-on-strong firmcombinations. The desire for “platform” — the combination of financialstrength, practice mix and depth, geographic reach, and market position — willcontinue to drive lateral movement and cherry-picking across a broad arrayof firms. Although most firms are increasingly frustrated by the incrementalnature of expanding by onesies and twosies, that will continue to be thestrategy of the most successful firms seeking to build depth in corepractices. To more successfully compete on the financials, aspiring firmswill accelerate the winnowing and divestiture of noncore practices and theraising of their ratio of nonequity to equity partners. Finally, there is the question of what happens to the IP boutiques.Essentially, we have seen continued segmentation of this market. Thestronger firms will build strength in IP litigation, which is likely tocontinue to be strong, although perhaps not at the breakneck pace of thepast several years. The weaker players — conflict-prone prosecution-dominatedpractices that are declining in strength — will keep suffering fromcherry-picking of their star litigators. Ultimately they will fold or beforced to look for a similarly situated combination partner. We may seenational or regional roll-ups among these firms in the not-too-distantfuture. Q:Our firm is revamping its practice group structure and reconsidering what wewant from our group heads. What skills do practice group leaders at leadingfirms need today? A:Over the past decade, practice group leaders have become important playersin driving firm strategy and profitability. As senior firm managers give uptheir clients and practices in favor of full-time management duties,practice group leaders — who typically carry full or nearly full billablesloads — play a role akin to that of factory floor managers, close to clientsand the lawyers who service them. As the key link between the firm’s management and its clients and lawyers,successful practice group leaders need a broad array of managerial, clientservice, and people skills, as well as rainmaking and longevity, thehallmarks of yesterday’s leaders. To function effectively today, practicegroup leaders must knit clients’ needs to their firms’ service offerings.That means they need a keen sense of where their groups fit in the fabric oftheir firms’ practice group mixes, both strategically and financially. Groupleaders in core practices must be able to lead the upgrading and growth ofthe client base and to push billing rates. Leaders in service practices needstrong right-sizing skills and the ability to place hammerlocks on clientand matter intake. On the people-skills side of the equation, successful practice group leadersmust have a strong sense of personal responsibility for the success of theirown, the group’s, and the firm’s practice. They also need the ability tomotivate and derive enjoyment from the successes of others. Astraightforward communication style, strong listening skills, and theability to leave some things unsaid are critical; those typically require ahigh level of self-awareness and confidence. Practice group leaders must also ensure and drive the quality of the firm’swork product, both by example and by implementing practice developmentprograms for their groups. To do so, they must have a passion for theexcellence of the group’s work product. As a manager, the most important job of a practice group leader may begrooming a successor. Leaders must be able to fairly evaluate and review themanagerial talent in their groups. That means being able to trust anddelegate to others and having a strong sense of what’s important. Managersalso need to have the ability to set priorities for themselves and others inthe group, to intervene, and to criticize constructively, and they must knowhow to measure the outcome of their effort. I recently read a piece in Fast Company magazine, detailing General ElectricCompany chairman Jeffrey Immelt’s views on the skills that top GE managersneed. Many of them overlap with the skills that a practice group leaderneeds. I was particularly struck by the applicability of his last one: theability to understand people, to always be fair, and to want and expect thebest from people, but to know that when something doesn’t work, it isn’tpersonal. Q:We are a strong midsize middle-market regional firm with a principal officein a major city and several outlying offices nearby. We believe that we areat a crossroads in our growth: Should we open an office in a second majorcity, or hook up with another firm that wants to enter our principal marketand is further along in building a national or even global practice? Is itrealistic for us to think that we can continue to grow on our own? Must wemerge or be acquired? A:This is probably the most vexing topic for strong regional middle-marketfirms today. It deserves more treatment than I can give it here, but it isworth highlighting the strategic considerations. The market forces of growth, globalization, and consolidation areinexorable. Although many firms combine for the wrong reasons, there is nodoubt that servicing the most important needs of global companies andindustries will require leading law firms to have global reach. To grow,firms must be financially strong, and that includes having sufficient netoperating income to expand — all of which means being big. If your firmultimately wants to compete for the best work from the best clients, it willalmost surely have to grow big, either by making acquisitions or by beingacquired. Your firm can probably maintain its independence for the foreseeable future,if that is important to your partners, by balancing growth initiatives withstrong financial performance. Too many firms spend too much money openingoffices in nonstrategic markets. Those offices dilute the firm’sprofitability. They wind up attracting and turning out underperformingpartners. Under the worst of circumstances, these partners and officesdilute the firm’s performance so much that its most productive partnersstart to look elsewhere. This is the cycle that you want to avoid. Given the position you’re in, growth only makes sense if it can beaccomplished without weakening your financials. Short-term investments arefine; prospective offices that won’t turn a profit (after partner draws) inthe short term shouldn’t be opened. This may mean strengthening your core,most profitable practices and expanding them from your current locationsbefore growing geographically. It certainly means expanding into newgeographic markets only if it is accretive to your profits. It also likelymeans that you will need to hone your practice down to its most profitablecore while building or maintaining some countercyclical practices. Today, the choice for midsize, regional firms that want to compete at thetop really isn’t primarily about building a geographic footprint. Rather, itis about building financial strength. A strong balance sheet with top-tierprofits will give midsize firms a better position for the future than will anetwork of offices performing at midmarket profitability. Peter D. Zeughauser is managing partner of The Zeughauser Group, a Coronadel Mar, Calif., consulting firm. He is also of counsel at Claremont,California’s Shernoff, Bidart & Darras. E-mail: [email protected]

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