Someone should remind law firm leaders that the Fifth Amendment right against self-incrimination isn’t just for clients. It can work for them, too. The latest Altman-Weil survey of law firm leaders shows that many apparently don’t realize it. The survey responses prove widespread management incompetence, stupidity, and worse.
The survey went to the chairs or managing partners of 791 firms with 50 or more lawyers. Firms with more than 250 lawyers responded to the survey at a much higher rate (42 percent) than smaller firms (26 percent). In other words, the survey results largely reflect big-law attitudes.
The Troubling Big Picture
The Am Law Daily’s story about the results included comments from survey author Thomas Clay, who said that too many firms are “almost operating like Corporate America . . . managing the firm quarter-to-quarter by earnings per share.” That shortsighted approach, Clay said, is “not taking the long view about things—like truly changing the way you do things to improve client value and things of that nature.”
For example, 95 percent of respondents view increased pricing competition as an ongoing trend, and 80 percent expect shifts to nonhourly billing structures. But only 29 percent have made significant changes to their own pricing practices in the wake of the recession.
It gets worse. When asked to identify their greatest challenges over the next 24 months, most managers cited “increasing revenue.” The rest of the list is, in order: new business, growth, profitability, management transition, cost management, and attracting talent. If you’re wondering where clients fit—other than as a source of revenue and profits in items one, two, and three—“client value” finished eighth.
Long-term thinking? Forget it. The client silo mentality and resulting culture of short-termism are widespread and deep. Almost 30 percent of law firm leaders said their firms lack adequate midlevel partners to whom they could transition clients. Another set of responses illuminated why that is: 78 percent of those surveyed said “senior partners don’t want to retire”; 73 percent admitted that “senior partners don’t want to forfeit current compensation by transitioning client work.”
Meanwhile, lateral hiring remains the prevailing strategy for achieving growth. Ninety percent of respondents plan to hire laterals in 2013; more than 60 percent seek entire practice groups. For firms of more than 250 lawyers, the numbers are even more startling: 100 percent plan to acquire laterals; 92 percent plan to acquire groups.
How much time do lateral partners get to prove their worth? Almost 60 percent of responding firm leaders say two years or more; 30 percent don’t set a time frame.
What happens when laterals don’t meet the expectations that brought them into the firm? Two-thirds of firm leaders said that they “sometimes, rarely or never” tell unproductive lateral hires to leave.
Almost 40 percent of respondents said their partners’ morale is lower than it was at the beginning of 2008. And those partners survived the purges of 2009 and beyond.
If you’re looking for the factors contributing to the decline in morale, try these. Seventy-two percent of firm leaders reported that the move toward reducing the ranks of equity partners is a permanent trend. Three-fourths of respondents said they have either tightened their standards for admission to equity partner or take them more seriously. Meanwhile, 92 percent of responding two-tier firms don’t have an up-or-out policy as nonequity partner profit centers grow.
So, to summarize:
•Managing partners know that change is coming and clients are demanding it, but firms aren’t revisiting their basic strategies or business models.
•Growth and profits finish far ahead of enhancing client value as most law firm leaders’ top concerns.
•Leaders view aggressive lateral hiring as critical to law firm growth, but when laterals don’t produce, most firms don’t do much about it.
•Succession planning is problematic because senior partners don’t want to relinquish compensation that is tied to their client billings.
•As senior leaders continue to pull up the equity partner ladder on the next generation, morale plummets and managing partners worry about the absence of midlevel talent to serve clients in the future.
Taking all of this together, psychologists would call it a case of severe cognitive dissonance: simultaneously holding contradictory thoughts in your head. Those who assert that most big firms are resilient and face no life-threatening problems are wrong. A crisis of leadership is already upon us and a lot of supposedly smart people continue to do some really dumb things. Don’t take my word for it; they’re outing themselves.
Steven J. Harper is an adjunct professor at Northwestern University and author of The Lawyer Bubble: A Profession in Crisis (Basic Books, April 2013), and other books. He retired as a partner at Kirkland & Ellis in 2008, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.