Marcie Borgal Shunk ()
First, please allow me to acknowledge that no, I am not particularly into self-denigration. I am also well aware that I am, in fact, a consultant to the legal industry. This article is not intended to be an attack on any individuals or even the profession as a whole. Think of it instead as a reset—an opportunity for reflection and advancement.
Many law firm consultants and management teams are experts in the mechanics of law firm financials—RPL, PPEP, utilization, realization and the like. They wax poetic about the value of originations and working attorney figures, advocate formulaic compensation models, debate the merits of two-tier partnership structures and guide law firms through facilitated discussions of strategy and practice management. What if the truth is that none of these matter—or, more accurately, they matter a lot less than they used to? What if tomorrow’s law firm simply didn’t have any of these—no more measuring of time in six-minute increments, no more quibbling over origination credit, no more hardline divisions between practice areas (gasp!)?
As with many adages, “you are what you measure” speaks truth when it comes to law firm management. The persistent, and seemingly unflappable, connection law firms—and many of their consultants—have to yesterday’s metrics and methods of performance fly in the face of achieving many, if not all, of the changes demanded by new law firm economics. Encouraging lawyers to put more hours on the board will not drive lasting results. Nor will measuring performance based solely on year-over-year gains in revenue, or maintaining formulation-based compensation structures that value production hours over origination (often by a factor of 2:1). All of these approaches emphasize quantity over quality.
To achieve the changes being demanded of law firms, the opposite must hold true. Newer companies making a name for themselves in the corporate world—and in legal—embrace results-oriented metrics, often alongside greater freedoms and flexibilities for employees and vibrant, fiercely guarded cultures. Brazilian CEO Ricardo Semler explains in his Ted Talk “How to run a company with (almost) no rules,” how he eliminated all but the most basic requirements of employees at his company in exchange for a commitment to accomplish certain objectives. One vivid example: “Let’s agree that you’re going to sell 57 widgets per week. If you sell them all by Wednesday, please go to the beach.”
There is much to be learned from young companies and from taking a blank slate approach to the way we, as an industry, contemplate how best to structure, operate and compete in a rapidly changing and dynamic environment—and how to measure performance. Just 11 percent of the companies that debuted on the Fortune 500 in the mid-50s remain on the list today. Noteworthy newcomers include “start from scratch” organizations Google (Alphabet), Facebook and Amazon, all of which were launched within the past 25 years, as well as spin-offs Cognizant and Baxalta (who joined the list in 2016 at just two years old). One of the most remarkable trends associated with these young companies is not in their ability to outperform traditional competitors (though they did that in spades) but in their ability to do so by creating and adhering to entirely different—new—rules of engagement.
Like the Fortune 500, the AmLaw 100 has experienced a similar transformation in its composition. Just over half—or 54—of the firms on the original 1986 AmLaw 100 rankings remained in 2016. Plus, this change does not include the impact the Big 4 accounting firms and alternative legal service providers such as Axiom could potentially have if they were included in global rankings. In change, savvy law firms can find opportunity. Taking a cue from some of the organizations that have displaced traditional Fortune 500 companies, if we abandon all that we know to be true—the billable hour as the pinnacle of measuring performance, the pyramid structure comprised predominantly of trained lawyers, the adulation of sophisticated legal services—what’s left?
• Talent models and structures from outside of legal, including other professional service firms where business people work alongside professionals to deliver better client experience and greater value
• Subjective compensation structures tied to performance—360 reviews, client feedback mechanisms, balanced scorecards and the active development and management of new lawyers and professionals in ALL facets of professional development, leadership training and coaching
• Industry verticals and boutiques
• Enthusiastic pursuit of commodity work with a dedicated investment in process improvement, project management and technology to enable highly profitable outcomes
• Nimble decision-making to respond to dynamic, continuous analysis of clients, markets and trends
• Experienced leadership who undergo training and are held accountable to the firm’s institutional goals, objectives and standards
• Cultural transformation to create cohesion across roles and responsibilities, spur everyday innovation and improvement and harness the energy of diverse perspectives
• Smart advantage built through technology—e.g., use of AI to automate entire swaths of legal work
• Participation without partnership—structures which allow for contributors of different types to all benefit and engage in improving the overall firm performance
One notable quote made by Richard Edmundson, PwC Legal’s head of international business reorganization and soon to be leader of its new D.C. office captures exactly the myopia of traditional law firm modus operandi. As reported in “PwC to Launch US Law Firm,” Edmundson indicates, “We don’t regard ourselves as a traditional law firm. We don’t look at legal services in isolation—it’s just one part of a broader offering.” Breaking the tie between old school ways of doing business and performance measures is the role of today’s law firm management, as well as those guiding them.
The examples of new models presented above, and their associated performance metrics, shift emphasis from how to accomplish objectives to what needs to be accomplished. It is inevitable this shift in thinking will be accompanied by a broadening of perspective, as eluded to by the PwC leader. Examples from other industries abound and the real work ahead for law firm leaders—and their consultants—is to decipher how to dismantle old regimes and build the roadmap to get from here to there. Leadership, cultural transformation and the adoption of new, more dynamic ways to incentivize and measure performance will not only create lasting entities but will also reframe the way lawyers think about their work and their roles. (An added bonus may even be, as in the Semler example, happier, more satisfied lawyers…) Imagine: Don’t bill hours, generate revenue; don’t invest hours, visit clients; don’t write-off hours, develop budgets; don’t meet your minimum hours, go to the beach. Race you to the waves.