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Post #394 – Wednesday, June 24, 2009
Green Shoots And Other Such Nonsense
I usually wear an adult-sized diaper when reading economics news, a habit I recently acquired and might suggest that you adopt, too, if you are going to keep up with this economics stuff, as I think we are still in for some nasty shocks.
An e-mail from my good friend and favorite economist arrived earlier this week to tell me that he has identified the next bubble . . . it has already begun . . . and it is in full swing.
Some may well remember that Alan Greenspan denied that it is possible for anyone to identify a bubble. He was willfully blind to what the FED's policies had done in the second half of the 1990's to create the dot-com bubble. Then he was equally blind to what those same expansionist policies were doing to the housing market. So as you might imagine, I was intrigued to learn what my friend thinks he has discovered.
Today’s bubble . . . two words: consumer confidence!
We are told that consumer confidence has bounced back from its February 2009 low. Consumers listen to news reports. News reports speak of green shoots, parroting Ben Bernanke's pet phrase. That phrase has been picked up by the media, the same way that Greenspan's "irrational exuberance" was picked up when Greenspan used it in late 1996.
Now - California's unemployment rate in May hit 11.5%. The state will go technically bankrupt on July 1. It is about to have its bonds downgraded to junk status. There are no green shoots in California. There is the equivalent of dead brush in forest fire season.
Yet the consumer says he is confident. "No problem."
And - The World Bank estimates that the world economy will sink by 2.9% in 2009. How scientific. Not 3% -- but precisely 2.9%. This, from the same outfit that predicted with equal rigor, in March, that the world economy would fall by 1.7%.
Yet the consumer says he is confident. "No problem."
Then - the summer will bring more news about rising unemployment. There will be more foreclosures. The real estate market will continue to decline. By how much? No
one knows. But aren't there statistics on foreclosures? Yes, but nobody knows if they are accurate. The U.S. government relies on a private firm, RealtyTrac, for its information. States use different ways to assess foreclosures. In April, the number of foreclosures reported for Atlanta by the national press was half of what the published local legal notices said.
Yet the consumer says he is confident. "No problem."
All of this is obvious. The public ignores it. This is why consumer confidence is a bubble. It keeps rising, yet it is not supported by the facts that count:
• You personally are on the hook for $36,658 and climbing — your share of the now $11.2 trillion national debt;
• Washington says we'll need an "extra" $1.8 trillion to cover the 2009 deficit — the amount spent, over the amount we'll take in. That's a new record;
• You know there's no free lunch — we will either have to borrow that money from the Chinese, steal it from our retirees and the unborn, or print it;
• Today, nearly half of all the money we borrow comes from countries you'd never have expected to trust with your future — China, Japan, Saudi Arabia, Venezuela, Russia, even Iran and Iraq;
• Meanwhile, more Americans owe more credit card debt than anytime in history . . . nearly $1 trillion overall;
• Never mind the 2 million more homes headed for foreclosure this year, with offices and strip malls closing and warehouses emptying out, commercial property is headed for real trouble;
• And finally, under current rules, the Social Security trust alone will run out of money in less than 10 years from right now. And Medicare and Medicaid? Don't even think about it.
There is no economic recovery yet. There is only a reduction in the decline of the economy.
So, consumer confidence is the new bubble market. It pains me to sound so pessimistic, but the smart money is not buying into this bubble! And you should not be making your firm's strategic plans based on any quick economic recovery.
Have a look at some of my earliest postings covering this downturn:
#150 – September 2006 Living Beyond Our Means
Guess who has the worst current account deficits in the entire world? Guess which countries spend more than they earn - regularly and spectacularly? Last in line are the nations of the Anglo-Saxon, English-speaking debt-based empire! . . . the United States, with a current account balance of minus $829 billion. Add up all the deficits of the entire world and you get a figure barely half of the U.S. total. Nothing fails like success.
#181 – March 29, 2007 The Intractability of The Situation
As we approach the beginning of the second quarter, anyone paying even a little attention can’t help but notice the stunning array of problems that are menacing the global economy.
#254 – November 18, 2007 Is the Financial; Day of Reckoning Close At Hand?
In just the past few months, Wall Street's big banks and brokers went from dismissing the subprime credit crunch as "no big deal" to dropping billions in subprime related losses . . . It looks to me as if there has been a big sea change in the world’s markets.
#276 – January 10, 2008 Downsizing Is Here
The future in a single word: downsizing. Downsizing is going to be popular, hip, cool, fashionable and maybe even, sensible.
#279 – January 25, 2008 Whispering The R Word
Financials . . . builders . . . shippers and retailers . . . one by one, the sectors are getting hit. And the news is almost all bad: foreclosures, house sales, unemployment, consumer confidence, inflation . . . losses . . . declines. One problem after another . . . one loss after another. I would say that we’re already in a recession
#285 – March 14, 2008 This Will Get Much Worse
I think that these stories will get much worse as time goes on. Because the financial industry is at the center of this recession, the economy is at great risk. We are now seeing huge banks in trouble and enormous efforts to cover it up and contain the collateral damage.
Post #393 – Tuesday, June 23, 2009
Leadership in Tough Times - Revisited
Further to my Post #390 of a few weeks back, I obtained a copy of the Jim Kouzes (co-author of The Leadership Challenge) presentation (53 slides) on the topic of “Leading in Turbulent Times.” Jim opens with a provocative cartoon showing someone at their bedside answering the telephone and the message says: “This is your wake-up call – change or die.”
Jim’s presentation reviews the actions that leaders must take in challenging times to strengthen their own and others’ resilience:
#1 – Challenge is the context for leadership
#2 – Define reality
#3 – Fully commit to what’s important
#4 – Create meaning
#5 – Embrace the challenge and take charge
#6 – Engage with others
#7 – Control what you can
#8 – Tell positive stories
I hope you find this material useful.
Post #392 – Thursday, June 11, 2009
Being A Leader In Freaked Out Times
Leadership is an improvisational art. The game — hey, the basic rule book — keeps changing. Competition keeps changing. So leaders need to change, to keep reinventing themselves. Leaders have to be ready to adapt, to move, to forget yesterday, to forgive, and to structure new roles and new relationships for themselves, their teams, and their ever-shifting portfolio of partners.
The leader is rarely — possibly never? — the best performer. Leaders get their kicks from orchestrating the work of others — not from doing it themselves.
Leaders deliver. If you’re aiming to be a real leader during the next five years, then you need to mimic the pizza man: You’d better deliver! For the past five years, ideas and cool have counted (which was important). What counts now? Performance. Results.
Leaders groove on ambiguity. The next five years are going to be an economic roller-coaster ride. That means that firm leaders are going to be challenged repeatedly not just to make fact-based decisions, but also to make some sense out of all of the conflicting and hard-to-detect signals that come through the fog and the noise. Leaders are the ones who can handle gobs and gobs of ambiguity.
Leaders trust their guts. Intuition" is one of those good words that has gotten a bad rap. For some reason, intuition has become a "soft" notion. Garbage! Intuition is the new physics. It’s an Einsteinian, seventh-sense, practical way to make tough decisions. Bottom line, circa 2001 to 2010: The crazier the times are, the more important it is for leaders to develop and to trust their intuition.
Leaders trust trust. In a world gone nuts, we cry out for something or someone to rely on. To trust. The fearless leader may (make that, had better) change his or her mind with the times. But as a subordinate, I trust a leader who shows up, makes the tough calls, takes the heat, sleeps well amidst the furor, and then aggressively chomps into the next task in the morning with visible vitality.
Leaders bring in different dudes. Winning leaders know that their organizations need to refresh the gene pool. That happens when leaders forget old practices and open up their minds to new ones. That also happens — and more effectively — when leaders bring in new people and new partners with new ideas. As a leader, do with your people what Cisco has done so effectively with technology: Acquire a new line of thinking by acquiring a new group of thinkers.
Leaders make mistakes — and make no bones about it. Nobody — repeat, nobody — gets it right the first time. Most of us don’t get it right the second, third, or fourth time either. Winston Churchill said it best: "Success is the ability to go from failure to failure without losing your enthusiasm." As times get crazier, you’re going to see more — and dumber — mistakes. When you make mistakes, you need to recognize them quickly, deal with them quickly, move on quickly — and make cooler mistakes tomorrow.
Leaders don’t create followers, they create more leaders. Too many old-fashioned leaders measure their influence by the number of followers that they can claim. But the greatest leaders are those who don’t look for followers. Think of Martin Luther King Jr., Mohandas Gandhi, or Nelson Mandela. They were looking for more leaders in order to empower others to find and create their own destinies.
Leaders honor the assassins in their own organizations. There’s only one reason why any human being ever makes it into the history books: because he or she remorselessly overthrew the conventional wisdom. Those are leaders. But truly great leaders, the ones who aim to leave a legacy, go to the next level. They consistently seek out and honor the people in their own organizations who want to overthrow their conventional wisdom. Great leaders honor the people who want to depose them, the assassins in their midst. (Greg Jordan at Reed Smith evidenced this principle earlier this week as he defeated a leadership challenge that threatened to end his nine-year run at the helm of the top 25 US law firm).
Leaders wear their passion on their sleeve. There’s absolutely no question in my mind: Leaders dream in Technicolor. They see the world in brighter colors, sharper images, and higher resolution. Leadership, in the end, is all about having energy, creating energy, showing energy, and spreading energy. Leaders emote, they erupt, they flame, and they have boundless (nutty) enthusiasm. And why shouldn’t they? The cold logic of it is unassailable: If you do not love what you’re doing, if you do not go totally bonkers for your work, your team, your clients, and your firm, then why in the world are you doing what you’re doing? And why in the world would you expect anybody to follow you?
Leaders know: Energy begets energy. Every successful firm, every successful team, and every successful project runs on one thing: energy. It’s the leader’s job to be the energy source that others feed from. The job of the leader is to be a ‘dispenser of enthusiasm.’
Kudos to Tom Peters who provided a cool list of leadership tips. These were just some of the tips that caught my eye.
Post #391 – Monday, June 1, 2009
Welcoming Two New Members To The LAB
Last March, together with Baker & Daniels Chair Emeritus Brian K. Burke, I co-founded what is now known as The LAB (the Managing Partner Leadership Advisory Board) – a forum designed to provide recently appointed managing partners with a source for obtaining pragmatic advice on their leadership questions and critical burning issues. This afternoon we are very excited to welcome two new members.
R. Thomas Stanton is Chairman of Squire Sanders in Cleveland. Tom has served as chair since 1990. Under his leadership, the firm has grown to more than 850 lawyers and significantly expanded its global practice position throughout Europe, Asia and the Americas. Before his election to chair, he was the managing partner of the New York office. His legal practice includes infrastructure and project finance.
Robert M. Granatstein is Managing Partner at Blake Cassels and Graydon in Toronto. Rob has practiced business law since 1987, has served as firm managing partner since 2001 and deputy managing partner from 1999 to 2001. Rob received his bachelor of arts degree from McGill University in 1977, his common and civil law degrees from McGill University in 1981 and a master's degree in law from Harvard University in 1986.
The LAB is now comprised of the following distinguished current and former law firm leaders: Angelo Arcadipane (Dickstein Shapiro LLP); John Bouma (Snell & Wilmer LLP); Robert M. Granatstein (Blake Cassels & Graydon); Ben F. Johnson, III (Alston & Bird LLP); Keith B. Simmons (Bass Berry & Sims PLC); R. Thomas Stanton (Squire Sanders); William J. Strickland (McGuire Woods LLP); and Harry P. Trueheart, III (Nixon Peabody LLP).
We look forward to their contributions to future inquiries we receive from new managing partners. Please feel free to direct your question to me and be assured that your confidentiality is strictly maintained.
Post #390 – Thursday, May 28, 2009
Leadership In Tough Times: Hearing From Jim Kouzes
I had the opportunity today to participate in a conference call with Jim Kouzes talking about some of his most recent research into leadership behaviors and especially given tough times. Jim is a inspiration in the field of leadership and credibility, co-authored the enormous best-seller The Leadership Challenge and has been a very generous supporter of David and my (First Among Equals) work.
Here are a few highlights from the discussion:
If you ask people to identify the individual that serves as their best leadership role model and then ask them to categorize whom they have selected, you find that the categories that usually prevail are individuals that are either family members, teachers and personal mentors, or community leaders. To be blunt, when you ask people to identify that individual that they look to as their best example of a great leader, rarely will they cite a politician, celebrity or famous business person. People cite those “closest to them.” The lesson from this exercise is that in a law firm environment, it is the effective practice group leader who has the most influence of anyone in the firm. It is not usually the firm chair, the managing partner or the chief operating officer; irrespective of how charismatic that individual may come across in the legal press. The greatest influence on our behavior, our day-to-day morale in tough times, our hopes and excitement for the future, our desire to stay or leave the firm is most often driven by a practice leader that endeavors to remain close to and has a relationship with their individual team members.
The attributes of effective leadership that never change, despite the times, are these four and in order of priority: honesty (practicing what you preach), forward-looking (thinking long term), being inspiring and being competent. These four have never changed in over 25 years of research. And interestingly, for law firm leaders, is that ‘honesty’ beats ‘competence’ by about 20 percentage points every time. These are the enduring qualities on which people judge their leaders.
If you might imagine, a lawyer walks into the room and says to you, “I’m your new leader.” What questions do you think that you and others might want to pose? Our research tells us that the number one question that most people would ask is: “Who are you?” In other words, they want to know what you stand for, what are your values, why they should follow you.
Thinking about that suggests some implications for leaders.
Self-awareness is extremely important. You need to be aware of the impact of your behavior on others. Therefore, if you want to be an effective leader you also need to be willing to accept feedback. In yet, the lowest scoring attribute for most leaders is their willingness to ask for feedback. It is as if they are afraid of what they might hear, fear exposure, or are concerned that they might not appear competent in their leadership role.
Yet ironically, when a leader can readily admit to making a mistake, when they can own up to the fact that they are not perfect, it actually heightens their personal credibility. It is only when perceived to be repeating the same mistake over and over that you are in trouble.
The worst mistake leaders can make in tough times is not telling the truth – either by way of being unwilling to acknowledge the harsh reality of the current situation, by being blinded by years of success that they and their firms have enjoyed, or by being caught up in some personal sense of self importance in believing that nothing they do could be wrong.
One of the hardest leadership behaviors to master is that we don’t do as much as we should to let people know how important their contributions are to us and to the firm. Time after time we see evidence that leaders don’t celebrate enough and they don’t invest the time to give people positive strokes. Perhaps the more emotional the behavior the tougher it is for many leaders to do. The bottom line, and especially when leading in tough economic times, is that you just need to say “thank you” more often!
And thank you Jim, our discussion was most inspiring.
Post #389 - Tuesday, May 26, 2009
Industry Insiders React To Changes in The Legal Profession
There was an interesting roundtable discussion / article today in the Philadelphia Business Journal written by Jeff Blumenthal and entitled The Future of Law Firms. Here are a couple of excerpts that caught my attention:
Q: Is the large law firm model sustainable, or are we witnessing a shift in how the industry is structured?
Abe Reich, Fox Rothschild: You’re looking at a transformation of the legal profession. Just as Wall Street is saying it no longer will have the kind of profits it had and you can’t take bonuses in certain environments, I think the legal profession is going through the same correction. We’re re-examining the way we do business. It can’t all be about profits per partner and revenue per lawyer.
Q: What can we learn from the demise of Wolf Block?
Carl Singley, Temple University / Wolf Block: There were structural problems in terms of the absence of diversification in the client base. I remember over the last year literally reading the financial papers to see what was happening to our clients. If 25 percent of your billables are coming from a specific industry that is tanking, I don’t know how you bounce back from that. Now the structural problem, I think once you see you’re at risk because of that, comes in deciding what you do to right the ship. It would seem to me that you have to think about realigning practice groups. Having fewer real estate lawyers might have been the way to go, but a lot of these lawyers are partners who have an interest in not being reduced in force. It creates an almost untenable position for the folks in leadership.
Q: Looking ahead, what changes do you predict for the profession?
Andrea E. Utecht, FMC Corp.: For me the biggest challenge in getting legal services is that more than half of our business — and this is growing even more — is outside of the United States. So how to use my U.S. firms to help me get international legal services is becoming an increasing problem for me. I think that U.S. firms need to start to think about how they can help me address that problem.
Jerome Shestack, Schnader Harrison: The major clients for many law firms are governments. And they insist on lower [hourly] fees, like a limit of maybe $220 for a partner. So they hadn’t been regarded as quite the valued client as the client who pays the prevailing rate. That attitude is changing.
Another aspect I think may change is marketing. Twenty-five years ago there was no marketing association. No law firms that I knew had a marketing director. Now law firms have maybe 10 or 15 other people in marketing, and I don’t think they do very much on the whole. I think most of it’s a waste of time, and I think there will be a new appreciation of marketing as not particularly valuable.
Post #388 - Thursday, May 21, 2009
Listening To Economic Happy Talk
Here’s an interesting statistic I just came across - as a guiding rule, every individual laid off from their job results in 180 square feet of vacant commercial space. So if we’re currently seeing layoffs in the range of 600,000 a month . . . well, you can do the math.
Celebrated analyst Meredith Whitney stated this week that commercial real estate would be the next big black hole for the U.S. banks (something I predicted in my paper of last September: Managing Through A Prolonged Downturn). And it's easy to see why. The economy has forced many businesses to downsize and others like Linens N Things and Circuit City to go out of business. That's left behind empty storefronts, office buildings and warehouse space. There's a lot of vacant space coming on line with vacancy rates rising and rents expected to fall. (It is reported that Clifford Chance is trying to sublet 100,000 square feet at its Upper Bank Street offices).
Even as banks grapple with residential foreclosures, many lenders now have to worry about a rising tide of potential losses from commercial real estate loans. Delinquency rates and defaults on office and retail buildings and hotels have more than doubled in just six months. For apartments and industrial buildings, the rates have increased more than 80 percent, according to Reis Inc. Regional and local lenders hold a big chunk of the nation's $3.5 trillion commercial property loans on their books and remain vulnerable. It could be a mistake to underestimate the damage this could inflict on already battered bank finances.
To make matters worse for commercial property holders and bank lenders, there is an accelerating trend toward "virtual work": the changing nature of how work is performed - and in particular, the increased global demand and feasibility for home-based freelancers or other "virtual" workers, that is being solidified by a combination of faster and cheaper communications and the economic pressures of the current recession. These factors are forcing companies to find cheaper ways of getting work done than having on-premise workers in the classic industrial age model at a faster rate than ever before. Overall, this is a socio-techno-economic trend that will be hard to reverse, and increasing numbers of new and existing tech companies, service providers, and others are beginning to exploit it to their and to their clients' advantage.
Meanwhile, David Walker, writes in the Financial Times that the US is headed for bankruptcy just like General Motors. It owes $11 trillion officially, with another $45 trillion in "off balance sheet" obligations. And, this year it will lose another $1.8 trillion. That's according to the Obama administration's official count. My own guesstimate is that the loss will come to $2 trillion or more (and that trillion dollar losses will continue for years into the future). By official estimates, the US government is spending $2 for every dollar it brings in. Hey, even GM doesn't operate that recklessly.
AND despite all the happy talk about the 'tentative signs' that the recession is easing - the fine details of the Federal Reserve’s (Federal Open Market Committee) minutes released yesterday paint a clear picture . . .
In spite of renewed economic optimism over the last 5 months, the FOMC now forecasts:
Unemployment: Forecast made in January 2009: 8.5 to 8.8%
CURRENT FORECAST: 9.2 to 9.6%
GDP: Forecast made in January 2009: -1.3 to - 0.5%
CURRENT FORECAST: -2.0 TO –2.3 %
Unfortunately, the worst is yet to come and we would all be wise to make our personal and strategic plans accordingly.
Post #387 - Friday, May 8, 2009
In The Footsteps Of A Successful Predecessor
Last March, together with Baker & Daniels Chair Emeritus Brian K. Burke, I co-founded what is now known as The LAB (the Managing Partner Leadership Advisory Board) – a forum designed to provide recently appointed managing partners with a source for obtaining pragmatic advice on their leadership questions and critical burning issues. The formation of this group was the result of suggestions made during our bi-annual First 100 Days master class for new managing partners and has proven to be a valuable resource for new leaders.
Here is the latest question in a series of different queries that The LAB members have now responded to:
I was elected as the new managing partner of our 80-lawyer, one office firm effective at the beginning of April. My predecessor had been the firm's leader for some 15 years. I was naturally thrilled with the confidence my partners seemed to have in me. I've become dismayed to now discover that many of those same partners continually tell me about how great my predecessor was. At first, I brushed it aside as just me felling a bit insecure. But it has now been a month and I'm starting to wonder what I should be doing to counter having such a tough act to follow. I would be most grateful to hear your group's suggestions and ideas.
Read the entire question and response: In The Footsteps Of A Successful Predecessor
LAB responses derive from its members' many years' experience as law firm leaders. Along with Brian and I, the LAB is comprised of the following distinguished current and former law firm leaders: Angelo Arcadipane (Dickstein Shapiro LLP); John Bouma (Snell & Wilmer LLP); Ben F. Johnson, III (Alston & Bird LLP); John R. Sapp (Michael Best & Friedrich LLP); Keith B. Simmons (Bass Berry & Sims PLC); William J. Strickland (McGuire Woods LLP); and Harry P. Trueheart, III (Nixon Peabody LLP).
Post #396 - Friday, May 8, 2009
I Bet You Didn’t Know . . .
• In the 1400’s a law was set forth in England that a man was allowed to beat his wife with a stick no thicker than his thumb. Hence we have ‘the rule of thumb’.
• The average number of people airborne over the U.S. in any given hour: 61,000.
• Coca Cola was originally green.
• The first couple to be shown in bed together on prime time TV was Fred and Wilma Flintstone.
• Many years ago in Scotland, a new game was invented. It was ruled ‘Gentlemen Only . . . Ladies Forbidden’ – and thus, the word GOLF entered into the English language.
• If a statue in the park of a person on a horse has both front legs in the air, the person died in battle. If the horse has one front leg in the air, the person died because of wounds received in battle. If the horse has all four legs on the ground, the person died of natural causes.
Kudos to Watts Wacker, noted futurist and best-selling author, for sharing these tidbits of trivia with me in his e-mail today.
Post #395 – Friday, May 1, 2009
Support Function Management Within Firms
Given that law firms have invested heavily in building strong management teams to complement attorney leadership, readers may be interested in the results of a new proprietary study on management within law firms. The product of a survey of firm leaders of The Global 100, conducted between December 2008 and January 2009, on their views with respect to the key (non-lawyer) management functions within their firms, here are a couple of the more interesting findings:
• Respondents were asked to rank the various support functions in their firms in order of importance. On a worldwide basis the largest law firms rated these functions as most important:
#2 Human Resources
#3 Information Technology
#4 Business Development
I remember an old research study from my University days that showed that when times were good in any industry, marketing was viewed as one of the more important functions while when times were bad, finance rose to the top – and perhaps this is what is taking place today. What I did find rather shocking was that Knowledge Management was deemed the least important of the support functions.
• The vast majority (90%) of U.S. firms hold to the conviction that lawyers, not administrators, lead the direction of the firm. However, a slightly different model may be evolving in the European and Australian based firms (with the later being home to the first publicly-traded law firm) where one-third (33%) of the participating managing partners agreed that support functions are now leading the direction of their firms.
• Fifty-eight percent (58%) of the respondents report major difficulties in finding talented professionals to fill support function leadership positions. And, once an administrative executive is hired, fitting into the firm’s unique culture, being perceived as a trusted advisor and managing relationships with the partners are just a few of the primary challenges awaiting them.
• One finding that the ALA should pay attention to – while the overwhelming majority of firm leaders (84%) say they are generally satisfied with the caliber of their management talent, only 11% indicated that they are ‘very satisfied’ suggesting there remains room for overall performance improvement. One could interpret this low measurement as an indication of a disconnect between some administration professionals and the expectations of the partners. Law firm leaders concur that measuring ROI and the value added by support functions remains a priority.
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