Here is an interesting HBR blog post written by Dina Wang and Firoz Dattu

Have you ever heard the saying: “You never get fired for buying IBM”?  Every industry loves to co-opt it; for example, in consulting, you’ll hear: “You never get fired for hiring McKinsey.”  In law, it’s often: “You never get fired for hiring Cravath”.  But one general counsel we spoke with put a twist on the old saying, in a way that reflects the turmoil and change that the legal industry is undergoing.  Here’s what he said: “I would absolutely fire anyone on my team who hired Cravath.”  While tongue in cheek, and surely subject to exceptions, it reflects the reality that there is a growing body of legal work that simply won’t be sent to the most pedigreed law firms, most typically because GCsl are laser focused on value, namely quality and efficiency.

A recent survey of General Counsel at 88 major companies conducted by AdvanceLaw (an organization founded by Firoz) - The results suggest that GCs are increasingly willing to move high-stakes work away from the most pedigreed law firms (think the Cravaths and Skaddens of the world)… if the value equation is right. (Firms surveyed included companies like Lenovo, Vanguard, Shell, Google, NIKE, Walgreens, Dell, eBay, RBC, Panasonic, Nestle, Progressive, Starwood, Intel, and Deutsche Bank.) The results of the two questions the survey asked are below.

That 74% of GCs preferred the less pedigreed firm under the circumstances described in question 1 reaffirms that clients are becoming more and more comfortable with using a wider range of firms.  Moreover, in the U.S., the current cost premium for an AmLaw 20 firm relative to, say, an AmLaw 150 or 200 firm is typically far more than 30%.  Factoring in lower hourly rates as well as the greater efficiency most clients say the other firms deliver, we are likely talking about an overall cost premium in the 60+% range.

What can also seem non-intuitive is that only 11% of GCs surveyed felt that pedigreed firms, despite the price premium, actually were more responsive (a key element of client service).  However, this actually mirrors Firoz’s experience at AdvanceLaw, where firms of varying sizes and pedigree are successfully unseating AmLaw 20 and Magic Circle incumbents on high stakes work (e.g., a recent M&A deal valued at $500 million; national trial counsel for a significant multi-state class action).  These firms have been receiving impressive evaluations from GCs and in-house counsel on responsiveness, expertise, quality and efficiency.   One reason for this is that top talent is increasingly dispersed, not residing solely at the most pedigreed of firms. 

This AdvanceLaw survey suggests that clients are serious about moving high-stakes work away from the most pedigreed (and expensive) law firms.  So, are white shoe firms feeling the impact of this mindset change?  When we examined revenue per lawyer (a proxy for a law firm’s ability to command a price premium) across a sample of firms, we found that growth was highest among non-pedigreed firms.  Our sample of 15 especially highly reputed firms (including the likes of Cravath, Skadden, and Sullivan) experienced an average increase of only 2.9% in revenue per lawyer over the 5-year period from 2007-12.  In comparison, a sample of 15 smaller, comparatively less known firms posted average growth in revenue per lawyer of 12.7% in the same period.

Surprisingly, many (though not all) pedigreed firms are choosing to not yet compete on value, arguing that this would diminish their future ability to compete for the shrinking pool of high-stakes / high-margin work.  However, as the survey and financial analysis reveal, this ends up opening the door for other law firms (as well as non-traditional providers) to slip in and chip away at what we all once assumed were unassailable relationships between the most pedigreed law firms and their clients.

Make no mistake: the competition for market share in the legal space is tough and getting tougher.

What do you think?

Post #681 – Saturday, September 21, 2013

Fall 2013 Issue of International Review Is Now Available

Here’s my newest issue of International Review – an issue that I hope contains a balanced blend of thoughtful insight and practical contributions on law firm strategy and leadership.

I believe that my colleague Ed Reeser and I were amongst the very first to start cautioning firms about the overuse of lateral hiring, efficiency - at producing commodity work, and excessive compensation spreads.  These articles have been intended to warn good firms among the AmLaw 100, 200 and below of the dangers that may lie ahead if they pursue some of these same strategies and we are gratified by the supportive responses we’ve received from many firm leaders.  In this issue we continue on that same theme with two articles, Efficiency Is Not The Competitive Advantage and Are You Developing A Star Culture?  Our piece on Star Cultures received a lot of attention throughout July and August in Texas Lawyer, the ABA, The Legal Intelligencer, Law Technology News, and American Lawyer – where it ranked among the top five “most viewed stories” on multiple web sites.

In our First 100 Days program (see: first100daysmasterclass.com) we introduce new firm leaders to the same personality assessment taken by Fortune 500 CEOs and designed to identify their 'Dark Side' - a personalized assessment of those strengths you possess that, when under extreme pressure or stress, can turn into vulnerabilities.  I am delighted to include an article, Exploring The Dark Side: When Firm Leaders Overuse Their Strenghts that emanates from research conducted over the past five years.

Finally, Competitive Plagiarism warns us of what can happen if we consciously or inadvertently replicate the strategies that others may be pursuing; The Hurdles To Initiating Change offers a view on what might be holding back some firms from being more innovative; and Conducting Client Interviews draws upon the wisdom of some insightful clients as to their expectations when law firms come looking for feedback.

As always, I sincerely hope that you find some practical ideas, tips and techniques here that you can put to use immediately.  Please send me your observations, critiques, comments and suggestions with respect to any of these articles.

Click on the Cover to download your e-magazine copy.

Post #680 – Thursday, September 5, 2013

Your 4 Leadership Feedback Questions

One particular firm leader I know makes it a regular habit to ask his fellow partners for feebdack on how he is leading.  He tells me that it only involves his asking four questions:

1.         What do you need more of from me?

2.         What do you need less of from me?

3.         What is it that I’m doing that you would like me to stop doing . . . completely?

4.         And what is it that I’m not doing at all, that you would like me to start doing?

It’s really that simple!  How sad it is that more leaders don’t engage in this kind of feedback process.

Post #679 – Monday, August 19, 2013

Is This What Some In BigLaw Firms Have Evolved Into?

One of my colleagues had a talk with a former BigLaw partner.  He told of bully boy leadership, with a managing partner taking $17 million a year in compensation (about 60 times the lowest paid partners at $285k) and surrounding himself with people who get paid far more than they contribute, but will do anything he asks to keep their rich sinecure.  Those who squeak, or even have the temerity to ask questions, are quickly eliminated.  Withdrawn / ejected partners wait interminably for the capital return.  (After several years this partner has only received about 20% of his capital back). 

Meanwhile, verein members do not cooperate with one another but instead are run as independent fiefdoms that actually compete against each other.  The stuff going on as reported makes Dewey look like a much nicer place to work.  Heaven only knows if the verein component is being manipulated only to pull more admin money for 'leader' compensation. 

But that's not all . . . people who are 'invited' to be partners are given a signature page, but no copy of the actual partnership agreement.  "Pending" partners, those who go through a mandatory two to three year vetting or prove up, are required to put up a deposit of capital during that period, which amount will then be credited towards the capital obligation when and if they are made equity partner.  (If you don't put it up, you are told to leave).  So equity from non-equity people, but characterized not as equity and just a 'prepay deposit' towards partnership capital.  It would be interesting to know how that is treated on the financials. 

Is this merely the malicious ranting of some malcontent, former BigLaw partner or the signs of a slow simmering problem moving towards full boil?

Post #678 – Friday, August 9, 2013

Are You Daring To Fail?

“So what new initiatives did you tackle, during the past twelve months, that didn’t exactly prove to be as fruitful as you might have wished?”  And if your answer is, “none.”  Then what does that tell you?  It may suggest that it is better to dare to fail than to fail to dare!

Many firms profess to be entrepreneurial and make some kind of claim to that effect on their websites, but many struggle with the notion that in the pursuit of entrepreneurial ventures there are no right answers; nothing is perfect, and there are no guarantees.

Waiting for clear confirmation that your decision to pursue some new idea is exactly right and congratulating yourself for not making a mistake is almost a guarantee of eventual failure.  You will learn from being decisive.  By being decisive, you allow yourself to get clear, immediate market feedback as a response to your actions.  And you are then in a far better position to change course and also defeat any indecisive competitors who are too mired in their analysis and desire to be perfect.

By way of an interesting example, Engineers Without Borders Canada, a nonprofit that specializes in international development, has for the past five years, published a “Failure Report” (http://www.ewb.ca/reports) alongside its regular Annual Report.  According to a Foreword written by William H. Gates, Sr. retired attorney (Preston Gates & Ellis) and the Co-Chair of the Bill & Melinda Gates Foundation:

“Live and learn” is a familiar saying, but its importance stems largely from what goes unmentioned: failure. In fact, the primary use of this saying is to acknowledge that everyone makes mistakes and encounters failure. The important thing is to learn and improve from these experiences.  Indeed, learning and failing are both lifelong experiences. But whereas most institutions and individuals strive to be continuous learners, they strive equally hard to avoid failure and rarely acknowledge when it occurs. This approach is wrong and problematic. The lessons learned from failure and mistakes are often the most important, and they commonly have relevance and value to others.

The most well-known tale of establishing a dare-to-fail culture comes from Facebook COO Sheryl Sandberg’s days as a vice president at Google.  After she apologized to cofounder Larry Page for making a multimillion-dollar mistake, Page famously told her, “I’m so glad you made this mistake. . . . If we don’t have any of these mistakes, we’re just not taking enough risk.”

Perhaps all of us would benefit from writing an annual failure report.  It could help us learn from our mistakes and mobilize us to take more decisive initiatives.

Post #677 – Thursday, August 1, 2013

What Are Lawyers Reading About?

Last week, Ed Reeser and I released our piece on ‘Star Cultures,’ the fifth in a series of articles that we had written together.  I believe we were amongst the very first to start cautioning firms about the overuse of lateral hiring, efficiency - at producing commodity work, and excessive compensation spreads.  These articles have been intended to warn good firms among the AmLaw 100, 200 and below of the dangers that may lie ahead if they pursue some of these same strategies and we are gratified by the supportive responses we’ve received from many firm leaders.

We are extremely grateful to have this particular article featured in AmericanLawyer.com, ABAjournal.com, Law.com, and The Legal Intelligencer and to see it ranked among the Top 5 "most viewed stories" on both AmLaw Daily and Law Technology News for the past week.

While we don’t know what that really means in terms of the number of attorneys that have read the article, we do have some interesting numbers attributable to Ed posting these pieces on JD Supra.  And, according to a current review, there were 650 downloads directly from JD Supra archives just in the month of July 2013.  Here are the download stats on the five articles that Ed and I have co-authored:

• Is Your Law Firm Creating a Star Culture? [238]

• Sliced Too Thin-The Danger of Wide Partner Compensation Spreads [227]

• Crazy Like A Fox - Why Non Equity Partners are More Valuable Than Associates  [98]

• Efficiency is Not The Competitive Advantage [54]

• The Limitations of Money as a Management Tool  [33]

These inquiries may be driven by some attorneys’ personal interests or by professional involvement of the firms in issues touched on by these articles.  In any event, when we examine the totality of all of the topics that people find of interest, what they are not reading about is associates, mentoring, pro-bono, alternative fees, or what is in the client's best interest.  However, what they are reading about is swiss vereins, partner capital, lateral hire pricing, withdrawal agreements, and de-equitization.  One might conclude that the general interest does not appear to be focused on saving the world, improving the profession, serving client needs, or helping others in the firm.  Ouch!

Post #676 - Thursday, August 1, 2013

One Cost of Lateral Hiring

According to court papers filed in New York, thirty-six (36) law firms are among those facing legal action over the hire of partners from collapsed firm Dewey & LeBoeuf – after filing for Chapter 11 bankruptcy in May of last year.  A Texas-based litigation firm representing the defunct firm’s liquidating trust, have requested authority to issue subpoenas to 36 law firms over so-called unfinished business claims against ex-Dewey partners. 

Some of these firms include Baker & Hostetler, Drinker Biddle, Goodwin Procter, Holland & Knight, Mayer Brown, Orrick Herrington, Patton Boggs, Sutherland Asbill, Venable

Lawyers for the trust are seeking information concerning the transfer of work which former Dewey partners took to their new firms. “These former partners were working on active matters on behalf of clients at the time the former partners left Dewey & LeBoeuf and transitioned to the Firms,” read the application.  ”For these reasons, the Trust has a good faith basis for believing that the Firms are providing and have provided legal services to these former DL clients on matters originated while the Former Partners were at DL.” 

This could prove expensive for the 36 firms involved!

Post #675 – Friday, July 26, 2013

Are You Developing A Star Culture?

In the wake of Dewey & LeBoeuf’s collapse last year, The American Lawyer published an article we had written about an issue that turned out be a major contributing cause of that implosion: the wide compensation spreads within the equity partnership of large law firms. With the release earlier this year of regular Am Law Daily contributor Steven J. Harper's book, The Lawyer Bubble, and a recent American Lawyer survey that detailed the compensation spreads at many large firms, the issue has gained even greater attention. 

Let’s cut to the core of what’s potentially problematic about these widening spreads.  Not only must a compensation system be presented and perceived as fair, a firm leader must ensure that it is as fair as can be reasonably expected, consistent with that firm’s unique culture. Any system that is patently unfair, irrespective of firm culture, is one that asks, indeed demands, that those within the firm embrace it. There will be examples where that is the case, either because partners and associates sign on to that expectation, or because they have no choice.  But remember, the best talent with the best business in today’s market does have a choice. And it doesn’t always vote with its wallet.

Individual power is related to dependence in most law firms.  Depend on a partner for his or her book of business, or even particular skills, especially if that expertise is rare, and that partner’s power rises.  When any individual acquires influence disproportionately greater than that of other partners, he or she can become almost indispensable to the firm. In many cases the individual can demand special perks or preferential compensation, or break rules others are expected to respect.  It does not mean that the firm will cease to exist if this lawyer leaves, only that such a loss would create palpable financial pain for some period of time.

This is where the concept of flexibility enters the picture, and where expedient judgments may dictate that it is in a firm’s best interest to provide a special accommodation rather than risk or even initiate the departure of an influential partner. As a consequence, if, as a firm leader, you are giving certain individuals preferential treatment or looking the other way when star performers behave contrary to firm culture, you are fostering a double standard. Will resentment ferment among other partners, creating a dynamic capable of undermining the performance of the entire firm?  It darn well should.  Trading doing “what’s right” for “what’s expedient and convenient” is not a viable option for those in leadership positions, yet it seems to have become standard operating procedure at too many firms.

Your final decision as a firm leader comes down to weighing the value of developing a star culture versus the costs of doing so—and those costs are more than simply hard dollars. In an earlier American Lawyer article, Sliced Too Thin, we warned about how widening compensation spreads can inadvertently weaken practice groups, especially when collaboration is required; foster tension between peers alienating by near or future stars; and eventually induce mid-level partners to leave—an occurrence that can serve as a leading indicator of potential firm failure.  Whether affirmatively adopting a star culture, or just allowing it to develop, there are other considerations for you to study . . .

Download the Complete Article - Here

Competitive Plagiarism

Ask most firm leaders to identify those business CEOs that they most admire and they would probably list a small group of highly entrepreneurial names that would include Jack Welch, Steve Jobs, Richard Branson or Warren Buffet. Ask why they admired these particular individuals and you would probably hear about the individual’s self-confidence, decisive boldness, the originality of their strategic direction, and contrarian beliefs. However, if you now inquire into what strategies these leaders were themselves advocating in their own firms, the answers you would receive would be depressingly unlike those of the leaders they admire.

To make this point even stronger, imagine the following scenario. All of your peer competitors are invited to share and read each other’s strategic plans. As firm leaders mull over and examine each competitor’s future strategies they put a check mark next to the actions that their firm is also following and an x next to those that are drastically different. What is the likelihood that there will be exceedingly more check marks than crosses on all plans? (And if my thesis is valid, the implication is that confidentiality of strategic plans is a waste of effort)

Many firm leaders view other competitors, their strategies, performance and experience as the benchmark from which to set standards for their own firm. That kind of competitive comparison makes sense, especially as your firm’s performance is often defined by what your peer firms are doing. Where this approach becomes an obstruction is when the logic behind what works for some other firm, why it works and what might work for you is not assiduously examined and thereby results in firms engaging in mindless imitation.

Some actions can render your casual imitation not only ineffective, but in some cases, downright dangerous. Consider these three common examples of competitive plagiarism . . .

Post #673 – Monday, July 8, 2013

Is Your Firm Facing A Leadership Transition?

Few NEW firm leaders are as prepared as we, or they, might wish.  As one expressed it: "New firm leaders mistakenly believe that because they have served as a practice group manager, as an office head, or on the firm's executive committee they have the necessary background for taking on the role of leading the entire firm . . . Not even close!"

The good news is that there is an orientation program for new leaders that can make a meaningful difference and over 50 firm chairs and managing partners have already experienced and attest to the difference it can make.  We received these gracious comments from a couple of those attending one of our First 100 Days sessions:

"I was struck by the synthesis of the issues you presented.  It was amazingly clear and comprehensive, given the breadth of the topic and the short time available.  I was delighted to attend the event and I learned a lot from it."   Hugh Verrier, Chairman - WHITE & CASE

"Very good session.  A lot of good ideas to take away.  This Masterclass puts into perspective the scope of duties and responsibilities associated with the position and gave me a workable framework to deal with them."   Thomas J. Bender, Co-Managing Director - LITTLER MENDELSON

If you are (or know of a firm) facing a firm leadership transition or even having a new office managing partner taking the reins of one of your larger offices, please have a look at: www.first100daysmasterclass.com.  The next program is scheduled for AUGUST 15 at the University of Chicago and we are now accepting registrations.  Have a look at the day’s agenda, the faculty, the testimonials, the extensive course materials, the follow-up support and your total satisfaction guarantee.

COMMENT / QUESTION  (July 12):

"What might a new firm leader expect to learn during this one day masterclass?"