Rant #651 – Friday, March 1, 2013

The Demise of The Small Banking Industry

I had heard about this trend taking shape from lawyers serving the industry for some time now, but after reading a report this week I see that things do not bode well for the small banking industry as they bear the brunt of the regulatory costs following the crisis of 2008.

According to a statement made by James Meagle, a 40-year veteran and departing CEO of Third Street Bancshares he “didn’t have the patience anymore” for the tremendous changes in regulatory costs and compliance issues.  Meagle said his bank will have to spend about $100,000 to meet new demands from regulators.  For a small bank with only one branch, $100K is a lot and probably a big chunk of the money it makes in a year.  Third Street is privately held, so we can’t know for sure.

“Absolutely ludicrous,” is how Meagle described the regulators’ level of scrutiny.  “I don’t know how we’re going to be able to make it.  We can [survive], but we’re just spending so much time and energy complying with these new regulations.  We’ve been able to hold our earnings up and we’re still well capitalized, but what I see coming in the future is not pretty.  We really do not want to sell, but we may have no other options.”

It’s a common story in the banking sector.  What is this bank to do?   The small banks will have to sell out to larger banks, which can spread out those costs over a larger asset base.   Here is how the Banking industry is currently configured:

• 80% of the industry assets ($10 Billion+) are held in 106 Banks/ Thrifts;

• 10% of the industry assets ($1 – 10 Billion) are held in 561 Banks/Thrifts; and

• 10% of the industry assets (under $1 Billion) are held in 6769 Banks/ Thrifts.

What is increasingly becoming evident is that thousands of the banks at the bottom of this industry pyramid are toast!  In fact, regulatory costs, as well as the banks’ net profit margins (from low interest rates) put pressure on the next block up to consolidate.  The industry consolidation underway will mean the death of the small community bank.  The consequence of all those new rules and regulations is that the US banking system will become even more top-heavy.  Banks will get even bigger.  Banking assets will concentrate in fewer hands and the economy will become even more vulnerable to the “too big to fail” threat.

Post #650 – Tuesday, February 26, 2013

The State of Alternative Fee Arrangements

I received an e-mail from my friend Jeff Carr (Senior VP and General Counsel for FMC Technologies Inc.) this morning sharing some views on the new Fulbright & Jaworski Annual Litigation Trends Report which was just released.  Well articulated by Jeff:

The “highlight” by F&J (pages 20 – 22) is that companies reporting use of AFA’s is down from 62% to 52% -- particularly among larger companies.  49% of the companies don’t use AFA’s at all.

• Of those using AFA’s, the majority of mid size and larger companies report use in less than 20% of their matters.  In smaller companies, the use of AFA’s in more than 50% of the matters has declined from 36% in 2011 to 13% this year.
• Fixed fees are thought to be the most effective in the US (82%) --  although “popular” is probably a better adjective
• Performance/Rewards Based are second most effective in the US (80%)
• Conditional (aka contingent) fees are considered 100% effective in the UK
• Perhaps the most telling is 76% report satisfaction with “quality” of work done under AFA

A reporter from Law 360 contacted me yesterday.  His tack was essentially “wow use of AFA’s is down – looks like the tide is turning back.”   I told him some of this may be definitional, some may be sample related.  The report is based on responses from 393 in-house counsel from the US and UK – 82% of which are GC’s, and mid to large companies (49% over $1B in revenue).   Some may be focused on litigation only – the AFA questions are vague in this regard.   To me at least this demonstrates the following:
• AFA’s are effective
• AFA’s are in use in a broad range on industries and for broad range of matters
• We’ve finally succeeded in banning discounted fees from what’s called an AFA (however blended rates are still included in the definition)
• GC’s remain resistant – but while almost half don’t use AFA’s at all, it’s very difficult to find a GC willing to stand up and say why (at least in a public forum)
• So, Massive Passive Resistance (or “MPR”) reigns supreme
• Unless and until GC’s make use of AFA’s a priority for their teams, MPR will continue
• Since firms organized under traditional models benefit substantially from the status quo, they by and large will not be advocates for change
• Since law schools generally see either the larger firms of the hallowed halls of academia as their “customer”, they are unlikely to drive for change

The fundamental questions remains:  What’s in the way?  What’s holding us back?  The answer – GC passive resistance coupled with politically correct focus on value and quality.  Our profession’s general aversion to risk, focus on precedents as opposed to innovation, and self-indulgently skewed view of what really distinguishes legal work from other work conspires to support the status quo.  Besides, it’s a potentially career limiting move for an AGC or DGC – let alone a staff in-house counsel – to move to AFA’s unless they have air cover from the GC. 

The antidote – CEO and CFO have to break that resistance by making it important to their GC  – yet the issue isn’t really on their table of strategically important items.

As in-house counsel, while we are part of the profession, in reality we are its truest customer.  Therefore, we have an inherent interest in preservation as opposed to protection of the profession – as such, we must be the agents for change.  Only we can drive the profession where it must go to avoid increasing irrelevance.

Post # 649 – Tuesday, February 12, 2013

New Report from Managing Partner Magazine

I’m delighted to have contributed a chapter to a new report entitled: Practice Group Leadership for Lawyers.

In an environment where innovation, value-added services, and AFAs are now the ‘new normal’, the effective management of practice groups is fundamental to a law firm’s success.  Practice Group Leaders are ultimately responsible for the growth and profitability of their practice area – but they are often weighed down with administrative tasks, and pressured to deliver as many billable hours as possible.  Even worse, PGLs are often not given the management training they need to deliver the goals and expectations put upon them by senior management.

This new publication also includes other contributions from: Paul Lippe, CEO, Legal OnRamp; Perry A. Napolitano, Chair Financial Industry group, Reed Smith; Tea Hoffmann, Chief Strategy Officer, Parker Poe Adams & Bernstein; Eric Seeger, COO, Barley Snyder and many others.

Practice Group Leadership for Lawyers covers topics including:

- Facilitating effective practice group meetings
- The evolution of effective practice group leadership
- Leadership development and recognizing future leaders
- Leading large international teams
- Addressing practice group under-performance
- Managing practice group staffing/recruiting
- Leadership Accountable
- Professional development and mentoring
- Collaboration between business development teams and practice groups
- Mentoring and people management
- Management activities versus billable hour work

For more information:  Executive Summary and Contents

Post #648 – Tuesday, February 12, 2013

World’s Fastest-Growing Economies in 2013

Forget the BRICs.  If it’s emerging markets with explosive potential you’re looking for, here are some serious considerations:

Mongolia - You have a tiny economy of just under 3 million people.  And they are sitting on enormous reserves of natural resources.  The top 10 deposits alone are worth an estimated $3 trillion.  It’s a decade-long story.  A good analogy is Kazakhstan, which is culturally similar — an old Soviet-style economy that opened up and created an enormous boom, thanks to resources.  The stock exchange went up 2,400% in six years from 2002; apartment prices rose 800%-plus and land prices in Almaty rose 8,000%.”

Myanmar (or if you prefer, Burma) - Another great story.  Fifty years of isolation and dictatorial rule and it is finally starting to thaw.  There is no reason why Myanmar can’t approach the development of its neighbors such as Thailand, given time, investment and a commitment to freer markets.  Expect it to be one of the fastest-growing economies in Asia.

United Arab Emirates - The economy went through a giant bust, but its place as the money center for the Middle East is secure, thanks to low taxes, privacy protection and location.  It has the region’s biggest marine port and airport and is home to the highest number of foreign businesses.  Best of all, the market is cheap after an epic bubble, but the underlying economy is still growing rapidly.”

Post #647 – Tuesday, February 12, 2013

Among LinkedIn’s Top 5%

Today I received this nice note: "Congratulations.  You have one of the top 5% most viewed LinkedIn profiles for 2012.  LinkedIn now has 200 million members.  Thanks for playing a unique part in our community."

Very nice!  Thanks.

Post #646 – Monday, February 4, 2013

Leadership Reflections

Having completed an intense session this past week with a group of eager practice group leaders in San Francisco, here are some guidelines to reflect upon that emanated from our various workshop discussions:

• Create goals that are both realistic and unrealistic; commit your goals to writing and ensure that they are measurable, and then celebrate the achievement of each goal.

• Be genuinely interested in the needs of others and be interested in the growth of others even more so than the others are at times.

• Know that all endeavors will not be easy and will not happen the way you would have planned or wished. Inspire persistence even after the first, second, and third rejection of an attempt.

• Infuse a need to grow by teaching, rather than giving the answers.

• Maintain an awareness of just how much your body communicates and remember that your body continues talking long after your lips stop moving.

• Fuss over others’ events, achievements, families, and friends.

• Avoid assuming that your communication or personality style is the one everyone else has and learn to modify your communication style to the style of others. Adhere to the principle that “communication is not what was said, but what is received.”

• Give yourself permission to leave things undone and let go of needing to be perfect, and of needing everyone else to be perfect.

• Become clear and comfortable with the fact that leadership does not mean “being the most popular one on the playground.”

• Believe that people do what they get paid attention for, and be spontaneous, as well as scheduled in your recognition efforts; but avoid giving a public person, private recognition as they will see little or no value in it.

• Remember that money does not motivate for the long term and becomes expected.

• Address only areas of behavior and performance when being critical; and avoid engaging emotions until all angles have been examined. Maintain clarity on the fact that attitudes are not taught or changed without the owner’s consent.

Exhibit leadership traits as part of who you are, not what your particular title is!

Post #645– Wednesday, January 23, 2013

Join Me at The Practice Group Leaders Workshop

Join me in San Francisco next week, on January 30, for an intensive one-day workshop.  There are only a few days left to register and only a few seats remaining.

Whether you are the leader of a practice group or industry team, whether this is your first experience in leading a group or the custodian of an especially challenging group of mavericks, you are among the most essential players in achieving your firm’s long-term profitability and success . . . But this job is not an easy one!

It is your challenge to:

• Create a strong cohesive group out of a collection of bright, intelligent, autonomous individuals

• Identify how, as a practice leader, you add value and what specifically is it, that you can do, that is likely to affect the success of the group you lead

• Positively impact and enhance client satisfaction – turning client needs into growth opportunities

• Find a way to develop a strategic direction in an intensively competitive marketplace and have your colleagues  actually want to work together

• Lead effective meetings that result in some action plans being formulated and your colleagues taking responsibility for actually doing something

Click here for the complete agenda and to register.  I received these sample comments from a couple of practice group leaders that attended my last workshop session in Chicago:

“I enjoyed the practical tips. Patrick really understands law firm cultures and was responsive to specific questions and situations.”  Kerrin Slatery – McDERMOTT WILL & EMERY 

“This was extraordinarily helpful.  Much more helpful than a similar event I went to at the Harvard Business School.  It has given me some terrific insights that I intend to implement immediately.”   Scott Turner – NIXON PEABODY

Post #644 – Thursday, January 10, 2013

More On Malignant Leaders

My January article in American Lawyer Magazine, entitled Malignant Leadership, stimulated a good number of emails from readers wanting to pose questions and explore this subject in more depth – which makes one wonder whether they are observing certain behaviors within their own firms that they find troubling.  In any event, here are some of the questions, followed by my response.

To read the complete post - click here

Friday, January 11 - This was sent by a Partner (from an AmLaw 50 firm) who would prefer to remain anonymous:

Mr. McKenna’s article is excellent. However, the article appears to be premised upon at least two “aspirational” assumptions: (a) the managing partner and his/her governing board are open to such procedures; and, (b) the partners at large have the courage not only to advocate for those procedures, but to insist that they be followed.

Unfortunately, my own experience, as well as that of many others I know in large law firms, suggests that rarely do either of these assumptions prove to be true.  More often, it is the large rain-makers, rather than those most qualified (and most likely to be receptive to instituting such procedures), who are placed in positions of firm leadership.  Those individuals then typically seek to consolidate their power by surrounding themselves with like-minded persons (i.e., individuals who are willing to place their own interests above those of their partners and the firm as a whole), and/or persons they can control.  Partnership agreements may be modified to accomplish this, or such agreements may be ignored altogether.  More importantly, those who could do something about the situation – the partners themselves – sit idly by out of fear for their own positions, having watched those brave enough to take a stand being sliced to bits and then unceremoniously hurled out the saloon’s plate glass window onto the dirt street.  Indeed, the partners (myself included at my former firm) who sit by and do nothing are probably the most to blame for this situation – they get what they deserve (or some other applicable cliché).

However, there’s plenty of blame to go around.  Indeed, the bankruptcy courts and those charged with the responsibility of cleaning up the messes left after these malignant leaders drive their firms into the ground, fall just slightly below the rank and file partnership in terms of blame (in my opinion).  Until the bankruptcy courts and the persons charged with administering the bankruptcy process are willing to actually hold these malignant leaders accountable for their acts – in ways that leave no doubt that the legal profession and society will no longer tolerate such conduct – rather than do that which is expedient, there is absolutely no incentive for the malignant leaders to do otherwise.  It is ironic that if creditors in these law firm failures could see beyond the end of their respective noses (i.e., the long-term), they would realize that their future interests would be better served by taking a stand to deter this conduct now, thereby reducing the risk that they and others will find themselves in this situation again (and again, and again).  It seems to me that financial institutions who regularly loan money to law firms and individual partners would be particularly incentivized to do this. Silly me.

Please excuse my broken record regarding this issue of holding malignant leaders accountable in bankruptcy proceedings; however, as I believe this point is key.  In fact, it is one of the few areas where behavioral change can actually be effected (as opposed to waiting for the rank and file partners to stand up and say, “I’m mad as hell and I’m not going to take it anymore”) in the relatively near term.?

The unchecked malignant partner problem would seem to fall squarely within first part of Lord Acton’s oft quote adage, “Power tends to corrupt, and absolute power corrupts absolutely.”  I’m less sure of the applicability of the second half of the adage – i.e., “Great men are almost always bad men.”  That is to say, I find it difficult to characterize most of these malignant leaders, both those whose firms have failed and others still in power, as “great men.”  “Bad men,” yes; “great men”, no.  Thanks for letting me vent.

Post #643 – Wednesday, January 2, 2013

Malignant Leadership

My latest article appears today in the January issue of American Lawyer magazine.

It wasn’t until a pair of more recent failures, of Howrey and Dewey & LeBoeuf, that we’ve seen the industry begin to hold a firm’s own leadership accountable for its failure.

Too often, boards and/or executive committees facilitate firm failures by denying, overlooking, or “working around” crucial issues.  In other words, firms fail when good people do nothing!  There is an absence of checks and balances.  Power is centralized, and those responsible for monitoring have either been silenced or choose to be mute.  So when the board is benign . . . the leadership can become malignant.

It can take some time to realize that a firm leader is on a path to disaster.  This is particularly the case when the leader has had a stellar career.  Fortunately, there are firm-governance steps that can be taken to curb a malignant leader.  While this list is not exhaustive, it does present plenty of options for consideration.

To read the complete article – click here.

Post #642 – Wednesday, January 2, 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, 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.

"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 learned a lot from it."  Hugh Verrier, Chairman - White & Case

If you are 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 the larger offices, please have a look at: www.first100daysmasterclass.com   The next program is scheduled for February 7th 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.