Management Memo: Is Your Firm Creating A Star Culture?

, The Am Law Daily

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Why widening compensation spreads are imperiling the long-term stability of large law firms.

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What's being said

  • Jordan Rockowitz

    Amen!

  • Patrick J. McKenna

    Mike, thank you for your gracious comments and insightful input. It reminds me of an instance that occurred some years back. While working with the Strategic Planning Committee of a 300 lawyer, regional powerhouse, we were exploring various options for growth when one partner delightedly announced that an unsettled local merger presented the opportunity to obtain a great lateral. The candidate was a high probability capture, a former classmate who controlled a $10 million book of business. Before anyone managed to weigh in, the managing partner said, “That would definitely not work for us!”

    ”Why not?” was the first question. He explained, “As tempting as it might sound, we all know that attracting a gorilla of that size would only disrupt our zoo. I fully suspect that it would simply be a matter of time before his presence and demands would serve to corrupt our firm’s culture and everything we hold sacred. The risk would be just too high.” Looking back, we didn’t fully appreciate what he was talking about then . . . but we do now!

  • Mike O'Horo

    A very insightful article.

    To your list of partner-revenue profiles, I’d add the partner with a $10 million book acquired during the 20-year legal service boom, but little since 2008. The fact that you HAVE brought in business doesn’t mean that you CAN bring in business. As some wag said long ago, “Don’t confuse a rising tide with genius.” The 20-year seller’s market that this publication termed “the law firm Golden Era,” was the most sustained rising tide in business history.

    Many of these highly-compensated partners’ origination boats were elevated to their rarified levels by that tide. How many of them actually have the marketing and sales skills required for success in a hyper-competitive market that’s BigLaw’s present and future? Yet, firms compensate these declining assets as if they were ascending assets. Consider Billy Bean’s wisdom in “Moneyball,” where he said of former stars whose production was new declining, “I’m paying you for the player you are now, not for the player you used to be.”

    Your observations about power and dependency are spot on. If a firm finds itself inordinately dependent on a partner’s book of business, that means they’ve allowed themselves to become over-invested in a single asset. It’s no different than if they concentrated too much of their personal money in one stock. Most firms’ bank covenants cap the percentage of revenue from a single client, recognizing the danger of over-concentration. I’m surprised they don’t similarly cap the percentage of the firm’s revenue at risk from a single partner’s departure (or death).

    This unhealthy concentration is partly the product not just of the understandable sales complacency borne of the 20-year boom, during which business somehow appeared without any serious marketing or sales effort, so the majority of partners could virtually outsource business origination to a small cadre of rainmakers. However, it’s also due to a flawed sales model, by which firms rely for their revenue on a part-time, volunteer, untrained, unmanaged sales force with no accountability to perform. Law firm business generation remains a plus. If you do it really well, you’ll get paid extravagantly; if you don’t do it at all, you’ll still get paid pretty well.

    Under that scheme, law firms are counting on the hope that enough lawyers, on their own initiative, somehow generate sufficient revenue at acceptable margins to finance the firm’s future. During the boom, that hope made sense because, well, it worked because of high demand. Now, though, it’s irrational. As the popular book title cautions, “Hope is not a strategy.”

    All this points to the need for division of labor, long a standard practice in every other industry on the planet. There are many potential models available for law firms to copy or adapt, but until firms embrace some kind of dedicated, accountable professional sales force, it’s not reasonable to expect other lawyers to be sufficiently confident about future revenue to dispense with scarcity-based zero-sum mentality and behaviors such as hoarding hours and client access.

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