June 2004 Archives

And, for the record, the Global 100 (most recent listing).

This article also provides background to how some of the UK firms rank as highly as they do, and what's behind their profitability strategies. 

In a word, "leverage."  UK firms in the Global 100 average 6.3 lawyers per equity partner, where the comparable figure for US firms is 3.3:1.  (And ten years ago the figure was about 2:1)  Nevertheless, in profits per partner, only 5 UK firms rank in the top 30, and the highest sits at the inglorious post of #11. 

More interesting is the speculation about what the future may hold in terms of leverage.  Key points:

• If the UK and the Continent at large value partner involvement less than the US, higher leverage there makes sense.  And if that changes, so does the implication.
• UK associates accept salaries approximately two-thirds of their US contemporaries, for reasons that no snappy market analysis makes clear.  The article posits that the value of being able to "put Freshfields on my resume" is worth something, but that's grossly superficial.  So is the value of putting any US firm of equivalent caliber on your resume.  Are US firms overpaying?  Are UK firms underpaying?  Or is this simply a case of the inordinately high "transaction costs" of shifting associates from the UK to the US and vice-versa?  (I vote for Answer C.)
• Commodity work invites high leverage, boutique work invites low leverage.  Can we state the obvious (yes, and we just did)?

Still, worth a read.  Shearman & Sterling gets singled out for bridging the pond most adroitly.

I thought it might be interesting to look at the AmLaw 100 revenue in chart form to see what type of inferences might be drawn:

The most obvious point is simply the very long "tail" to the right.  Although the median firm's gross revenue is $362.5-million, nearly 60% of firms are under $400-million, and only 15 are above $800-million.  Apparently it's easy to be "relatively" big, but still extremely tough to be extremely big.

It's official, and it's Skadden still in first by a comfortable margin (kind of reminds you of the Yankees, doesn't it?—only Skadden doesn't seem to experience slumps).

White & Case traded places with Shearman & Sterling (from 9th to 7th and 7th to 9th), but in general I'd call this noteworthy for its stability.

Here's the whole chart.

For a variety of reasons, most reflecting what the common wisdom would view as inexorable global trends, the once-sleepy arena of client conflicts is increasingly visible and problematic.   In the UK, the Law Society (more or less analogous to the ABA) is formally reconsidering its conflicts rules.  Why are "conflicts" more troublesome?

• Increasing globalization of firms, together with increasing specialization of practice areas, means more and more clients in the same industry seek the counsel of fewer and fewer firms.
• In the U.S. at least, some Fortune 500 companies have adopted a tactic of enlisting a number of firms on retainer precisely to create a "conflict" and preclude competitors from obtaining the services of marquee firms.
• Courts are more willing to actually scrutinize "Chinese Walls" than to accept their imporosity at face value.

The ethics of conflicts are beyond the scope of this blog, but the economics are not.  In what circumstances is a client rational to allow, or to endorse, a firm it's working with to take on a competitor?

I submit:  Far more often than existing (and antiquated, to believe the UK survey cited) conflicts rules would permit.  To begin with, the primary goal of engaging top-flight counsel is simply to receive the best advice available—in other words, the highly targeted "state of the art" in expertise tranche X.  If a specific law firm is perceived as (one of the few) "go-to" firms for that expertise, why should a corporation object to the commercial reality that the firm has invested in that expertise and needs to maximize its return on that investment to continue to be able to support the level of sophisticated practice that is the premise for selecting them?

Certainly in other areas of the economy—marketing, technology, financial and investment-banking engineering—service providers are generally free to sell their services to all comers (barring naked disclosure of genuine trade secrets, which is a fortiori offensive outside any discussion of conflicts).  One of the themes of this blog is to ask, "What makes legal practice different?"

In this case, I suggest:  Not much.  Conflicts rules are due for a revamp, one which I believe sophisticated corporations and law firms alike could agree are the rational way to proceed given the realities of a global economy and ever-more-specialized expertise.

But of course, conflicts will always remain in the eye of the beholder (the client).  Years ago, before smoking was outlawed on all domestic flights, Northwest Airlines voluntarily instituted a ban on its planes.  As it happened, Northwest's ad agency was also agency of record for Philip Morris.  Philip Morris promptly fired the agency for a "conflict."  

Let us only hope more rational heads will prevail as the legal profession explores new territory in the world of conflicts.

If life is coming back into the economy, and if, in John Maynard Keynes' famous phrase, the "animal spirits" of capitalism are about to be unleashed anew, the rising tide might promise to lift all boats.

But according to this Strategy 101 article, the competitive landscape may be about to get tougher.  Firms that plan on being "winners" past this economic cycle must:

• select the practice areas where they can truly excel and invest the needed resources to grow;
• identify practice areas where, realistically, they will not be competitive in the foreseeable future (a/k/a recognizing opportunity costs); and
• relentlessly quantify profitability by practice group, by region and office, and by client.

I've long been a huge fan of the 80/20 rule—of wide applicability, but here meaning that 20% of your clients generate 80% of your revenue—but the author of this story ups the ante:  He claims that 20% of your clients generate 120% of your profits.  The implication is not subtle:  Fire some of your clients.

Yet, after reading this, which I highly commend to you as your quarterly analytic precis of firm strategy from the 30,000-foot perspective, I'm left with one enormous question:  How do organizations change? 

Law firms, delightfully and infuriatingly, are especially rich terrain for addressing that question.  This article doesn't pretend to acknowledge it, but I do, and shall.

Using client-conflicts ethics rules as a tactical offensive weapon may not be entirely new, but a high-profile case out of the UK that saw Slaughter & May oust Freshfields as the counsel of choice to Philip Green (attempting to take over Marks & Spencer) may have staked out new ground.

Noteworthy is that the court did not accept Freshfields' "Chinese Wall" defense, essentially concluding that the appearance of a conflict was insurmountable.  (Freshfields had previously done work for Marks & Spencer.)

As more and more clients seek advice from Magic Circle and other top-flight UK firms, could this ruling provide an opening for US-based firms' London offices?  The tactic may be nasty, but it may also be effective.

What are the odds this will be a trend?  Manatt-Phelps (#131 on the AmLaw 200) just changed from a traditional law firm governance model to a corporate-type model, complete with a Board of Directors and a Chief Operating Officer.  The directors serve staggered terms, and are term-limited, as is the managing partner.

Among the other goals this re-vamp is meant to serve:

• formalizing the new client/new matter intake process, to incorporate a review of all possible ramifications;
• formalizing enterprise risk management including, critically, reputational risk; and
• attempting to determine the ROI of marketing initiatives, which have tripled in the past several years from 1% of firm revenue to 3%.

 

Supreme Court clerks are reportedly receiving signing bonuses of $150,000 to join the appellate practice groups of some firms' DC offices.  In response, none other than Chief Justice Rehnquist has made it known he disapproves of the increasingly-lavish dinners thrown by firms to woo the "graduating" class of clerks. 

Aesthetics of the situation aside, what I want to know is, are these bonuses cost-effective?  Are the firms getting their money's worth?

The immediate answer would appear to be, "They must be, otherwise why would they do it?" 

But there are at least three potential fallacies in such a glib response.  The first is that, in a rational world, the premium to fair market value represented by a Supreme Court clerk should equal the discounted present value of the additional earnings she will bring to the firm.  But saying that does not determine which party to the transaction—the clerk or the firm—will "capture" that value.  If clerks are in a strong bargaining position vis-a-vis firms (and, as a finite commodity, they would appear to be), the clerks themselves may capture the entire marginal value they represent. (In more technical terms, this would appear to be an example of a near-monopoly encountering a near-monopsony, in which case theory tells us the outcome of negotiations to split the "surplus" is indeterminate.)

Second, firms engaging in this practice say on the record that one reason they do it is for the "marquee value" of Supreme Court clerks.  This puts me in mind of Detroit's perennial argument that sexy concept cars and high-ticket racing teams get customers in such a lather that they can't help but buy a Taurus (or, these days, an F-150 pickup).  My view:  "Not proven."

Lastly, there's our old friend, the winner's curse.  By hypothesis, the firms bidding the most win the clerks (law school debts and all).  There's no question but that firms view it as a bidding war:  "We're in a competitive battle...and we're not going to lose."  They may very will not-lose the battle; but how about the war?

If one truly loves a discipline, as I do economics, one must be prepared to celebrate, and not to decry, challenges to its bedrock dogma.  Under attack of late has been the postulate of the purely rational utility-maximizing Homo Economicus. 

As a Princeton alum, I'm pleased to report that some of the ground-breaking—and Nobel Prize-winning—work in this area has been done by Princeton's own Professor Daniel Kahneman.  It turns out that none of us, up to and including JD/MBA's, can escape built-in human cognitive biasses including:

• "anchoring," or giving irrational weight to a negotiation's starting point (think "Manufacturer's suggested retail price" on the car-lot);
• "framing," or essentially starting with the wrong analytic toolset;
• optimism (self-explanatory, and God bless it);
• overconfidence (self-explanatory, and often a curse), and;
• self-serving bias.

The last deserves special mention:  A study presented a cross-section of auditors at a Big Four firm with five ambiguous auditing vignettes and asked if they deemed them GAAP-compliant.  Half the auditors were told to imagine they worked for the firm in question and half that they worked for a firm thinking of doing business with the other firm.  The first group was 30% more likely to bless the financials than the second.

As turnabout is fair play, Legal Week has posted a rejoinder to the piece I commented upon earlier critiquing contingency recruiters.  It's written by (surprise) a contingency recruiter, as the original piece was written by a retained-search recruiter.

Please judge for yourself, but I have my own opinion as to who wins this round.  Put it this way:  Had this article come first, there is no way on earth I would have linked to it.

In the Paleolithic Era of the Internet, one of my favorite destinations was "Really Useful Sites."  Here one found an updated-daily list of sites where one could actually accomplish something—from an online thesaurus to (shock and awe!) being able to buy a book to one of my favorite all-time champs, MapQuest.

The most important Really Useful Site that a firm should maintain is its own intranet.  But does yours measure up?  According to the "usability" guru, Jakob Nielsen, most businesses' intranets are deplorable, at a cost in wasted time and motion of $5-million/year for, say, a 10,000-employee firm.   If he's even remotely correct, where have we gone wrong?

• search functionality on intranets remains primitive; compared to how search has improved on the web itself in the last 10 years, intranet search tools are typically medieval;
• no senior management buy-in:  For example, if filling out timesheets and expense reports is something you can do on your intranet (you should!), has any senior partner ever actually done it themselves?  Would they encounter aggravation if so?
• no coordination: You probably don't have an "intranet czar;" rather, each practice group or office often generates its own materials.  Most important:
• organizing information according to where it comes from and not according to what people need to accomplish with it.

Nielsen is always worth a read.

Is there another profession or business that adheres to the "lockstep" promotion of new hires and apprentices (a/k/a associates)?  Certainly no Fortune 500—nor Big Four firm, nor management consultancy, ad agency, architecture firm, etc., etc.  We all know people develop at different rates, from early stars zooming well above the typical learning curve to late bloomers who still have undeniable potential.

Why then the almost-universal embrace of the lockstep?  Actually, some firms are experimenting with alternatives.   For example, setting goals and being able to discuss them openly with a partner/mentor.

A theme of mine is that all a law firm has is its people:  Wouldn't it make sense to look at other ways of bringing associates along?

Regular readers will know that Warren Bennis, the USC business professor and Chairman of Harvard's Center for Public Leadership, is IMHO one of the few people in the world who actually has anything to say about leadership.  (OK, Jim Collins of "Good to Great" may be another, rare, exception.)  Bennis' "On Becoming a Leader" is probably the single best book on the topic I've ever read.

A large part of leadership involves knowing when to get out of the way—particularly when a firm has laid the groundwork for the birth of "Great Groups" (for example, the original Disney animators, or the Manhattan Project—groups that seriously believed they could change the world and approached the task with "obsessive brio").  Bennis' latest candidate for a Great Group award is Google.

A non-negotiable prerequisite to a Great Group-enabling culture is permission, nay encouragement, to have fun; Bennis may be underestimating matters when he writes that "98%" of U.S. businesses don't understand that people are more creative when they're having fun.  Not so fast, you're saying:  "Fun" in a buttoned-down law firm?! 

I would argue that some of the true legal innovations of the last few decades (the insight into what IRC §401(k) actually permitted, for example, or the invention of the poison pill), have occurred in environments where lawyers felt they could stretch.  "Fun" may be asking too much; but "permission to fail" is not.

What's on the minds of major law firms' IT directors?  LegalWeek did a survey and the results are sometimes predictable and sometimes not.

For example, "resiliency" of the network ranks first, followed by data security.  But what are the trends around centralization vs. distribution, or around outsourcing?  (In a word, centralization is good provided resiliency is guaranteed, and the same for outsourcing.)

Do you separate operations from special-projects?  You should.

And what about off-the-shelf vs. customized systems?  Off-the-shelf is increasingly popular.  Want to reduce network maintenance costs further?  Allen & Overy is embracing thin clients.  When you merge, how does email integration occur?  Seamlessly on the surface, of course, not so easy underneath.  All in all, a comprehensive survey. Happy reading.

Given that a law firm's only meaningful asset is its people, I have long been mystified at the prevalence of "contingency" vs. "retained" recruiting.  At last someone agrees with me that this talent-seeking model is perverse.  Consider:

• by definition, contingency recruiters operate on the principle of "throw it all up against the wall and see what sticks;"
• their incentives to be first-in-the-door with a candidate, combined with zero effective braking system in place, means their tendency is to swamp firms with good, bad, and indifferent candidates;
• even worse is that the contingency recruiters' candidate pool is heavily, if not exclusively, skewed to those lawyers who are willing to admit they're dissatisfied where they are—and includes none of the stars whose firms presumably are rewarding them for staying put; and lastly is that
• the contingency recruiter not only has no loyalty to any given candidate, he/she has none to any given firm.  They operate oblivious (in practice, if not in the abstract) to firms' varying cultures, practice expertise, and "brands."

There's a reason that "retained" executive-search is the rule outside the legal marketplace, if a corporation is seeking a manager for a position that could actually make a difference.   But isn't every single lawyer in a firm supposed to make a difference?

As an alum of its law school, Stanford's extraordinary difficulties moving from a 20+-year old mainframe system to Oracle and PeopleSoft, as recounted in this Baseline article, give me great pain. Admittedly, Stanford was trying to take products that live and breathe in the land of public, for-profit companies and hammer them into place in a private, non-profit multiversity, with utterly different metrics for performance, evaluation, and decision-making, but Stanford's CIO still has the best line:

"Sometimes I look back and wonder whether this wave of ERP software...wasn't a collective hallucination."

With all of its insider access to Oracle (three Stanford professors sit on the Oracle board, and Larry Ellison has donated $10-million to Stanford), you would think if any university could get it right, it would be Stanford. The moral of the story? If you're contemplating, or already in the midst of, a firm-wide "enterprise software" upgrade: 

• communicate, communicate, communicate;
• don't let the software vendor double as a consultant on the project;
• start with a round peg for your round hole.

 

Is the legal profession in decline?  Are the pressures for more billable hours, higher profits-per-partner, and ever-more-massive global firms leaving lawyers demoralized and unfulfilled?  Arnie Herz thinks so, and has just started "legal sanity," to provide a forum for discussing these issues:

By all reports the American legal profession is in trouble, plagued by elevated rates of substance abuse and depression, rising incivility and decaying courtroom environments, client dissatisfaction, and discernible attrition as more and more burnt out lawyers leave the career they idolized - and idealized - when they started law school.

Relatively unnoticed is the work of many practitioners and educators who, although aligned with different movements and organizations, believe it’s still possible to revitalize the law as a noble calling through which lawyers can gain a sense of fulfillment without sacrificing savvy client representation or financial gain.

legal sanity’s purpose is to raise public consciousness and facilitate discussion about our distressed legal profession and the ground-breaking work that’s being done to move it in a saner direction.

Certainly the pressures of mega-firm life are not for everyone; my own surmise is that a fair proportion of those professionals who are disappointed with where they find themselves began their careers in a smaller, more collegial firm (for example, my alma mater, the late Breed, Abbott & Morgan) that evolved into a juggernaut (Winston & Strawn).  In other words, they may feel they did not get what they bargained for.

InfoWorld has a cover story on whether VoIP is ready for prime-time.  It's comprehensive, and I highly recommend it for anyone considering such a move. 

Among other topics discussed is, especially for law firms, the all-important issue of security.  For example, did you know there's a "readily available" Unix tool called "Voice Over Misconfigured Internet Telphones (also known as VOMIT)"?  Forward your managing partner's calls to your competitors?  Check his/her voicemails?  It's all possible.

So why would any firm in its right mind do this?

1. The conventional PBX system is not as secure as you assume, and there's an historical track record of being able to hack into it (in other words, don't assume that the devil you know is preferable); and
2. Cisco and the other big players in this space are not naive; they have "hardened" versions of VoIP operating systems, up to and including intrusion detection.

The bottom line:  If you implement VoIP assiduously, you could increase the reliability of your network overall.  And face facts:  That day will come.

I for one am surprised this hasn't happened sooner, but outsourcing administrative and staff functions—if not yet paralegal and even attorney functions—just got a high-visibility boost from the entry of Hildebrandt consulting into the sector.  They'll be partnering with OfficeTiger, a firm with 1,600 staffers primarily in Chennai, India, that has already signed up firms the likes of Allen & Overy and Milbank.  As I said, so far it's staff only, but Mindcrest, another India-based firm founded by a former McGuire-Woods partner, also is gaining traction in the outsourcing sector by providing U.S.-trained Indian lawyers at rates one-fifth to one-half that of their domestic U.S. counterparts.

But will lawyers really suffer the perceived loss of control?

Dennis D'Alessandro, executive director of Dewey-Ballantine, says it's premature as far as his firm is concerned.  So could it happen down the road?  Pithily, he admits that more and more firms might try it, and once that happens, "It's a herd mentality."

Personally, I think the high-end law firms will hold out longer than the outsourcing evangelists predict.  I say this with great fondness, but in candid recognition of the combination of pride, culture, control, and plain old experience—law firms have been late adopters of almost every technological, economic, and managerial innovation, so why should outsourcing be different?

Instead, I predict the steep adoption curve will be elsewhere:  In sophisticated in-house departments.

Actually, in Resumes Are for Dummies, Brenda Sandburg of The Recorder wrote about Adam Smith, Esq. and the ever-vigilant Joy London of "excited utterances" pointed out the article. Joy goes on to say:

"Bruce is right—"Bloggers gather a following by word of mouth, which intensifies as their blogs get listed on other people's directories." I was one of the blawgers contacted by Bruce when he was thinking about launching his own blog. Bruce and I share information about interesting KM articles and we cross-blog to each other websites frequently."

Brenda's story as published took a different tack than I had anticipated when she and I were talking. I thought she'd be writing about the phenomenon of the legal blogosphere at large, but the emphasis definitely ended up being on me ("so who's complaining,?!" as we say in New York). On the other hand, it's equally true that "The legal blog community is pretty tightly knit and courteous" [as she quotes me], so for all you other blawgers out there, you should know I recommended she take a look at many other blawgs.  Most of you know who you are.

And to one and all, keep up the good work.

When one thinks of a "leader," traits that come to mind are decisive, resolute, and firm—as opposed to confused, doubtful, or uncertain.  The inimitable Warren Bennis begs to differ.  What's needed most in an era of accelerating complexity is the ability to be nimble, which includes:

• declaring forthrightly (when true!) that the answer is, "I don't know;"
• seeking other points of view;
• a willingness to abandon hitherto-defended positions, beliefs, or (in the context in which I write) practice areas, branch offices, or even clients; and lastly
• recognizing and acting on the invaluable insight that what's next is far more important than what's known.

My wife and I call this "permission to think out loud."   Next time you're faced with a seemingly momentous decision, take it for a spin.

Are lawyers by nature poor leaders?  This leadership coach thinks so.  The counts of the indictment:

• Leaders take risks; lawyers are notoriously risk-averse.
• Leaders are deeply curious, and listen more than they talk; sound like any lawyer you've met lately?
• Leaders are comfortable with collaborative "think-out-loud" decision-making; lawyers prefer the inexorable intellectual argument that leads to one and only one right result, far closer brethren with mathematical proofs than with inspiring (and initially inchoate) visions.

What's to be done?

Recognize that "command and control," however appealing it is to Type A's in charge, is equally demoralizing and dispiriting to Type A's you're seeking to manage.  Collaborate.  Listen.  Seek suggestions.  Define problems crisply, ask for help, and shut up.

Finally, follow up—"busyness" is no excuse for lack of leadership.  Who said being on the managing committee would make  your life more convenient?

Some people are legendary for a reason, among whom I count Peter Drucker on management.

If you only read one thing today, this should be it.  Eight practices, one rule. Pithy, pointed, and fabulous.