March 2006 Archives

Legal Week sounds the alarm about the coming of the "procurement professionals" to the selection and hiring of outside counsel, and predicts, based upon their impact in other sectors:

• at least a 15% reduction in fees;
• greater objectivity in the selection process (less value put on "networking");
• more rigorous performance measures;
• formalized contracts and agreements throughout the relationship, starting with RFP's; and
• performance-based remuneration.

Appalling?  Surely so, from the traditionalists' perspective, but I'd like to suggest another way of approaching what to many will seem a skunk at the garden party.

Let me lay the groundwork for what I'm about to recommend by flatly predicting that the involvement of "procurement professionals"—if not formally, then the toolkits and mind sets they advance—is not only here to stay, it will only grow.

Why?   Econ. 101:  There's simply too much money at stake.

This is McKinsey's analysis of "The Vanishing Middle"—here, the phenomenon across 25 product categories ranging from mobile phones to banking, appliances to apparel, that both premium and no-frills products grow at the expense of middle-of-the-road offerings. 

This works itself out in different ways in different industries. 

Thursday, April 6, I'll be participating in Indiana University Law School's "Globalization Conference," organized by my good friend Prof. William Henderson.  From the summary of the symposium:

"Much has been written on the process of globalization and its effects on international and individual state law. The impact of globalization on the legal profession has received far less systematic attention, despite a universal recognition that the practice of law and the economic and personal lives of lawyers may be on the brink of profound transformation.

"The purpose of this unique symposium is to initiate dialogue about how globalization is fundamentally changing the work lives and professional opportunities of lawyers in the U.S. and abroad. Prominent figures in the global legal industry will explore various interrelated themes on the issues facing legal profession, including law firm strategy, the relevance of geography, the lawmaking role of transnational lawyers, and how cultural norms affect or shape our perceptions of ethical lawyering. The program will include presentation of scholarly papers and responses by symposium participants."

Some of those participating include R. Bruce McLean, Chairman of Akin-Gump, Patrick McKenna of Edge International, Larry Ribstein. and yours truly.

You can register here ($50 for IU alumni, $100 for everyone else) and find out how to get to Bloomington here.   Earn CLE credit (woooheee!).

Having been to Bloomington previously and enjoyed the Law School's hospitality, I can report that it is a quintessential Midwestern college town, with the brick sidewalks, shady avenues, frat-house row, and surfeit of used bookstores that are de rigueur. 

David Maister, who knows his way across the management/leadership landscape so much better than almost anyone else that he seems to have been GPS-enabled while the rest of us were relying on 15thC. parchment maps, has taken off from my post of a few days ago about leadership.   Here he is getting warmed up:

"I keep getting asked about this topic, so here goes my ten cents worth. I think more rubbish has been written about ‘leadership’ than almost any other business topic. A lot of it is patently false, and even more of it is dangerous."

And I bet you didn't know that "manager" derives from medieval French or Italian meaning, roughly, "holder of the horses," while "leader" is of Chaucerian-era origins and means one who chose the expedition's route, a model "that won't work," David states flatly.

Enough; just go read the whole thing right now.

When I wrote about the Baker-Robbins/LegalWorks KM conference, I purposely left out the most impressive application/presentation of them all:  Morrison & Foerster's Oz Benamram discussing "AnswerBase," the firm's new KM system which will be rolling out next month.

AnswerBase is the fruit of over two years of labor, and is, in my humble opinion, a revolutionary approach to KM.  Oz was kind enough to give me a one-on-one guided tour in his office two weeks ago, and what I have to say will draw from both his presentation to the KM conference and to our private meeting.   Suffice to say that neither Oz nor I am aware of any other firm taking the Morrison & Foerster approach at the moment, but when I asked Oz who else might adopt it once they see it, his response was "Everyone will, within two years."

 Read on.

Knowledge Counsel Forum, Westin Times Square, March 23--24, 2006

Sponsored by Baker Robbins and West Legalworks

I attended this conference and want to report on it. I don't plan to cover this as a court reporter or even as a conventional journalist on a story, but rather intend to highlight notable observations, insights, and trends.

Panel I: The Future of KM in Law Firms

Sally Gonzalez, Baker-Robbins; Kingsley Martin, Thomson-Elite, Risa Schwartz, Wilson-Sonsini

Moderator: Eugene Stein, White & Case

At WSG&R, the KM system "pushes" information out to partners and associates when a new matter is opened, a la McKinsey. Currently done manually; aspire to doing it automatically. For partners, they might get names of colleagues who'd recently worked on similar deals, as well as "comparable's" in terms of fees, hours, etc. Meanwhile, associates get related documents.

Going forward:

Having been tagged by both David Maister and Robert Millard, the handwriting is on the wall: I can't hide, and I've never been one to run. So you are about to experience an extraordinarily atypical entry on "Adam Smith, Esq.," which is not now, and never has been, about me.

Four jobs I've had:

• caddy (one summer)
• research assistant (as a 3L) to constitutional law professor Paul Brest, later Dean of Stanford Law School
• founder and CEO of a dot-com (intended to bring the Fortune 1000 and the AmLaw 200 together for spontaneous and serendipitous "expertise discovery"—essentially meant as a massive online legal KM application)
• strategic and economic consultant to law firms

Four movies I can watch over and over

• The Godfather (I, II, & III)
• Star Wars
• The Hunt for Red October
• 2001: A Space Odyssey

Four TV shows I love to watch

• The NewsHour with Jim Lehrer (PBS)
• Charlie Rose (if and only if he's not interviewing movie celebrities)
• Monday Night Football
• NOVA

Four places I’ve been on vacation

• Bologna/Milan/Rome/Venice
• Florence/Siena/Assisi/Ravello
• Positano/Capri/Amalfi/Ravenna
• Palermo/Agrigento/Erice/Catania/Siracusa

Yes, you detect a pattern.

Four tunes that play through my head

• The Siegfried Idyll from Wagner's Ring Cycle
• Le Donne e Mobile from Verdi's Rigoletto
• "Private Dancer," Tina Turner
• "London Calling," The Clash

Four favorite dishes

• cheese, olives, bread, red wine: the Four Major Food Groups
• risotto
• home-made parmesan/rosemary/sun-dried tomato focaccia
• inky black coffee and an honest-to-God New York bagel with nova and a schmear

Four books I really love

• The Great Gatsby, F. Scott Fitzgerald
• The Selfish Gene, Richard Dawkins
• Harry Potter: All of it
• [An Inquiry into the Nature and Causes of] The Wealth of Nations, Adam Smith (yes, seriously)

Four places I’d rather be

• London, Hong Kong, or Rome
• Running a full loop of Central Park
• Most any world-class university town: Ann Arbor, Cambridge, Palo Alto, Princeton
• Seated in the third row, center, of the balcony of the Metropolitan Opera as the house lights go down

But seriously, David M. nailed it: Home on the Upper West Side.

Four bloggers I’m tagging

• Bruce Marcus
• Malcolm Ryder
• Ernie Svenson
• The Wired GC

And there you have this most out-of-the-ordinary entry on "Adam Smith, Esq."

Tomorrow I'm giving a presentation to the New Jersey Area regional meeting of the International Legal Technology Association (ILTA) on "Leadership Principles for Technology Managers."

Topics I'll address include:

• What Leadership is Not (hint: it's not about being a slave to your Blackberry, pager, IM, and SMS)
• What Leadership Is:
  • Vision:  Having one that is credible, tangible, and  distinct
  • And the creating the environment that lets people actually get there (hint:  it's not about command and control)
  • Keeping your eye ceaselessly on the future
• Communication, which means:
  • Being fluent in the language of finance, which is what the business world speaks
  • Managing expectations, and tamping down unrealistic hopes
  • Avoiding the trap of being caught up in conversations about "governance"—deliver results, not reports, and avoid the inward focus governance assumes
  • Talk about problems solved, not technology.  And above all
  • Be Brief!
• Why Change is the Hardest Challenge of all
  • With a nod to Machiavelli:

    “There is nothing more difficult to carry out, or more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by an old order, and only lukewarm defenders in all those who would profit by a new order. This arises partly from the incredulity of mankind, who do not believe in anything new until they have had actual experience of it.”

  And I'll close by differentiating between "implementers," "managers," and "leaders."

This graphic uses the metaphor of A City:

• Implementers worry about "capability:"  They're focused on the pavement.
• Managers worry about "viability:"  They're focused on the layout of the street grid.
• Leaders worry about "culture:"  They're focused on The Vision For The City.

Implementers and Managers have to agree on Requirements:  Which and How

Managers and Leaders have to agree on Objectives:  When and Why

And in the process of managing change, Leaders focus on The Market, and what signals it's giving out about the need for change, while Managers focus on the Leaders.

I doubt I need point out to any of my readers the front-page story in today's Sunday New York Times' Business Section (above the fold, even!) headlined, "Up the Down Staircase:  Why Do So Few Women Reach the Top of Big Law Firms," but in case you missed it, here it is.

And here's my Letter to the Editor in response.

This issue—the relative paucity of women in senior positions at large firms—is one that, I will now share with you, has troubled me for some time.  But dwelling on "troublesome" issues, unless I have something concrete to recommend, is not the stock in trade of "Adam Smith, Esq."  Nevertheless, it's klieg-light clear that the under-representation of women in the partner ranks of AmLaw 200 firms has for many years now not been the simple issue of the "pipeline."

My best guess at the explanation appears in my letter to the editor (noted above). 

What are your theories?

As I've mentioned, I'll be teaching the core/required course, "Strategic Technology & Innovation" at SUNY/Stony Brook's MBA program for law firm leaders.  The program starts the last week of April—in just a few weeks—but my course doesn't start until late August.  

The course will be presented from a strategic as opposed to an operational or technical perspective, with an emphasis on how technology can support the fundamental activities sophisticated law firms engage in, both: (a) to make the work the firm must perform more efficient, productive, and cost-effective; and (b) to provide a competitive distinction for the firm in the eyes of its attorneys, its clients, and other pertinent audiences (such as potential clients and recruits).

The course proceeds from the philosophy that technology is essentially a tool, albeit a complex one, and is aimed at law firm executives outside the IT department itself.   The students are expected to be predominantly in positions such as Executive Director, Chief Operating Officer, Chief Financial Officer, Chief Marketing Officer, etc.—and are not expected to be managing partners or lawyer/members of the executive committee of their firm.

I'm in the process of developing a syllabus for the course, and also fleshing out its actual content.  So far, the topics I plan to address include:

• A brief overview of the history of IT in law firms, and the current state of the art:  extranets, "deal rooms," 24/7 connectivity, security, and internal collaborative tools.
• "Client-facing" systems including CRM.
• Knowledge Management: (a) approaches, techniques, why and how KM is an essential strategic resource and capability for a law firm, as well as (b) why KM is an immense cultural challenge.
• Business intelligence, competitive intelligence, and profitability analysis:  staffing, billing, and project management issues.
• Leadership and management issues for CIO's and other senior IT personnel:  justifying costs, translating IT-speak into lawyer-speak, "getting a seat at the table," managing expectations, etc.   And lastly
• The Future:  automated document production, intelligent search; off-shoring; blogs, wikis, and RSS.

 Here's my request:  To all CIO's and others with opinions about these issues, please contact me with suggestions for ways to approach this material, suggestions for entirely different/other topics to cover, reading material for the syllabus, and whatever horror stories, revealing anecdotes, or seat-of-the-pants guidance you're in a position to give.

I thank you in advance for your thoughts.

Two weeks ago I posed the question, "Is there a natural limit to the size of global law firms?," and I invited you all to vote on various possible answers starting with "No; like global accounting firms and banks, they can grow to the sky," through "Yes; at some point the proliferation of conflicts will become insuperable," and " Yes; it will simply become impossible to manage such complex enterprises," and so forth.

I want to recap the results and offer some thoughts, but first I want to blend this discussion thread with another one that—I was about to say I "launched," but it's actually been more or less in continuous session—is about the analogy, or lack thereof, between the emerging structure of the legal industry, and the structure of the financial services industry. 

Law.com's "Legal Blog Watch" caught the announcement of the monthly "Adam Smith, Esq." newsletter and sums it up in words I can't improve upon:

---

Adam Smith, Esq. to your in-box

Bruce MacEwen is kicking off a monthly newsletter that highlights some of his best posts from Adam Smith, Esq., and it's free. Why do I bring you this news? Because from where I sit, several things are clear:

• Lawyers like "push" technologies (e-mail newsletters, RSS, etc ...).
• Bruce is a prolific poster on his blog, which is a must-read for partners and those aspiring everywhere.
• Because of above item, No. 2, Bruce has so much analysis that it's hard to keep up with it all, thus making a newsletter particularly useful.

Sign up!

---

What more can I say?  Take their advice.

Reminder & Update:  The SUNY/Stony Brook MBA Program exclusively for law firm managers is starting the last week of April.  I'm a faculty member, teaching the core (a/k/a required) course, "Strategic Technology & Innovation," and we have an utterly distinguished Advisory Board and a convenient midtown Manhattan location.  (OK, so it's convenient to me, and to your firm if and only if you have senior business-side people in New York.)

Here's what it's about in a nutshell, from the program description:

"Stony Brook’s MBA, with its focus on law firm managers, is the first program of its kind in the United States.  It takes a real-world approach including the use of adjunct faculty members who have top reputations for their work in or with law firms. The program features classroom sessions that are informative, stimulating, and embrace a number of learning techniques. Professors will explain basic principles and guest lecturers will provide “from the frontlines” perspectives and insights."

My take?  It promises to be an unprecedented, rigorous immersion into what senior "business side" law firm leaders—Executive Directors, COO's, CFO's, et al.—need to know to do their jobs on a par with their counterparts in peer-group organizations in corporate America. 

If your firm has a qualified candidate, it's not too late to apply.   Feel free to contact the Dean of the Graduate School of Business, William (Bill) Turner, and tell him I sent you.

Announcing something new and different on "Adam Smith, Esq.:"  A free monthly email newsletter delivering "This Month's Best of 'Adam Smith, Esq.'"  fresh to your inbox at the end of each month.

The newsletter will consist of links to, and concise, pithy summaries of a few of the more trenchant, widely-read, controversial, or just plain entertaining entries of the past month (in your humble editor's opinion). Suitable for sharing with friends, and guaranteed to be family-friendly.

You can sign up for it in the right-hand column (scroll down a bit—and you folks on RSS feeds, pay a visit to the site itself) under the cunning heading, "Subscribe to the free monthly email newsletter...."

I do ask for a bit of info about you, the better to keep building the "Adam Smith, Esq." community, but if you think for a second that I would share one byte of that with anyone else, well, all I can say is I'd have to be well and truly off my med's to have the thought cross my mind.  Don't even think about it; won't happen.

The first e-issue will be out after the end of March. 

I hope you all enjoy!

One of my near-bedrock beliefs is that we're living through a period when the structure of the legal industry is morphing before our eyes, setting up what I believe will be a future pattern that may well endure for decades.   Most recently, I wrote about this in "It's 2015:   Do You Know Where the AmLaw 25 Are?"  (And if you want a far earlier discussion, over a year old, check this out.)

So what, again, is that emerging structure going to look like? 

First, permit me to observe as an economist that the taxonomy of stable, durable industry structures is not infinite—not every structure that can be imagined exists.  Some of the more fascinating industries, from a structural perspective, are:

• airlines, with very high fixed and very low marginal costs, and classically perishable inventory;
• utilities, again with very high fixed generation-and-distribution-infrastructure costs and very low marginal costs of delivering an additional kilowatt or BTU—at least until generating capacity utilization begins to approach its maximum, when the least efficient plants must be brought online, suggesting in the future an increasingly flexible and time-sensitive component to pricing; and
• retailing, dominated both by enormous integrated chains (Wal-Mart, Target, Federated, Safeway, Home Depot, Staples, etc.) and mom & pop's (your drycleaner, deli, coffee shop, shoe repair) with little inbetween.

But we don't work in any of those industries.

Nadia Cristina, Managing Editor of London-based pm magazine, who was gracious enough to agree to an interview when I was over there last fall, just forwarded one of the fruits of that meeting to me, an article I co-authored with Bruce Marcus titled "Blogs—The new community of interests."   The thrust of the article is simple:

"The power of blogs derives from their online essence: available and update-able 24/7, with global reach, they are tailor-made for targeting narrow and usually passionate niche interests.  They rapidly reach an audience of participants that would be completely impractical to reach in the offline world, thereby constituting a collective intelligence of enormous professional value."

A word about the PM Forum itself:  If you're unfamiliar with it, it's a tremendous resource which every serious marketing professional should know about: 

"The PM Forum is a 4,000 strong regionally-based members' association, formed in 1996, dedicated to raising the standards of professional services marketing and to enhancing the credibility of marketers working in professional service firms worldwide."

So enjoy the article, and explore PM Forum.  (Thanks again, Nadia!)

When it comes to law firm financial performance, there's a fatalistic school of thought which more or less adopts the following position: 

"Profitability all depends on matters outside the firm's immediate control, starting with the basics such as:

• whether it's a New York powerhouse or a regional player;
• its mix of practices, and specifically the proportion of its business where price is not much of an object;
• the leverage intrinsic to its strongest departments;

and other things management can't do much about, certainly not in a time-frame measured in less than a decade.  So a firm's profits really depend on those 'built-in' factors and management can at best tweak at the margins."

Now, as loyal readers know, I'm a subscriber to the "people make the times" not "the times make people" theory of history (and of law firm  management), so this fatalistic view has always irritated and aroused me, but like the grain of sand that irritates the oyster, it's taken me awhile to lay down a pearlescent intellectual coating to rebut it.   Riding to my aid is McKinsey.

Last year McKinsey and the Centre for Economic Performance, at the London School of Economics, looked at the "relationship between management and performance in more than 700 midsize manufacturing companies in France, Germany, the United Kingdom, and the United States." 

Granted, these were manufacturing companies, a far cry from professional service firms, but part of the rationale for studying the quality of management in the manufacturing sector is that there are well-recognized, generally-proven "best practices" in manufacturing, such as lean production methods, setting targets and tracking outcomes.  Thus it was less controversial, and generated more comparable rankings across firms, to grade the quality of management.

And the bottom line? 

Not only does the quality of management matter, it matters a lot:

"Managers are more important than the industry sector in which a company competes, the regulatory environment that constrains it, or the country where it operates. In other words, managers are more important to how a company is managed than business lines, government policy, or geography."

Substitute "practice areas" for "business lines," and you begin to get a sense of the power of the McKinsey results.   It's almost shocking:  "Managers are more important than the industry sector in which a company competes."

McKinsey graded 18 different dimensions of management quality on 1 to 5 scales (5 the best), and then averaged all 18 scores to produce one "Management Quality" number for each of the 700 firms.  They then ran those quality numbers against an animal called "Total Factor Productivity," or TFP, which they define as follows:

"TFP is an efficiency measure capturing the impact of all the elements that contribute to a company's output growth but are not explicitly stated as factors of production (unlike capital and hours worked, for example). In other words, TFP is a grab bag for the unexplained elements—such as technology, luck, public infrastructure, and, not least, management techniques—that affect productivity."

In a law firm, think of TFP as a stand-in for everything that is not explained by changes in billable hours and rates, headcount and realization, investments in IT infrastructure, etc.  TFP is the "secret sauce" that reveals how well your firm is doing on the intangibles that don't appear on your P&L or balance sheet:  Professional development, work-life balance and a feeling of autonomy, respect among colleagues, willing collaboration and knowledge sharing, etc. 

Though this chart is a little small, it shows the impact of increasing the management quality score by one point.  Let me point out the top center comparison in particular, "Market share growth"—indexed to a constant score of 100 before the one-point gain, it jumps to 171 with a single point gain in  management quality.

Note a somewhat mysterious point that's pregnant within this data:  In an era of globalization, there are no good-management secrets.  As McKinsey puts it: 

"In sector after sector, best practices emerge in operations, sales and marketing, service delivery, and elsewhere. Under the pressure of competition, companies pay close attention to the improvements that rivals make and rapidly adopt their ideas. Pioneers of best practices thus gain only a short-term advantage. [...]  If effective management and good performance are tightly linked, how do so many badly managed companies survive? It is a question that has long baffled researchers."

Their answer, something of a temporization but something as well of an empirically justified observation, is that poorly managed firms manage to hang on because they exist in market niches relatively protected from competition, and in that state "can survive for years."

Conversely, the more competitive the landscape and, interestingly enough, the younger the firm, the better management practices were. 

Back in law-firm-land, I would argue the most competitive landscape is among the AmLaw 50, which have experienced rather remarkable turnover and ranking-shifts during the past 10 years compared to almost any conceivable prior decade.   And firms newer to the AmLaw 50 are not, I think it is safe to say without exception are not, old-line long-established firms.

A final insight from McKinsey may tie this back into the managerial and governance structures of the newer firms:  McKinsey did a country comparison of the quality of management in general in the US, the UK, France, and Germany, and the US came out on top (highest proportion of well-managed companies).  Why?  "Female managers and decentralized decision-making are more common than [in the other countries]" and the study also found that more female managers correlated with decision-making being delegated further down in the ranks, giving employees a greater sense of autonomy.

Fatalists despair!  And, those of you sniff and scoff at the impact visionary and inspired management can have, shed your cynicism.  People matter.  Management matters.  Insist your firm get its share.

Don't forget to vote!

In 2004 James Surowiecki, a business columnist with The New Yorker, published the well-received The Wisdom of Crowds, which explored (and celebrated) the phenomenon of "collective intelligence," whereby the consensus forecast of a number of lay people was almost invariably superior to the individual forecasts of experts and guru's in the field. 

With Oscar season freshly behind us, we have just had another annual chance to see this phenomenon at work thanks to Michael Mauboussin, a strategist at Legg Mason and since 1993 an adjunct professor at Columbia Business School.  Each year he asks his students to name the Academy Award winners in 12 categories, including some rather obscure such as best film editing.  And this year, as every year, the consensus was more accurate than any single individual, correctly selecting 9 of the 12 actual winners—even though his business students are anything but Hollywood insiders.  By contrast, the average individual's success rate?  Only 4.1 of the 12.

So: All very interesting, but a big so what, right?

I actually believe there's something quite tangible, and potent, here.  "Collective intelligence" has succeeded at everything from predicting the location of a sunken Navy sub (to within a few hundred yards) to forecasting when particular products would actually be launched (internally at Google).

There's even a company that sells software enabling you to easiliy set up "prediction markets," and their clients include Abbott Labs, Corning, Lilly, Siemens, and Dentsu (Japan's largest ad agency).  As the company, NewsFutures, says:

"Here's how it works: You define the outcomes for which you would like reliable estimates. Then you invite people with relevant knowledge to trade "virtual" stock based on their confidence in each outcome. The result is a trading price that tracks the consensus opinion. Because the market is online, it involves any number of participants, from anywhere, at any time."

What could a law firm do with this?

Try, for example, asking all your attorneys—even include, for the wildest and craziest among you, your clients—things like:

• which practice areas should we invest more in, and which less?
• do we have an office in a city with poor prospects, or lack an office in a city with outstanding prospects?
• which competitor do we need to worry about the most vis-a-vis (say) our M&A practice?
• who's going to win the contested election for managing partner? (Ooops—did I say that?)

The point is simply this:  The assembled expertise of your executive committee or practice group heads may not be—indeed, if you buy the notion of "collective intelligence," almost surely will not be—your most valuable resource for insight about the future.  

This exists; it's for real; it's available now.  What have you got to lose?

A reader (partner in an AmLaw 10 firm) writes:

"Most businesses know their leading indicators of sales. For example, if the company increases the number of sales calls in January, there will be more sales in April.

"Has anyone analyzed empirically what the leading indicators of sales are for AmLaw 200 law firms? Do the indicators include ads in the trade press? Fancy dinners with potential clients? Rounds of golf with potential clients? Publishing articles in legal or trade journals? Giving speeches? Winning jury trials? Closing big deals?

"It strikes me that law firms have very little idea of what business development activities they really want to encourage among their lawyers and so take a scattershot approach to the effort.

"Has anyone thought intelligently about this?"

This is a fascinating question.  So, after a relative drought of pieces on law firm marketing, we have our second in one week.

My immediate response is:  Most firms are probably clueless about this.  (And if someone out there really is doing empirically-driven marketing, please raise your hand; I would be delighted to give you the recognition you deserve [unless you would deem it be revealing a competitive advantage, in which case we can talk not-for-attribution].)

All the activities the reader cites contribute to "name recognition" for a law firm, but the actual "sale" (read: engagements to handle a piece of litigation, a corporate transaction, a tax problem, etc.) only occurs when the client has the precise need, i.e., is at the point of pain.   No one in the history of the world ever woke up and said, "What I need today is to buy myself a really good contract...."

The marketing of all sorts of other goods and services can often generate induced demand, simply by providing information about the features and benefits of a product.   For example, a really good campaign could get me thinking about moving up to a Nikon digital SLR when my film Nikon still has many miles left on it, but you would never achieve anything remotely similar with a law firm's campaign.

To be sure, it's possible (although I would wager very uncommon) for a corporate lawyer to generate demand for, say, a review of corporate governance structures and policies at a client; but in general matrimonial lawyers don't generate divorces, white-collar crime lawyers don't generate securities fraud, and tax lawyers don't generate IRS audits.  In this sense, then, all the marketing in the world can't generate a "sale" for a law firm.   First, the client has to have the need.

But, as the marketers in the audience are starting to protest, can't the right marketing campaign achieve the holy grail of "differentiation?"

I'm here to tell you I think not.

Let me step back:  Your firm can be "differentiated" in clients' eyes—and remember it's only the eyes of the clients that matter, not those of you and your partners—only if it stands for one consistent value, commonly thought of or referred to as its "brand."  [ Note:  Do not confuse "name recognition" for a "brand"—Martha Stewart has had very high name recognition for quite some time, but the value of the Martha Stewart brand has swung from the heights to the abyss and now maybe back.]

A "brand," in turn, is simply a promise:  A promise of consistency, of a certain set of nearly immutable qualities that remains the same each time you come back.  So every can of Coke is alike, every tube of Crest satisfies whatever it is in you that you like about Crest, and every BMW occupies the high-performance rung in its vehicle class. 

But even though one of the most recognizable names in law-firm land is Skadden, every client interaction with a Skadden lawyer (or Clifford Chance, or Jacoby & Myers, for that matter) is different from every other client interaction with other Skadden lawyers, or that same Skadden lawyer on a different matter or a different day of the week.

In other words, law firms, even the mighty Skadden, cannot "promise" consistency.   Thus they can't really have a brand that stands for anything in particular, and so they can't be meaningfully differentiated from their competitive set.

Understand what I'm not saying:  I'm not saying that firms can't have reputations for being particularly expert in specific areas. Weil-Gotshal may be the go-to firm for big-ticket bankruptcies, Schulte-Roth for private equity, Sullivan & Cromwell for commercial bank regulation, etc. 

That still doesn't mean the aura of those practice groups rubs off on completely unrelated practice groups within those exact same firms.   In other words, if you're Fidelity or Vanguard and will never have anything to do with private equity, does anything still make Schulte-Roth distinctive to you? I think not.

But looking at these examples reveals something else: What clients want when they're in the market for a law firm is the capability that speaks most directly to their legal need du jour.

The only reason the articles, golf outings, fancy dinners, speaking engagements, etc., have any value is because they all amount to opportunities to show the client (you can't tell them—that's an exercise in futility if not self-inflicted humiliation) that you understand their business and the legal environment in which they function.  In other words, they are efforts to demonstrate that what you offer could be, at the right time and place, germane to the client's legal needs.

The trenchant and always-reliable Bruce Marcus has written about this, more than once.   The heart of the matter is this:

"The truth is, you probably can’t specifically articulate what you think you know to be better about you or your firm, because without tangible evidence, there’s no way to be credible.  You can’t say, “We do better briefs and write better contracts,” or “We do better audits,” or “We’re better litigators.”

"You can’t say these things because they’re outrageous and self-serving statements. Because you can’t prove it, in most cases.  Because the Canons of Ethics won’t let you. And for most clients, because the real difference between one professional and another is not what you think it is – it’s what the client thinks it is."

Essentially, the goal of all the marketing tools we started with—the articles, the golf games and dinners, the speeches—is to create opportunities, through action not assertion, to demonstrate to the client that your firm stands ready to be truly useful when legal needs arise.

Marketing, in other words, gets you a seat at the consideration table.  But you and your partners still have to "close the sale" in person.

And there won't be any "differentiation" or "branding" pixie dust in the room with you.

Don't forget to vote!

Azim Premji, who created Wipro, is the wealthiest man in India. 

A few nights ago he was interviewed on the "Charlie Rose" show and to listen to him even for a few moments was to understand how Wipro came to have one of the most distinctive—and credible—corporate value statements I've ever read.

While he had many provocative things to say about the U.S.'s relative decline in science and engineering (and he's a Stanford EE—he loves the U.S.), our post-9/11 immigration restrictions, and India's role in the 21st Century economy, the remark that bears sharing with the readers of "Adam Smith, Esq." was his response to this question from Charlie: 

Q.:  "What are you most afraid of?"

A.:  "Complacency.  Complacency within my own organization.

"It is human nature to assume that current success will lead to future success.

"But it is not so."

I've talked before about how hard it is for firms, even (particularly?) those seemingly at the top of their game, to address the need for a coherent strategy.   Premji is upping the ante. 

David Maister reports on his frequent experience that, after an extended engagement with a firm seeking to move from "mere" profitability to the genuine status of "trusted advisor," he will distribute anonymous voting machines at the final meeting of the partnership to review the plans, and will ask how many believe the firm really will implement the new strategy, will follow through.  And, no surprise, in the "overwhelming majority" of cases the solid consensus is that the firm will not.  (David describes the same syndrome at greater length and depth in "Strategy & The Fat Smoker.")

Meanwhile, The Lawyer, fresh off reporting stellar results for the top 20 U.S. firms in 2005, warns in "US booming - but for how long?":  "In other words, the battle for the premium rate work is only going to get tougher in 2006. It starts now."

Are you ready?  If Premji knew your firm from the inside, what would he say?

I've long believed that marketing is harder than it looks, and for those of you reading this who are marketing professionals, suffice to say you have my deepest sympathy, respect, and affection.   (Readers who know me personally also know that I'm married to a senior advertising/marketing executive, so the "respect and affection" come from the heart.)

Despite all the stereotypes about wacky, non-conformist, fun-hound marketing people, yours is often not a path trod gaily.  Which brings me to:  What do I mean by "harder than it looks?"

Simply that the most brilliant campaigns often look blindingly obvious in hindsight.   Take the iconic Miller Lite campaign:  "Tastes great, less filling."  You could have thought of that, right?  Well, not so fast.  I once was acquainted with some of the people who produced that campaign and it was the product of blood, tears, and sweat, as they essentially had to  perform a perceptual lobotomy on a category (light, a/k/a low-calorie, beer) that was conventionally seen as the tasteless, pallid, low-octane choice of simps.

Marketing—and its most high-visibility component, advertising—can suffer the same unwarranted and unfair critique that the cliche has people throwing at abstract painting:  "I could have done that!"   And it's certainly true that there are few hard and fast rules of marketing, which is all about credibility, perception, positioning, esteem, and attitudes:  In other words, all about intangibles.

Some of the conventional advice about marketing isn't much better.  I'll never forget the moment in marketing class when I was studying for my MBA at NYU when the professor announced with severe gravity one of the most important principles of marketing:  "Make it easy for your customer to do business with you."

And for this I'm paying how much in tuition?

You now know as well why I write quite infrequently at "Adam Smith, Esq." about marketing.  There are few valid generalizations about it that aren't pluperfectly obvious to anyone who's thought about it even briefly, and "Adam Smith, Esq." is not about reciting obvious generalizations.

So today I'm not here to give you generalizations; I'm here to give you three specifics.  These are three things your firm can actually do.

• Free days at the client.  Take the lead partner, or better yet the whole team, working with a client and extend this offer:  "We'll spend a day or two—you tell us how long and set the schedule and agenda—at your offices meeting and talking with whomever you select, at no charge.  We want to get to know and really understand your business better and we're confident this would be a valuable investment of our time.  So you tell us who we're going to be meeting (it doesn't have to be, and indeed shouldn't be, limited to in-house counsel) and we'll show up with an open mind and a blank notebook."
  
  If this doesn't return multiples upon multiples of the cost of the billable time sacrificed, I would be stunned.
  
  
• McKinsey's 100-day rule.  I get no credit for this one, but it's brilliant, and brilliantly simple.   McKinsey has a list of firms it would like to work for, and any time one of them gets a new CEO, it waits one hundred days and then calls upon them to hear about what they've discovered and what their priorities are going to be for change and growth going forward.  Implicit is of course, "and we can help."  Why 100 days?  Because it's long enough to figure out what needs to be done but too soon to figure out how one's actually going to accomplish it.
  
  So henceforth the same 100-day rule should apply at your firm, but for "CEO" substitute "CEO or GC."
  
  
• The figure-skating judge analogy.  Next time your firm is competing for a significant piece of business, either in a formal review or otherwise, pretend it's an Olympic figure-skating competition.  Getting 9.7's across the board for competence, experience, depth of bench, etc., may sound great but they won't get you the gold:  They're table stakes.   To get the gold you truly have to stand out.
  
  Make sure your team understands it needs some 10's in this league. And to help focus their attention, remind them that actually there will be no silver or bronze; the second and third-place firms will go home completely empty-handed.

So good luck and Godspeed with these.  And let me know how they work for your firm.

It's official, according to The Lawyer:  For Skadden and six other firms, 2005 was indeed, as Skadden's New York-based M&A partner Tom Kennedy put it, "a very good year." 

For the first time ever, seven US firms topped $1.0-billion in revenue, Skadden first among this august pack at $1.58B, and Weil-Gotshal at $1.00B (the suspiciously round number doubtless making some wonder if they've been taking accounting lessons from Jack Welch (and see this), but at "Adam Smith, Esq." we tend to take these reports at face value absent insider info to the contrary—which we utterly lack here).  Here's the breakdown of the top 20 US firms by revenue:

US TOP 20 FIRMS

Rank	Firm	Location	Rev 2005		Rev 2004		% change	PEP 2005		PEP 2004		% change
			($m)	(£m)	($m)	(£m)		($K)	(£K)	($K)	(£K)
1	Skadden	New York	1,580.0	903.7	1,440.0	823.7	10	1,850	1,058	1,735	992	6.5
2	Latham & Watkins	Los Angeles	1,400.0	800.8	1,206.0	689.8	16	1,600	915	1,405	804	14
3	Baker & McKenzie	Chicago	1,352.0	773.3	1,228.0	702.4	10	750	429	655	375	14.5
4	Jones Day	National	1,309.0	748.7	1,190.0	680.7	10	808	462	735	420	10
5	Sidley	New York	1,124.0	642.9	1,029.0	588.6	9	1,235	706	1,020	583	21
6	White & Case	New York	1,050.0	600.6	953.0	545.1	10	1,240	709	1,220	698	2
7	Weil Gotshal & Manges	New York	1,000.0	572.0	905.0	517.6	10.5	1,850	1,058	1,700	972	9
8	MBR&M	Chicago	979.0	560.0	911.0	521.1	7.5	968	554	905	518	7
9	Kirkland Ellis	Chicago	935.0	534.8	835.0	477.6	12	2,170	1,241	1,975	1,130	10
10	Sullivan & Cromwell	New York	916.0	523.9	833.0	476.5	10	2,590	1,481	2,350	1,344	10
11	Shearman & Sterling	New York	830.0	474.7	775.0	443.3	7	1,380	789	1,150	658	20
12	Wilmer Hale	Washington DC	815.0	466.2	750.0	429.0	8.5	915	523	870	498	5
13	Cleary Gottlieb	New York	813.0	465.0	695.0	397.5	17	1,970	1,127	1,715	981	15
14	O'Melveny & Myers	Los Angeles	808.0	462.2	697.0	398.7	16	1,610	921	1,310	749	23
15	Morgan Lewis	National	805.0	460.4	723.0	413.5	11	1,002	573	900	515	11
16	McDermott	Chicago	799.5	457.3	745.0	426.1	7	1,190	681	1,119	640	6
17	Greenberg Traurig	National	860.0	491.9	712.0	407.2	21	N/A	N/A	985	563	N/A
18	Gibson Dunn	Los Angeles	746.0	426.7	693.0	396.4	8	1,635	935	1,516	867	8
19	Simpson Thacher	New York	730.0	417.5	691.0	395.2	6	2,400	1,373	2,330	1,333	3
20	Hogan & Hartson	Washington, DC	690.0	394.7	630.0	360.3	9.5	900	515	825	472	9

The indubitable Financial Times, which has always covered law-land better than the WSJ, also has the story.

As you can see, more than half recorded revenue jumps in the double-digit percentages, and PPP increases were even better.

More impressive still?  What I call the "Complexity Quotient" of managing a sophisticated professional services firm.  According to my friends in management-consulting ranks, the rule of thumb they employ when estimated the challenges facing leaders of a professional services firm as contrasted to those facing management of a retail, manufacturing, or construction firm (say) is that $1.00 of professional service revenue is 5 times more complicated than $1.00 of garden-variety revenue. 

Which means Skadden isn't strictly comparable to a $1.5-billion/year "regular economy" firm, but rather to a $7.5-billion/year firm in more conventional sectors.  This would make them, by revenue, one-quarter the size of Intel, or nearly as large as the domestic video-game industry.

Which leads those of a contrarian frame of mind (moi?!) to pose the following question to you, smart and savvy readers:

Is there a natural limit to the size of global law firms?
	No; like global accounting firms and banks, they can grow to the sky.
	Yes; at some point the proliferation of conflicts will become insuperable.
	Yes; it will simply become impossible to manage such complex enterprises.
	Yes; extreme differences in profitability between practice groups will be fatally divisive.
	Yes; extreme differences in profitability between geographic regions will be fatally divisive.
	Only if the globalization of firms' Fortune/FTSE 100 client base stops.
	Only if a firm collapses in a spectacular implosion.
	Maybe, maybe not; I plan to be retired by then.
Free polls from Pollhost.com

Rules of the poll road:

• I will leave it up for about 10 days.
• Multiple answers are permitted, but we trust your discretion in keeping them internally consistent.
• You'll read all about the results right here, so stay tuned.

In the meantime, my kudos to Earle Yaffa.

Yesterday's half-hour "Coast to Coast" legal talk radio show is now up at the Legal Talk Network.

I'm on it as a guest on the subject of "Big Firms--Big Business," along with Eric Sinrod of Duane Morris' San Francisco office.   The hosts, as always, are my fellow law.com bloggers and good friends J. Craig Williams and Bob Ambrogi.  Take a listen!

In my last post, I referred somewhat obliquely to "long-term threats to the privileged positions" of firms, pointedly including large and prosperous firms (not just the struggling, the stragglers, and the stagnant).  What exactly might those threats be?

Hildebrandt and the Citigroup private bank, in their annual year-end wrap of 2005, point towards many of the answers.  I've taken the liberty of highlighting the subjects I find most noteworthy, and since it's always easier to cite the prognostications of others as a premise to advancing one's own opinion, I intend to do so liberally. 

First of all, despite 2005 showing healthy growth over 2004 in both revenue and profits per equity partner, the rate slowed appreciably from the CAGR (compound annual growth rate) of the 2000—2004 period.  Nor do Hildebrandt and Citigroup view this as a temporary aberration:  "Notwithstanding the solid economic performance of most firms, there were signs in 2005 of growing pressures on the bottom line."

The most unsettling such "pressure" is the finding that, among the 30 most profitable firms in the country, realization rates actually declined—and among other firms they were at best flat.  Declining realization is symptomatic of firms' over-reaching in billing and/or of clients' pushing back harder:   Choose your poison, but neither of those is an auspicious leading indicator of financial performance in 2006.  Indeed, I view declining realization as virtually synonymous with restive clients or substandard work:  Either or both would be alarming.

Second, M&A among US law firms (not to be confused with M&A/deal work done by law firms!) accelerated dramatically.  While there were only two more completed acquisitions in 2005 than in the prior year (49 vs. 47), the attention-getting figure is that the average size of the "acquired" firm more than doubled, from 30 lawyers to 67.

Third (and this is where it gets really interesting), "analysis shows that the profits per equity partner of the 30 most profitable firms in the US are more than double those of other firms," and that the gap is widening as the leaders pull away from the pack (emphasis supplied).  Hildebrandt and Citigroup conclude—prematurely, in my view—that firms that have not already broken into the top economic tier "are highly unlikely to do so."

To be precise, our disagreement is one of shading and nuance, not one of black and white.   I believe firms with a potent, well-defined strategy, led by tenacious and determined management, can still excel no matter where they rank today.  (And the converse is true, as we have witnessed with the demise of several storied names.) 

But for most firms watching the leading pack accelerate into the distance, the observation is surely true that presuming and proclaiming that they'll catch up is unrealistic and only results in discontent within the partnership when the improbable prediction continually fails to come true.   These firms need to take a long, hard look in the mirror:

"There is an economic ladder in the legal market that has many rungs; finding the right one for a particular firm requires strategic focus and a healthy dose of realism."

Fourth, the attitude and perspective of Fortune 1000 General Counsel have changed markedly in just the past five years.  Now, global capability and "critical mass" are seen as essential to even have a seat at the table for many transactions, whereas those characteristics were not high on the priority list in the past.

Corporate counsel are also continuing to winnow their rosters of outside firms, with the average number of firms with whom they do business decreasing and the percentage of total outside fees paid to the top-billing law firms increasing.  Fully 60% of those surveyed say they are actively pursuing this increased "convergence."

Fifth, and next to last, I want to identify two developments that I view conceptually as different sides of the same coin, although Hildebrandt and Citigroup portray them as discrete:  The increased use of contract, or temp, lawyers, and the very different bargain that today's Gen Y associates expect to strike with their firms (different, that is, compared to the "work hard so as to have a shot at partner" bargain of the Gen X'ers and the Boomers).

Why are these connected?  They're both about the war for talent, and they're both about how to supply the bodies needed to do the grunt work if the ready ranks of mid- and senior associates toiling in indentured servitude can no longer be as readily taken for granted.  Interestingly, to keep Gen Y'ers engaged, firms have invested more heavily than ever in professional development programs, including the unprecedented (and deeply admirable) formal law firm/business school partnerships we've seen with the likes of Reed Smith/Wharton, and DLA Piper/Harvard.

Up to this point you may find yourself thinking, "Sure, there are challenges out there, 'twas ever thus, but we've dealt with them before, in the ordinary course as it were, and we'll deal with them now.  What's this 'long-term threat' MacEwen is talking about?"   It's this:

"During the past year, Hildebrandt consultants came across a number of firms that were doing quite well financially, but on many other measures (partner morale, internal trust, teamwork) they were failing and appeared very fragile. ... [T]here have been disturbing signs that a number of well-performing firms may be more fragile than they appear on the surface."

Add to this one of the key findings of a 2004 study of law firm dissolutions, and you may find yourself coming upon a suddenly-sobering perspective. And that finding was? That most firms that dissolve do so in a year when their revenues are at an all-time high.

Citigroup characterizes a firm's financial performance as a lagging indicator of overall health—and only a small minority of law firm failures are attributable to insoluble financial problems.  Most are caused by a collapse of partner confidence: 

"The seeds of collapse are generally sown long in advance of the actual dissolution – in most cases, even long before the firm begins to noticeably decline. It is clear that a firm’s unwillingness or inability to confront tough issues is an overarching reason for failure and one of the primary reasons why partners lose faith in their firm.  Too often, firms recognize their issues, including partner dissatisfaction, but only act after a “catalyst event” takes place. For most, this is too late."

In other words, it's not (primarily) about the money.  People—especially highly motivated, competitive, critical, analytic Type A's—need to feel there's purpose to their work, a vision at the firm, and that they're doing challenging work in a supportive environment that permits them to feel a genuine sense of accomplishment. As they conclude, "Law firm leaders - even leaders of economically successful firms - ignore these realities at their peril."

On reflection, how could it be otherwise?  Although they don't appear on your balance sheet as assets,  people are indeed the only material asset your firm has—everything else is, both in the economic sense and the securities-law sense, "immaterial." Under the calm surface of prosperity, there can be roiling currents.

I've written before with some passion about the need for law firms to think and to act strategically.  The "act" part should follow as the day the night, but of course it's not that simple. 

Why does this matter?  Why is it, in fact, a deadly serious matter for your firm if you are, or aspire to, AmLaw 25 global-footprint membership?

Consider that firms in that stratosphere are, or shortly will be, pretty much billion-dollar-a-year enterprises.  Quick Quiz:

• Q.:  Name two public companies recognizable to Joe Six-Pack whose revenue is just about exactly $1.0-billion/year.
• A.:  JetBlue, and Harley-Davidson.

Now ask yourself what percentage of Joe Sixpack's—or, let me hasten to add, your neighbors, siblings, and even your children—could identify Skadden-Arps, not to mention Baker & McKenzie, Latham, Jones-Day, Sidley, or White & Case?  Yet all are comfortably north of $1-billion/year in revenue.

Add this:  Management consultants typically use a multiplier of 4-6 when comparing the complexity of managing a professional services firm with a typical manufacturing or retailing firm.  In other words, the "Complexity Quotient" of managing your law firm equates to the complexity of running an auto dealer, a construction company, even a pharmaceutical company, that is five times your size in revenue.

So I'll ask again:  You think your firm can do without strategic thinking, and strategic execution?

Nevertheless, my friend Aric Press (always a delight to read for the felicity of his style) writes in this month's American Lawyer that the best-laid strategic plans often lead to naught:

"We all know the drill. First come the memos to the committee, the flow charts, and the Power Point. Then comes the expert advice: the buffed MBA's and the former this and the retired that wheeled in to bless the endeavor. The product of all this effort is duly presented to the partnership. And then what? Too often, as I listened over the last month, the answer was not much."

And that would be why exactly?

As Aric points out, deciding on a strategy entails making choices.   But how many firms like to think of themselves as good at everything?  To all those firms, I say:  "You may have strengths, but by no stretch of the imagination do you have a strategy."   Although Aric doesn't cast the issue quite as I do, he makes the pointed observation that for such a firm to move from the mush positioning of being all things to all people to a distinctive (and credible, ownable) focus requires that partners exhibit a "willingness to be led." Here, of course, he has put his finger on it.

Consider the status quo from the perspective of your typical mid-career partner at an AmLaw 25 firm:  "I'm making [say] $1.5-million/year, and I can expect that to increase comfortably above the rate of inflation for as long as I care to keep working.   Sure, I work hard, and it's true that even equity partnership has lost its bulletproof job security, but I'm good at what I do and I even like most of my partners and clients.  What's wrong with this picture?"

Rob Millard, a partner in Edge International and a friend (we had the distinct pleasure of being able to sit down together twice in the past week in New York, once as he was on his way from Johannesburg to Phoenix, and again on his return), makes the point that it's emotionally difficult—he doesn't say bordering on the impossible, but you can read between the lines—for those in positions of wealth and comfort to embrace change, even to deal with a long-term threat to their privileged position.

"Just like the camel could not pass through “The Needle” [a very narrow gate in the wall of ancient Jerusalem] with its baggage intact, so a strategist cannot embrace new paradigms with the baggage of his or her old thinking intact. The same goes for those that have to execute the strategy. If encumbered by “old thinking,” they simply cannot make the intellectual transition necessary to execute, especially when the old thinking has led to current prosperity and comfort and the change is necessary to address something that is looming in the future rather than causing actual immediate pressure."

Shall we then despair of firms—prosperous, seemingly solid firms, at any rate—ever embracing strategic thinking and strategic execution? 

I for one refuse to: Lawyers (particularly the lawyers we're dissecting here) are among the brightest and most analytic people around.   The consequences of developments that could threaten business as usual can be explored, discussed, debated, and dealt with in forthright and clear-eyed fashion. 

I further believe that most lawyers at the top of their careers devoutly want to build lasting, sustainable firms with impeccable pedigrees, that stand for something tangible and worthy.

Writing about "What it Takes to Be Great," David Maister has this to say:

"First, I don’t think you can create a sustainable, ongoing great firm unless there is a broadly-held sense of stewardship, with each partner or senior officer feeling that they do not own the firm in perpetuity, but hold it in trust to be passed on in better shape to the next generation. Anything other than this culture will fail to build an institution that can live on."

So my question morphs into:  What do you as a partner in your firm (or partner wannabe) hold "in trust?"  If the answer is, "Let me get back to you on that....," your firm is not yet great and it definitely needs a strategy, which is, if I may say so, the firm's equivalent of a soul.

On the other hand, if the answer is, "Can I buy you a drink?  I'm so excited to talk about that!," then you have a strategy in your heart and can articulate it in your mind.

What's your answer?