June 2009 Archives

Writing in the WSJ, Peggy Noonan recounts a story: In 1962, Clare Boothe Luce had a conversation in the White House with her old friend John F. Kennedy.

"She told him, she said, that "a great man is one sentence." His leadership can be so well summed up in a single sentence that you don't have to hear his name to know who's being talked about. "He preserved the union and freed the slaves," or, "He lifted us out of a great depression and helped to win a World War." You didn't have to be told "Lincoln" or "FDR."

"She wondered what Kennedy's sentence would be."

Peggy Noonan is of course talking about Obama, but I'm talking about you. Still, some of the syndromes we fall afoul of that keep us from closing in on that crystallline-clarity, hard-as-diamonds One Sentence that we would hope would define us are the same.

• We want to do great things, to break through, to be "consequential." This "can cause a blur."
• We get carried away, swept up. We have the mantel of leadership, time to exercise it.
• We think everything matters--and this is not wrong. Everything does matter. It's just that not everything matters equally.
• We lose sight of the reality of limits.

The consequence is that instead of One Sentence, we are left with a legacy of 10 paragraphs. Which is of course no legacy at all.

We try to please many constituencies, but since they are many, their goals are disparate and probably, ultimately, inconsistent. So we are tempted to temporize.

We hate to offend or take issue with our partners and our colleagues, so we prevaricate, or if we don't prevaricate, we nod and smile gamely when what we ought to do is to state candidly that we don't see things that way (although we're willing to be persuaded).

We think all things are important. And yes, everything is important (as noted). But not equally. Not equally.

We wish, in our limited times in our various offices, to fix everything in sight, to redress every grievance, to rationalize every irrationality, to iron every wrinkle. I understand (so do and so would I wish). But time enough there's not.

So I have a suggestion:

• Write your ten paragraphs. You may have already written them, but it will be easy enough if you haven't.
• Distill them down to five.
• Go away for at least a week.
• Distill the five to three.
• [Repeat going-away.]
• Distill to one.
• [You get the idea.]
• Distill the paragraph to Your Sentence.

Now, before you finish, realize that history will tag you with one sentence, like it or not. Yes, Washington, Lincoln, and FDR each get their One Sentences, but so do Millard Fillmore and George H. W. Bush.

So you can control that sentence or you can let history dictate it for you.

What is Your One Sentence?

You are cordially invited to a special event:

What's Next for Global Legal Services? 

Bright Ideas from Industry Leaders

Wednesday 22 July 2009

Washington, DC

  presentation and discussion with senior inside counsel, outside counsel and law firm executives.

 resenters are contributors to the new book:

Bright Ideas:  Insights from Legal Luminaries Worldwide

Bruno Cova, Partner, Paul Hastings (Milan)

E. Leigh Dance, President, ELD International (NY & Rome) - Editor

Tim Glassett, former General Counsel, Hilton Hotels international (LA)

Despina Kartson, Chief Marketing Officer, Latham & Watkins (NY)

Bruce MacEwen, President, Adam Smith, Esq. (NY)

Deborah McMurray, Chief Executive, Content Pilot (Dallas)

Michael O'Neill, SVP and General Counsel, Lenovo (Wash DC)

Jolene Overbeck, Chief Marketing Officer, DLA Piper (NY)

Tom Sabatino, EVP and General Counsel, Schering Plough (NJ)

Mary K Young, Partner, Zeughauser Group (Wash DC)

www.BrightIdeasGlobalLaw.com

 

Where:      offices of DLA Piper LLC, 500 8^th St NW, Washington, DC                (between E and F Streets NW)

Time:        2:30pm-5:30 followed by a reception

Hosted by:         ELD International, global legal services consultancy, in cooperation with DLA Piper

 

How can we best answer today's extraordinary challenges in delivering legal services around the world? 

At this invitation-only event, presenters will share their perspectives and suggest how you can prepare for the future.

Program:

2:30          Registration and Welcome

2:45          Setting the stage:  Leigh Dance and Bruce MacEwen

3:00 - 4:15:  Changes in global supply and demand for legal services and what they mean:  where to invest, where to cut back

Speakers:  B. Cova, D. Kartson, M. O'Neill, T. Sabatino (moderated by L. Dance)

5-minute stretch

4:20 - 5:30:  How leaders can drive performance in international law firms and corporate law departments 

Speakers:  T. Glassett, D. McMurray, J. Overbeck, M. Young (moderated by B. MacEwen)

5:30 - 7:00 - reception - Bright Ideas book available for sale. 

 

RSVP before July 14 to: 

Freya Birdie, ELD International - fbirdie@eldinternational.com

Please direct your questions to:  Leigh Dance: +1 631 276 9365

or Mary K Young + 1 301 320 1518

This event is open to law firm leaders and in-house counsel only and, while attendance is free, space is limited.  You may RSVP indicating your interest in attending and the organizers will let you know if they can confirm your place. 

 

We hope to see you there!

E. Leigh Dance, ELD International, Inc.

 

Indicia:

• Is This Bull Cyclical or Secular in the WSJ, which contains the following observations as well as the following chart:
  
  
  • Many investors are now calling the rebound in stocks since early March the start of a new bull market. But it could be only a temporary respite from a longer-term bear market dating back to the beginning of this decade.[...]
    
    Historical data and the still struggling economy seem to point to the latter case, called a cyclical bull market in a secular bear market.
    
    
  • In late 2001, Ned Davis Research, a market analysis and money-management firm, raised the idea that stocks had entered a secular bear market, a long period of flat or declining stocks. That idea gained traction last autumn as stocks fell below levels of a decade ago [and the firm now] considers this the fourth secular bear market since 1900. The last one, from 1966 to 1982, ended when the Federal Reserve moved to aggressively crush inflation.
    
    
    
    

    These "secular" cycles run for long periods; secular bull markets have lasted from six to 24 years and bear markets 13 to 16 years.

    [They also say] the rise in stocks since March 9 qualifies as a bull market, but [not] as marking a transition into a new secular rally. That is in part because, according to the firm's calculations, market valuations didn't fall far enough during the sell-off.

    [Based on Ned Davis' calculations], the S&P fell to a P/E of roughly 12 in early March and is now just shy of 16, which compares to a 40-year median of 16.5.

    "You compare that to the 1970s where we got down to P/Es below 10 and stayed there until 1982," says Tim Hayes, chief investment strategist at Ned Davis. The current secular bear market, he says, "is mature but it can go on for another several years." [...]  For now, at least, those who think this is the beginning of a long-lasting bull market are few and far between.
    
    

• The ever-verbal Paul Krugman (I refrain from characterizing him further, even though he's a Nobel Prize winner from the Princeton economics department, which alone should put me in the blindly celebratory camp), wrote in today's Times under the heading Stay the Course, that it's far too soon to declare victory over the economic downturn and that those who believe "the economy is already turning around" "should be ignored" because at best the recovery policies "have pulled us a few inches back from the edge of the abyss."  He believes we're at profound risk of falling into the notorious "liquidity trap"--think Japan in the 1990's.  ("Liquidity Trap 101:"  When a country's nominal interest rate has been lowered to or nearly to zero without resulting in appreciable stimulus.  Since interest rates cannot go into negative territory, monetary policy is thus exhausted and a deflationary mindset can set in.  It ain't pretty.)
  
  
• Far more impressively, Wharton Business School (Are Happy Days Here Again?) says, among other things:
  
  
  • Several Wharton experts express fairly pessimistic views about the recovery -- predicting that positive growth may not be here yet, and that even when it does arrive, it will probably take several years for employment rates to return to so-called normal levels. Even if the U.S. gross domestic product turns positive by the end of 2009, they note, the American economy will remain close to the bottom of the large trough that began in late 2007, with a long way to climb for jobs, home prices and other key economic indicators just to get back to where they were.

    "Many of the underlying problems remain -- and we still haven't seen the worst in terms of consumer problems."  It gets worse:
    

    • 12% of US homeowners are behind on their mortgages or in foreclosure
    • Consumer credit card debt may be the next shoe to drop
    • Commercial real estate hasn't even begun to come out of its swoon
    • The country as a whole is over-store'd and over-mall'd
    • Wharton finance professors tend to believe more banks need to fail.  In this regard, it's interesting that the "stress test" assumed under the worst case that unemployment would hit 8.9% this year.  Of course, it's already at 9.4% and (for my money) headed to double digits.
    • "Structural" joblessness may linger even when some leading indicators turn positive.  According to the BLS, 27% of the country's 12.5-million unemployed have been jobless for more than six months.  If sectors such as manufacturing, including the 800-pound gorilla in that sector, autos, don't recover to where they were, "many people in their late forties and early fifties may never get jobs again."
    • Consumer savings rates are now at 4.2% vs  0.9% in 2004 through 2007. 
      
      
• Martin Wolf in the FT writes under the head, "The recession tracks the Great Depression:" 
  
  Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one. ...
  
  First, global industrial output tracks the decline in industrial output during the Great Depression horrifying closely...
  
  Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression...
  
  Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.
  
  The two authors sum up starkly:  "Globally we are tracking or doing even worse than the Great Depression ...  This is a Depression-sized event.
  
  
  
  The question is whether governments will be able to navigate between "two opposing dangers," one that stimulus is withdrawn too soon, prompting a relapse, the other that it's withdrawn too late, leading to a crisis of confidence in the sustainability of public debt levels and an invitation to stagflation.
  
  
• Then we have the enormous question of whether interest rates will rise as investors (see:  China) decide that spiralling federal deficits as far as the eye can see demand higher returns.  Higher interest rates are of course the worst of all possible worlds at the moment:  Cyclically reinforcing higher deficits at the same time they tamp down what private sector investment may be left.  US Treasuries yields are currently at a six-month high (the 30-year bond is above 4.5% whereas as recently as January it was at 2.5%--an 80% rise).
  
  
• Finally, permit me to add my own favorite risk:  That we are embracing "too big to fail," and that we will adopt such a super-precautionary regulatory structure that we will end up getting neither "destruction" nor "creativity" in our financial system. If we go down that politically tempting and incumbent-friendly path, we will delay our recovery by untold years and its vigor by the stunting or loss of unknowable innovations.

And yet.

As I talk to senior law firm leaders domestically and abroad--I am chastened to report--one of the most widespread sentiments I hear is, "We're coming out of the woods.  Aren't we?  Aren't we??"

To be sure, I understand the strong, almost desperate, desire to hope that a return to the good old days is just around the corner.  Life was simple; life was good. 

Yet the more I see first- and second-hand of organizations in distress, the more pivotal I believe is the power of collective denial.

Do we need to fundamentally re-examine our business model?  Can leverage grow to the sky?  Will clients huff and puff about rate increases but ultimately (and quickly, in fact) submit?  We prefer the easy and familiar answers to these questions, not the clear-eyed and unblinking answers.

Medicine teaches that in the human body pain serves a purpose; it alerts us to something that needs to be attended to. 

Perhaps our world is not so different.  And fundamentally denying the message that pain may indicate the need for some change leads to the antithesis of a cure.  The morphine drip, the third glass of wine, the wishing and hoping for a return to "normal," the espying of "green shoots" while the thunderheads are rising:  None of these is healthy. 

Have I become the anti-optimist, then?  Au contraire.  Few things are more certain in my mind than the long-run demand for sophisticated, bespoke, and yes, costly, legal services:

• Globalization is not ending, it's accelerating.
• Worldwide capital flows have not stopped, they're sluicing in new directions.
• Cross-border projects will grow.
• Regulatory regimes are not getting simpler, they're getting more complex.
• And yes, financial innovation will--I promise you--return.

But I'm a worried optimist, and right now the emphasis is on "worried."   I'm worried that we're not doing enough to remodel our firms for the post-Cravath System order.  I'm worried that we will not get serious about re-inventing the seriously broken associate career path model.  I'm worried that we will scurry back to the familiar dominance of the billable hour without thoughtful and heartfelt experimentation with alternative billing.  I'm worried that we will embrace complacency.  I'm worried that we will face the New Normal with a resolute stance of denial.

Joseph Schumpeter taught us that the genius of capitalism is creative destruction.  Too many of us are focused exclusively, paralyzingly, on destruction.  To accelerate the dawn, we need to focus on creativity.

Today we have an extremely unusual--for Adam Smith, Esq.--guest column.  Indeed, if memory serves, this is only the third column in the history of this site (5 years, nearly 1,000 columns) not written by me.  

Leigh Dance is today's author, and I will extend to her the courtesy every writer most devoutly wishes to receive from their editor and publisher, which is, without further ado, to get out of the way.

---

From my patio in Rome's centro storico, I read Bruce MacEwen's excellent GM-RIP piece and reflected that Rome didn't fall in a day either.  A particular part of that post that resonated for me was Don Sull's comment that "Organisations often succumb to active inertia - they respond to disruptive changes in the environment by accelerating activities that worked in the past."

But the Rome analogy stopped there.  Instead I pictured scores of squirrels furiously grabbing all the walnuts they could find--gorging themselves and squirreling hundreds more away for the hard winter.  It's a vivid image, and immediately brings to mind the behavior of Big Law over the last six months. 

Active inertia abounds, with talk squarely focused on the navel:  projecting when deal flow may change, coping with fee income reductions and practice shifts, fewer associates, lower partner leverage, cutting travel and marketing costs, questioning international investments.  Even talk of alternative fees is focused inwards: how can we make it work within the firm's billing system? 

Forgive me for sounding harsh, but I have grown impatient with this ultra short-term thinking.  When I ask corporate clients if their lawyers are visiting them, the tales are more bitter than sweet.  A global General Counsel told me about a recent lunch with the lead partner of his biggest law firm provider.  No interest in what was going down at the company. "I think I'll be able to build my deal base back up, don't you think?" the partner asked his client, and went on to talk about his book of business.  The GC described the encounter, shaking his head.  "Hello?!?  Could he have asked me 1 question about what I'm dealing with in my shop?" I guess that partner just wanted more walnuts to squirrel away.  He didn't leave lunch with any, that's for sure.  Stories like this are far too common.

Deep Freeze in Big Law

Summer begins any day, yet fear and loathing still has Big Law in a deep freeze.  At GM it was a "cumulative and collective denial of reality" to change the organization and culture.  We know why lawyers today feel paralyzed: there's still lots of pressure to produce; lawyers are accustomed to success; they built solid practices around businesses expected to grow forever; they adopted expensive lifestyles requiring ever greater income; they've lost valued colleagues; they don't know what's coming next. 

Consultants make sweeping predictions that traditional law firm business models are dead.  Wall Street rainmakers and their spouses reconsider the St. Bart's vacation as their environment changes.  Revered investment banker and private equity friends are sliding down the food chain, and the New York/London social pecking order is in disarray.

At the coalface, private practice lawyers seem to be passing through a form of Elizabeth Kubler-Ross' stages of grief:  1) shock and denial, 2) anger and hostility, 3) bargaining and reorganizing, 4) depression, reflection and feelings of loneliness; and (we're not there yet) 5) acceptance. 

Lawyers' identities are wounded-- many have or will face the possibility of losing their jobs.  I'm no psychologist (as a law firm consultant it might be helpful), but I have surfed the web and learned that resentment and jealousy causes volatile and helpless feelings, plus serious distraction.  According to grief experts, one of the effects is like a stun gun-- the person withdraws, anesthetized. 

Sounds like Big Law to me.  Adam Smith, Esq. has been raising the challenges up to leadership.  I was happy to see Dan DiPietro, in his May American Lawyer article, voice frustration with lack of action among AmLaw 100 firms.  Minutes after a conversation I had in Toronto where the Deputy GC of Bank of Nova Scotia marvelled to the Citigroup Canada GC that his bank was now larger in market cap than Citigroup worldwide, I received an email from Altman Weil summarizing their latest survey of major law firms.  The big news: no news.  No dramatic changes. 

I'm impatient because the stagnancy among law firms is a whale of a lost opportunity.  The biggest danger is the amount of legal work that seems to be migrating away from law firms.  While it's happening, many talented law firm professionals are not responding, much less preparing for the future. 

In-house Counsel are Changing Like Gangbusters

While all is quiet on the law firm front, chief legal officers and their top teams within corporate law departments are changing like gangbusters.  It's the opposite of active inertia.  In-house counsel around the globe are fired up from long days working in crisis mode, big budget cuts and an impending avalanche of new regulation. 

Corporate legal budgets for internal and/or external spending have been cut from 15 to 40% on both sides of the Atlantic (slightly less in Asia).  Though many in-house functions have escaped staffing cuts, they must find cheaper ways to support their companies' global growth.  General Counsels recognize that the world is full of legal landmines.  They know they must increase productivity, reduce demand, and in every way possible lower the cost to buy and make legal services. 
In-house counsel matter: they are the providers of work to many law firms, now more than ever.  Rather than 'accelerate activities that worked in the past,' I believe they are in the process of changing the game. 

Buon giorno, this is your wake up call.

My discussions with dozens of senior international corporate counsel (US, Europe, Middle East and Asia) over the last six months reveal a remarkable, disturbing and nearly unanimous view:

• they don't think law firms really understand or 'feel their pain';
• they say that their outside lawyers are not taking action to help, or even discuss their situation;
• corporate counsel are addressing these challenges on their own, having decided that their provider firms generally can't help because lawyers are pressured by the firms' conflicting objectives;

In most cases they say they haven't even talked to their law firm providers about their specific budget cuts and constraints.

In-house counsel in the US, the UK and with global corporations everywhere aren't whining about fees anymore.  As I write, they are implementing various forms of outsourcing, shifting work to non-legal providers, automating certain functions.  In a business climate where much is beyond their control, they relish their options in a buyer's legal market.  The danger is that much of the work that is leaving big law firms may never come back.

Many have alternative fee arrangements and demand that law firms make costs more transparent and predictable.  Some in-house teams systematically scope projects and then set fixed fees or caps for various predictable stages (in the UK referred to as "slice and price"). 

Unfortunately, the tendency for most in-house lawyers who've been told to 'cut costs or be shown the door' is to seek alternatives to outsourcing.  When they need to go outside, they get competitive bids from known providers and take the biggest discount.    

Few in-house legal functions have the management expertise, technology or time to implement metrics and processes for a higher functioning, leaner corporate legal function to better serve their global operations (and precious few law firms are helping; a major lost opportunity).  So they opt for discounts, which scores quick points.  Once discounting starts, it's hard for your firm to propose smarter approaches.

A moment for the discounting topic, which merits attention.

Corporate counsel are amazed by the deep discounts they are getting on competitive bids.  It's now typical for European corporate counsel to bid out a transaction to a few global and domestic firms thought to have the requisite expertise.  Usually inside counsel will determine what the combined costs may be for the firm to make a small profit.  Proposals from many firms, including the Magic Circle, are coming in at discounts far greater than 50% of the cost of such transactions 18 months ago.  Often corporate counsel choose the firm they prefer on the condition it meets the lowest cost bid. 

Discounting is a short-term tactic.  In-house, it can't reduce a legal function's outside legal spend by more than 15 or 20% over time, and the inevitable reduction in quality and service creates new and potentially costly risks.   For law firms, much of the pricing resulting from pressure to discount is unsustainable. 

Law firms must change the client dialog from discounts to helping clients build a better legal function for today's corporate demands.  Partners should be trained and authorized to talk specifically about alternative staffing and fee approaches.  It's particularly complex for multi-jurisdiction work, and surprisingly few firms do it well. 

A relationship of trust with your client is among your greatest assets today.  In-house lawyers want a reason to be loyal.  They highly value expert advice and a trusted-advisor connection.  They regret the inevitable loss of loyalty caused by cost pressures. 

Lawyers must get out and reconnect with their clients, giving them big figurative bear hugs.  Don't stay away for fear clients will tell you they're cutting back, and don't just go out and ask for more business.  The only way you'll really reconnect is to dig in and understand their issues.  Then come back to them with viable approaches and structured options. 

Law firms generally know how to use information technology far better than corporate legal departments (among the exceptions, Cisco soars).  Take steps to share that expertise for the client's advantage.  In the last few years law firms have become highly skilled at cost control and (for their own benefit) resource management.  Your clients would really value having your firm's experience and skill to help improve the productivity and profitability of their in-house functions.  Figure out how to make it work.

Play the Global Card

Now, for the holy grail of opportunities today:  global reach.  From my vantage point, the biggest opportunity you have to out-compete other law firms is to deliver your clients a combination of your legal skill, your IT expertise, your cost control sophistication and your global reach.  Every day, I see global law firms miss a chance to win by playing the global card. 

Most corporate legal functions don't come close to matching the international breadth and depth of most global firms, yet their companies are truly global.  A year ago I was amazed to hear more than three quarters of a group of 100 large global in-house counsel say their corporate legal function is not sufficiently global.  Far from it, they say.  In-house lawyers are very nervous about meeting the demand.  Many don't have the coverage or the international skill, and sourcing the right expertise is difficult and time consuming, not to mention expensive.

Global law firms can help in concrete ways.  Connect the clients' situation from one jurisdiction to another and demonstrate your value by spotting key issues which help them avoid costly, distracting problems.  Unfortunately, most global firms are not in the equation because they haven't connected their offering effectively to the client's global needs.  When global law departments look for international legal services coverage, they seems to have a fundamental lack of confidence in the law firm's ability to help them build a better, more efficient global legal mousetrap.

Internationally-positioned law firms will come out far ahead if they can manage to effectively offer clear and compelling global legal service.  They will win by showing clients what they can do that matters to the client in the short- and mid-term.    

The environment has changed and the heat is on.  No time for inertia.  It's time to get out there. If you have it, play the global card. 

Buon giorno, this is your wake up call.   Would you like another call in ten minutes?

---

I am compelled to add that Leigh is the editor of the very recently released book Bright Ideas:  Insights from Legal Luminaries Worldwide, which Ralph Baxter describes as follows:

"This collection of 26 impressive essays, skillfully edited by Leigh Dance, creates a superb textbook for leaders as they consider current and future strategies, whether as global law firms or corporate law departments. A unique compendium of global perspectives and ideas, it makes very useful reading for all who are working to chart a course in these unprecedented times."

Some of the 26 authors, drawn from law firms, major inhouse departments, and the consulting world, are:

• Peter Beshar, EVP & GC, Marsh & McLennan
• Jeffrey Carr, GC, FMC Technologies
• Bruno Cova, Paul Hastings (Milan)
• Fadi Hammadeh, GC, Dubai Properties Group
• Alan Jenkins, Chairman, Eversheds
• Pete Kalis, Chairman and Global Managing Partner, K&L/Gates
• Despina Kartson, CMO, Latham
• [yours truly]
• Jolene Overbeck, CMO, DLA
• Thomas Sabatino, EVP & GC, Schering-Plough

Profits from sales of the book will be donated to Advocates for International Development.

I recommend you take a look.

Doubtless over the weekend many of you read the NYT's longish story, "A Study in Why Major Law Firms Are Shrinking."  Truth in labeling would have changed the headline to "A Profile of White & Case So Far This Year," but perhaps that might not have drawn so many readers (according to the Times' website, the story was the second-most emailed of the day).  In journalism, I suppose you have to do what you have to do to corral readers--not that there's anything wrong with that.

Many of you probably read, as well, "The Economy Is Still at the Brink," on the op-ed page, by Sandy Lewis and William Cohan (fourth-most emailed of the day).  I'd like to suggest how these two stories intersect.

I.  White & Case

The White & Case story, it pains and annoys me to say, is fundamentally incoherent--at least if you're looking for a consistent through-line theory of how "major law firms [should address] shrinking"--or even whether White & Case itself has done the right or smart thing.  My irritation at the story is simple:  If the august Times is to devote this much prominent ink to the number one issue challenging our industry, you wish they could have at least come up with a plausible diagnosis and a debatable prognosis.  

There are even credibility-puncturing copy-editing errors.  I won't dwell on relative minutiae, but in this one phrase alone I detect two bloopers: "The firm, which is sixth on the Hildebrandt list, reported a 7.7 percent increase in profits last year, to $1.4 billion,..."  The "Hildebrandt list" referred to is the "Peer Monitor Economic Index," which is a composite of law firm market performance intended, roughly speaking, to be an analogue to the S&P 500 for law firms.  As best I know (and I'm quite familiar with the PMI), it's an aggregate index and not a ranking.  Suspiciously, however, White & Case was #6 in the AmLaw 100 in 2009 and in 2008, so that's probably what the Times is inartfully and inaccurately trying to refer to.  Second, of course, the firm's "profits" were not $1.4-billion, although its revenue was $1.467-billion, which was up 6.8% year on year.

Here, by the way, is the 1st Quarter 2009 PMI (I've added the arrow to make the "smoothed" results more conspicuous:

But to more substantive matters.

The most frustrating aspect of the article is its promiscuous mixture of the certainly-true with the scarcely-plausible.  For example?

At the root of the law-firm crisis, legal experts say, is the credit crisis, which has pulverized the need for traditional practice areas like structured finance, mergers and acquisitions and private-equity transactions -- the very things that have always kept a high gleam of polish on the city's whitest shoes. The downward trend has been unrelenting: fewer Wall Street deals mean fewer Wall Street lawyers.

While the legal industry is hardly battling the existential threat that is facing, say, the newspaper trade, Big Law -- especially in competitive New York -- is facing a potential paradigm shift as fundamental as the one that has hit investment banks and the auto industry. Big, as a business model (let alone as an expression of the national mood), seems bound for obsolescence.

The first of these paragraphs is inarguable, but the second leaves your eyes squinting and your brow furrowed.  Big, as a business model, is obsolete?  Have Wal-Mart and Exxon heard about this?  (For that matter, in its own world, has The New York Times?)   Far more accurate it would be to say what Hugh Verrier, W&C's chair, does:

Mr. Verrier ... suggested there was still "a vital role for the global law firm," even while acknowledging an increased tendency among clients to seek out regional firms for certain work. "Is there a paradigm shift?" he asked, seated in a 40th-floor conference room with a privileged view of Times Square. "I don't think anyone has a monopoly on what the future's going to bring."

Isn't this precisely the case?  Aren't we likely to see a relative profusion of law firm business models in the very near future?  And yes, very much including global firms as a "vital" part of that mix?

The mantra of BigLaw from about 2001 (or, arguably, 1991) through the third quarter September 15 of 2008 was:  Growth.  Growth was thought to be the universal solvent, the only strategy one needed, and we lived to some extent in a mono-culture.

That is most assuredly no longer the case.  Among other things, this means the challenge to senior management is to take a hard look at their strategy in light of today's new reality.  I've written before that what worked yesterday has zero assurance of working tomorrow.  (Not zero probability--you might be splendidly positioned for the new landscape, and I could quickly name several firms that are.  But zero "assurance," meaning you cannot take yesterday's conventional wisdom as still settled today.)

One aspect of the new reality that the Times piece gets right is how emotionally tough this is--even for those fortunate enough to still be at their firms.  Senior management underestimates this at their peril.  As I say, the Times deserves credit for identifying this very real phenomenon, the profound, even identity-undermining, changes that have already taken place, with more to come.  An unnamed "longtime partner at a big New York litigation firm" describes it:

"For the first time in their lives, people feel sort of useless. All of a sudden, you can go to lunch for two and a half hours and really not be missed. It's a blow to the ego. You're talking about people who have never really failed."

A "top partner" at White & Case expresses similar thoughts, but with the additional fillip (and a common one) that the marketplace reality of having to make tough business decisions has sapped the blood of what it means to be a partnership:

"When you finally make the partnership, you can walk into a room and certain assumptions travel with you: This is someone who knows what they are doing, who has intelligence and authority," the partner said.

"While that's still basically the case, it was a much more collegial place when I first got to the firm. Now it's colder. "The loyalty of the institution to its people, and vice versa, isn't really there anymore -- it's a different animal from what a lot of us were used to. It's much more of a business now and less of a true partnership. The problem is we're supposed to all be in this together. But at some point, you stop and think: 'Well, maybe we're not.' "

Covington's Philip Howard, famous for his clarion calls for "common sense" in the law, is also brought into the mix to opine that "as the bottom line increases in importance, the traditional role of the lawyer as a trusted counselor slips away," although he would seem to disqualify himself as an expert on the issue by frankly and commendably admitting that "I'm not really interested in the business of the law."

I've written earlier about what I view as the preposterously false dichotomy between running firms as businesses and maintaining impeccable standards of professionalism, so I won't rehash that debate here.    But my take on the supposed inconsistency in a nutshell is that nothing provides a firmer foundation from which to exercise rigorously objective professional judgment than rock solid underlying firm financials, and that in turn clients pay top dollar only to "trusted counselors" whose judgment comes with a backbone of steel.

II.  The Economy is Still at the Brink

The theme of this column is aptly summarized in the title:  Despite every effort of the Obama Administration and the Fed to restore confidence in the economy, it takes a lot more than mere confidence to restore the foundation of a healthy economy (inserted subheads and emphasis mine). 

Forgive the extended excerpt, but not only is this one of the better analyses I've read lately, it also happens to coincide with my profound skepticism that there are "green shoots" of recovery in evidence.  I will grant, more precisely, that there may be such green shoots, but I also predict they could be covered over again with snow; I do not believe, in other words, that winter is over.

Confidence Alone Is Not Enough:  We Need Fundamentally Sound Foundations

If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we've learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.

Wishing Won't Make It So

We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We're concerned that nothing has really been fixed. We're doubly concerned that people appear to feel the worst of the storm is over -- and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow's swings are a fool's game. [...]

Why Are We Propping Up the Institutions That Got Us Into This?

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated -- so why then are we so desperately anxious to restore that model as the status quo? Nearly every new program emanating these days from the Treasury Department -- the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the "stress tests" of major banks -- appears to have been designed to either paper over or to prop up a system that has clearly failed.

Instead of hauling out the new drywall to cover up the existing studs, let's seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.

We Need to Fundamentally Rethink How We've Been Living

Instead of promising the imminent return of good times, why isn't Mr. Obama talking more about the importance of living within our means and not spending money we don't have on things we don't need? We used to be a frugal nation. The president should be talking about kicking our addictions to easy credit, to quick fixes and to a culture of more is better [...]

Gas-guzzling S.U.V.'s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray.

"Feelgood" Medicine is the Last Thing We Need Right Now

Why is the morphine drip still in the veins of the financial system? These trillions in profligate federal spending are intended to make us feel better again even though feeling pain, and dealing with it responsibly, would be healthier in the long run. It is time to stop rescuing the banks that got us into this mess. If that means more bank failures on a grander scale or the dismemberment of Citigroup, so be it. Depositors will be protected -- up to $250,000 per account -- but shareholders, creditors and, sadly, many employees will, for the long-term health of the system, need to feel the market's wrath.

Beware Government Second-Guessing the Markets And (Inevitably) Playing Political Favorites

Is there to be any limit on bailouts? We have now thrown money at the big banks, any number of regional ones, insurance companies, General Motors, Chrysler and state and local governments. Will we soon be bailing out Dartmouth, which just lost its AAA bond rating? Is there no room left for what the Austrian economist Joseph Schumpeter termed "creative destruction"? And what is the plan to get the American people out of all these equity stakes we now own and don't want?

Furthermore, for government leaders to decide who shall live and who shall die in an economic sense opens them up to legitimate charges of crony capitalism and favoritism. We will benefit in the long run from a return to market discipline. [...]

Time for Some Creative Destruction

We are in one of those "generational revolutions" that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama's election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people's -- and the world's -- faith in American capitalism and in our nation. But time is wasting.

By now you must be wondering what on earth I think this has to do with Law Firm Land, much less White & Case.

The relevance is this: I'm asking you to think that BigLaw is like the financial system, and it's not fixed yet.

We had 20+ years of living off the fat of the land, with 5-10%/year rate increases, 5-15%/year revenue growth, and 5-15%/year growth in profit, until we began to think of them as God-given rights. A generation of us has experienced nothing else.

I'm here to suggest that those days were abnormal. It's time to meet the new normal.

But, as Melville's Bartleby the Scrivener famously said, "we'd prefer not to."

We're at risk of wasting the opportunity this crisis presents, of being 139 or 180 or 270 days into "The Great Reset," as I have come to call it, and deciding that the green shoots represent true spring, spring just like any other spring of the past 20 years, and not a January thaw with hard freezes yet to come. No need to fundamentally worry; it will be back to business as usual if we just can sit tight long enough.

The real intersection of the White & Case article and the still-on-the-brink article is this: We must have the intellectual and emotional courage to first imagine, and then to begin to build, business models that will carry forward our professional traditions and the highest standards of impeccable client service into the 21st Century, knowing that the strategic business mantra of growth for growth's sake is no longer the answer.

This will take from us no less courage and imagination than it will take to re-imagine and reconceive our financial system, and it will require that many of the same components of what was settled wisdom be re-examined root and branch:

• Compensation and incentives;
• Training and professional development;
• Billing methodologies;
• And not least, the purposes and structure of our firms.

Hugh Verrier is right to insist that there will remain a vital role for global law firms. But there will also, I intuit, be a vital role for boutiques, for regional firms, for industry-specific firms, for commodity-work highly efficient firms, and for prestigious high-end bespoke firms, and for new varieties undreamed of by us today. Some firms (White & Case?--perhaps, but don't look to The New York Times for guidance) will occupy a spot in that future firmament, and some will not.

The only prediction I can make with utter confidence about that future is that if you think all is now right with the world and it's time to relax again, it bodes ill for your firm's future stature. Even though, like Obama on the economy, I really am the optimist at heart.

The more I reflect on the news of GM's bankruptcy, the more shocking I find it.  My reaction is surprisingly akin to that when I learned of Eliot Spitzer's or Bernie Madoff's flameouts:  How on earth could this happen?  What were they thinking?  And who in their right mind could dig themselves that deep a hole?

Some day the definitive book will surely be written about GM's 40-year descent into mediocrity, irrelevance, and ultimately failure, just as I'm certain authors are hard at work as we speak attempting similar explanations for how seemingly intelligent and successful folks like Spitzer and Madoff could bring their worlds crashing down around their ears--emphatically so.  Since I'm not a psychiatrist but a purported armchair student of organizational behavior, that's all I'll have to say about Messrs. S and M; let's go to GM.

Given an event such as GM's bankruptcy that is, from any objective rational perspective, nearly inconceivable, my instinct is not to try to explain it in terms of analytic reasoning or syllogistic logic but to look to the irrational, cultural, and emotional behaviors and syndromes that must have set in to lead such a storied firm to such an ignominious end.  (Lest you think I slight syllogisms entirely, one can always deploy them, along the lines of "Poor quality products alienate customers who then demand ever and ever greater bribes in the form of rebates and discounts even to think about buying your offerings, which eviscerates your profits, starves R&D, invites short-sighted corner cutting, undermines whatever quality was remaining," etc., etc.  It's a perfectly valid syllogism but it explains precisely nothing.  What begs for explanation is how GM could sink into such a vicious whirlpool to begin with.)

David Brooks, sensitive and astute observer of human decision-making that he is, starts off today's column (emphasis mine) thus:

On Jan. 21, 1988, a General Motors executive named Elmer Johnson wrote a brave and prophetic memo. Its main point was contained in this sentence: "We have vastly underestimated how deeply ingrained are the organizational and cultural rigidities that hamper our ability to execute."

On Jan. 26, 2009, Rob Kleinbaum, a former G.M. employee and consultant, wrote his own memo. Kleinbaum's argument was eerily similar: "It is apparent that unless G.M.'s culture is fundamentally changed, especially in North America, its true heart, G.M. will likely be back at the public trough again and again."

These two memos, written by men devoted to the company, get to the heart of G.M.'s problems. Bureaucratic restructuring won't fix the company. Clever financing schemes won't fix the company. G.M.'s core problem is its corporate and workplace culture -- the unquantifiable but essential attitudes, mind-sets and relationship patterns that are passed down, year after year.

Gary Hamel, writing in the WSJ, paints a similar picture of cumulative and collective denial of reality:

GM's failure isn't the result of one spectacularly ill-conceived decision--the company didn't jump off a cliff. Instead, it meandered into mediocrity, one small short-sighted step at a time. Like a two-pack a day smoker, GM committed suicide in degrees.

Dodgy quality, a toxic labor environment, incoherent brand identities, clunky power-trains, adversarial supplier relations, and subterranean resale values--these were the chronic symptoms of a management model that regarded profits as the game rather than the scoreboard, that valued financial finagling more highly than inspired engineering, and elevated MBA-types to rule over the car guys.

A scant eight months ago, GM's then-chairman, Rick Wagoner, boasted that his company was "ready to lead for 100 years to come" --a comment that only could have been made by someone who was either naively optimistic or hopelessly delusional.

No less an eminence than Alfred P. Sloan Jr., the firm's legendary CEO, wrote 45 years ago in My Years Wtih General Motors:

"Success, however, may bring self-satisfaction.... The spirit of venture is lost in the inertia of the mind against change. When such influences develop, growth may be arrested or a decline may set in, caused by the failure to recognize advancing technology or altered consumer needs, or perhaps by competition that is more virile and aggressive.... This is the greatest challenge to be met by the leader of an industry. It is a challenge to be met by the General Motors of the future."

Sloan's remarks, of course, invite us--well, me at least!-- to broaden the perspective beyond the bloody and pummeled basket case that is GM today and to ask if there may not be some intrinsic risk that tends to afflict highly successful organizations.  After all, even Jim Collins' new book, How the Mighty Fall, has to deal with the awkward fact that two of the firms he admiringly profiled in Good to Great, Fannie Mae and Circuit City, turned out to be anything but.

Back to Gary Hamel, who reminds us that GM is by no means alone:

Motorola, Citi, NASCAR, Starbucks, Sony, United Airlines, EMI, Kodak, Alitalia, Sprint Nextel, the New York Times, Unilever, AOL and Chrysler--these are just a few of the businesses that seem to have lost their mojo. Truth is, every organization is successful until it's not--and today, there are a lot that are not.

How does this happen? How do yesterday's icons become today's also-rans? How does excellence degrade? What are the causes of corporate dysphoria?

Hamel nominates three causes (emphasis in what follows mine), but then I'd like to turn to a fourth which I think is even more telling--and potentially more germane for law firms.  Hamel:

First, gravity wins. There are three physical laws that tend to flatten the arc of success. The first is the law of large numbers. We all know that it's a lot harder to grow a big company than a small one. ...

Then there's the law of averages. No company can outperform the mean indefinitely. ...As you lengthen the relevant timeframe from one year to five and then to ten, the probability of out-performing the average rapidly approaches zero. In the long-run there are no growth companies.

Second, strategies die. Like human beings, strategies start to die the moment they're born. While death can be delayed, it can't be avoided. Autopsies reveal three primary causes of death.

[1] Clever strategies get replicated. Hewlett-Packard ultimately learned how to make computers as cheaply as Dell. JetBlue took a chapter out of Southwest Airlines' playbook. ...

[2] Venerable strategies get supplanted. Digital cameras made film obsolete. Downloadable music deflated the market for CDs. ... Sometimes newcomers improve on an existing strategy, but occasionally they shoot it out of the sky.

[3]  Profitable strategies get eviscerated. ...

In life, death can come as a shock. In business, it never should. ...Companies die when they can't escape the grasp of a dying strategy.

Third, change happens. Think of the number of things that have been changing at an exponential pace: ... the production of knowledge itself. In the past, there were many things that protected incumbents from the gale-force winds of creative destruction, including regulatory barriers, technology hurdles, distribution monopolies, and capital constraints. But in most industries these bulwarks have been crumbling. ...

Fact is, most businesses were never built to change--they were built to do one thing exceedingly well and highly efficiently--forever. That's why entire industries can get caught out by change--industries like big pharma, publishing, recorded music and the major U.S. airlines. In a world where change is shaken rather than stirred, the only way a company can renew its lease on success is by reinventing itself root and branch, before it has to--a feat that even the smartest companies have trouble pulling off.

Hamel is presumably no longer addressing GM specifically, but to say that even the smartest companies have trouble turning away from their traditional customers and abandoning the processes that made them great is, when you state it that way, not surprising.  What's shocking about GM is how deep the pathology ran.  Consider this vignette, from early summer 2008:

Around [June 2008], Bob Lutz [former Chrysler CEO and pre-eminent "car guy"] sat down for lunch with [CEO Rick] Wagoner. Spiking gas prices and the global meltdown of mortgage-backed securities were creating visions of empty dealerships loaded with unsold inventory. Over sandwiches in the Ren Center, as GM's headquarters is known, Mr. Lutz told his boss, "Rick, I don't like the way this smells. My gut tells me the economy is set up for a real collapse."

Years of massive losses had left GM ill-prepared for a major economic shock. At the time it had about $21 billion in cash, but it was burning a billion or more each month.

On Wall Street, speculation about GM's fate intensified. Merrill Lynch issued a report in early July headlined, "GM Bankruptcy Not Impossible."

The cost-cutting effort remained incomplete as the Fourth of July approached. Just before the holiday, GM's top 20 or so executives gathered at Mr. Wagoner's estate in Birmingham, Mich., for a barbecue. It was an annual event for the CEO and meant as a social gathering where no formal business was to be discussed. Even though GM's fortunes were worsening, the usual rules held, people familiar with the matter said.

This is the tale of a company profoundly and fatally committed to a totally delusional world-view.  I guess we can only hope the hotdogs and hamburgers were first rate, but Emperor Nero had nothing on these guys.

I promised you a fourth perspective, and it comes from my friend (disclosure) Don Sull, professor of management practice in strategic and international management, and faculty director of executive education at London Business School.  Don has a new blog at the FT, where he wrote yesterday:

Many people tell a simple story of corporate failure. Success breeds hubris which leads to overreach and triggers decline. After studying the causes of corporate failure and helping companies avoid it for two decades I have discovered a more profound dynamic that drives corporate decline. The commitments required to succeed harden over time and prevent companies from adapting effectively when circumstances shift. Organisastions often succumb to active inertia - they respond to disruptive changes in the environment by accelerating activities that worked in the past. [...]

Several factors harden commitments. Time and repetition enhance familiarity. Managers avoid reversing commitments to maintain their credibility. New commitments often reinforce the status quo. Interconnections among commitments hinder make it hard to unpick one without disrupting the rest.

When stable commitments meet turbulent markets, active inertia often ensues. [...]

Companies caught in active inertia resemble cars with their back wheels in a rut. Managers press on the gas - respond with a flurry of activity to market shifts. Instead of pulling out of the hole, they just dig themselves in deeper. Hardened commitments constitute the ruts that lock them into accelerating activities that worked in the past.

Looking in from the outside with the benefit of hindsight, it is easy to deride managers who spin their wheels as stupid, lazy, arrogant or complacent. All these vices play a role, no doubt, but the root cause goes much deeper. Corporate failure is rarely a morality play where the virtues of humility and hard work degenerate into the vices of arrogance and complacency. Rather it is a tragedy where two goods - commitment and flexibility - collide.

Don is perhaps more kind to the managers of doomed firms than I would be.  I would be tempted to tell them to snap out of it or face the inevitable consequences of their dereliction. 

But the key insight he brings is the vivid one of commitments.  Commitments are indeed what make it hard for us--myself included--to abandon:

• Processes that are familiar, although no longer optimal (summer associate programs?);
• Values that were once inspiring but become sclerotic (the Athenian democratic wisdom of the partnership as a whole when it comes to management of the firm?); or
• Relationships that become burdens (becoming or remaining overly dependent on a handful of clients; hitching your wagon to Wall Street investment banks, for instance, or to structured finance as a practice area).

I must wonder, as you, I imagine, should be doing at this point, which of these lessons might apply to the great law firms that bestride the globe today.  Lest we hastily forget, GM was once the paragon of 20th Century management.  John Kay wrote in the FT:

General Motors is stumbling towards oblivion. The failing giant was the iconic corporation of the 20th century. It implemented mass production, created the idea of professional management and defined a structure for the diversified industrial corporation. These features of our industrial landscape, today obvious and inevitable, were novelties a century ago.

At one Financial Times breakfast, we debated which were the most important business books ever published. I nominated three. Peter Drucker's Concept of the Corporation pioneered the intellectually rigorous analysis of management issues. Alfred Sloan's My Years at General Motors is the most thoughtful business autobiography. Alfred Chandler's Strategy and Structure turned business history and corporate strategy into academic disciplines. Only then did I notice that all were about GM. The history of modern business is the history of GM, and vice versa.

Kay concludes that the moral of GM's demise is "the challenge of how to reconcile professional management with a culture of innovation." 

Translating that to law firm land, I would say that the challenge facing 21st Century law firm leaders is how to reconcile sophisticated business-side management with a culture of professional excellence and innovation in legal practice and client service. 

To firms that figure that out will go the mantle of 21st Century leadership.  And to those who don't?  Perhaps a senior leadership 4th of July barbecue would be in order.