October 2009 Archives

Clients coming to me--and they're coming to me as never before--seeking clarity on what this will all look like "on the other side" are usually, for starters, really asking "How worried should I be?"

Sometimes of late, to reduce the general anxiety level, I quip that "we're not the newspaper industry." I fear that this is occasionally taken as gallows humor, although I intend it as anything but.  What I intend it as is quite simple:  Perspective.

But what if we were the newspaper industry, or more broadly, the print periodical industry?  What then?

Actually, Booz Allen's Strategy & Business has just written about this very thing, in Reinventing Print Media.  Granted, much of it doesn't remotely apply to us (or even, being parochial, to Adam Smith, Esq., which never has been and never will be a print publication), but some useful learning nevertheless emerges.

Two trends have intersected to deeply corrode revenue for mainstream print media, the second of which is the familiar rise of digital media.  Essentially the only traditional publications that have been able to charge more than $0 for their online content are The Economist, The Financial Times, and The Wall Street Journal--all, of course, addressing a professional business audience with one-of-a-kind brand names.  Consumer oriented publications that can charge are as rare as hen's teeth.  They mention Consumer Reports and Zagat's,but I can't think of a single additional example, and even the mighty New York Times has had to reverse field on this score.  Whether the taking of a different set of decisions at the outset of the mass-market digital age would have made any difference is, at this point, academic in the most devastating sense.

The first trend, which many non-industry insiders are unaware of, is the accelerating migration of marketing spending towards so-called "below the line" activities.  "Above the line" spending represents classic paid media advertising; below-the-line is everything else, and everything else is now the bulk of spending, and growing.  (Like what?  Like in-store promotions, manufacturers' own web sites, loyalty programs, "viral" and word-of-mouth efforts, YouTube videos, corporate Facebook pages, etc.)

So what do the august gurus prescribe for our friends in the dead tree world?

First, the full menu, and then, what we might adapt to our purposes:

The first strategy is to develop deeper relationships with readers around targeted interest areas. This builds on a strength that has always been at the heart of publishing: Strong print brands enjoy a trusted relationship with their audience; readers are loyal to print publications because they provide high-quality content about specific interest areas. [...]

The second strategy is to tap into revenue streams beyond advertising and circulation.  [...]

The third strategy is to reinvent the content delivery model (with a particular focus on lowering costs) and to emphasize a "profitable core" of unique and brand-defining material  [...]

The fourth success strategy for the media company of the future is to innovate with new products and pricing models.

Permit me to suggest that all of ##1--3, if conceived broadly enough, can be useful to us, and only #4 lands at our doorstep with a resounding thud (largely, but not solely, because of the terminally vacuous jargon in which it's expressed).

One at a time:

#1, "develop deeper relationships with [clients] around targeted interest areas."  That sounds like something a lot of us already know to do quite well, thank you very much.  Consider:

• focused client seminars on new developments in areas critical to their industry;
• free "health checks" where you and a fellow partner or two might spend half a day discussing ways you've seen similarly situated companies get in trouble, and what could have been done to head things off;
• brief "secondments" of some of your junior team members to the client's offices for cross-pollination and insight into what drives day-to-day decision-making in their lines of business;
• and more, I'm sure, which you are creative enough to dream up.

Examples from ConsumerLand may help spur your thinking:

Procter & Gamble has built its own digital media assets in the home and beauty category, Nike targets runners and other athletes, and Diageo helps young adults find bars and nightlife. [...]

Hearst -- another leading magazine player serving a broad set of women's interests with titles such as Cosmopolitan, Good Housekeeping, Marie Claire, and Redbook -- produces Real Age, a Web site that provides health information and offers a test that evaluates more than 125 factors to determine a person's "real age." To date, Hearst has grown its database of women by more than 8 million registered users who have taken the Real Age test.

How about #2, exploring new "revenue streams" beyond the traditional sources?  Again, I think we know how to do this.  Instead of just defending your clients when they're in a dispute or advising them how to navigate a corporate transaction, how about offering training in compliance so as to help ward off some disputes to begin with?  (Ideally, start with disputes, such as employment litigation, which are fairly low on the food chain and only once you've demonstrated a track record there might you consider moving up the ladder.) 

Or, what is perhaps a more timely suggestion, given the inevitability of clients' sending massive e-discovery projects to vendors specializing in handling intensive document review projects in ways more cost-effective than throwing recent Ivy League law school grads at them, how about offering some creative suggestions about how you could help manage, supervise, and strategically guide those enormous "boots on the ground" efforts?  (You won't be hiring and paying the infantry anyway.)

#3 may be my own personal favorite.

Isn't this another way of expressing the mantra every firm purporting to have a strategic rationale would have offered you until very recently?  To do the "high value," "price insensitive" work?  This simply states it a bit more subtly and stresses the perspective of the client rather than that the firm:  "to emphasize a 'profitable core' of unique and [firm]-defining material."

From our friends, with my interpolations as to what it could mean for us:

"Print media companies need to employ a range of efforts, but first and foremost, they must focus resources on their "profitable core"  [of clients] and build from that base. The profitable core is the set of print and digital content [your firm's intellectual property, expertise, and know-how] that most drives audience [client] engagement around well-defined interest [practice] areas. It is only on those distinctive content assets that a media company can build a "right to win," competing for attention against marketers [non-law-firm competitors such as Thomson West or LexisNexis], user-generated content [in-house resources, including lawyers], and other media companies [law firms you compete against]. Identifying the profitable core requires thinking freshly about the zones or editions of a newspaper or magazine and eliminating sections that do not drive significant readership or advertising revenue [a/k/a rethinking your geographic footprint and practice area mix]."

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The most important message of all, of course, is to abstract from the specific tactical or battlefield suggestions outlined in the Booz Allen piece or humbly suggested by yours truly, and to adopt the mindset of competing in a world where settled conventions about such things as associate career paths and the billable hour model are suddenly being called into question. 

A fellow named Aaron Shapiro, a partner in digital advertising agency Huge (which has clients including Ikea, JetBlue, NBC Universal, Thomson Reuters, Time Warner, and Walt Disney), puts it best:  He says this environment will require you to think as both startup and incumbent simultaneously.  "It will take aggressively fresh thinking," as he expresses it.

So no, we are not the newspaper industry.  But if you believe Booz Allen, even the newspaper industry ought to see reason for hope--conditioned on some "aggressively fresh thinking."

Not at all gallows humor.  Perspective.

According to the most recent fossil record discoveries, life on Earth dates back about 3,450-million years. But for about the first 85% of that time span, organisms were extremely simple, composed of individual cells, occasionally organized into colonies.  Pretty dull.

Then something striking happened, about 530-million years ago, which is now known as the "Cambrian explosion." For reasons not entirely understood--oxygen reaching critical levels in the atmosphere? more sophisticated predator/prey competition? an immediately preceding mass extinction? "co-evolution" of related species?--evolution came up with a brilliant invention: Mutli-cellular life.

Multicellular life, as expressed in the Cambrian explosion, is not just aggregate-cellular life.  It's organisms with structure, with layers, appendages, limbs conducing to mobility, eyes, ears, and dedicated noses, protective carapaces, offensive tools such as teeth and claws, and essentially the entire array of what we customarily think of as the Lego blocks that can go into making up modern-day and even prehistoric animals. (Something similar happened with an explosion in the diversity of land-based plants about 400-million years ago, in the Devonian period.)

This is a quantum leap.

A profusion of widely diverse body types and anatomical plans arose, some constituting direct predecessors to animal life as we recognize it today (for example, if it's mobility you're after, four limbs--not more, not less--turn out to be really useful). Many many other plans, almost certainly the majority, were less optimally adapted and now belong to extinct lineages--such as Opabinia, with five eyes and a nose like a fire hose, or Wiwaxia, an armored slug with two rows of protective upright scales.

Interestingly enough, the Cambrian explosion was sufficiently powerful, diverse, and creative that no design template for a modern animal post-dates it. In other words, structurally and conceptually, pretty much every animal we see had a recognizable predecessor dating to this period. To be sure, evolution can produce shockingly powerful advances given a few hundred million years, but the point is that it was the seminal moment in the creation of multi-cellular life, where "a thousand flowers bloomed." While many were proven more or less in short order to be false starts and dead ends, the point is that the intensity of experimentation led to some extremely durable and well-proven animal models.

Take a look (click to play the 25-second PBS video):

 

What has this to do with BigLaw?

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My thesis is that since, say, around 1980, we've been living in an ecological mono-culture: We have all been one-celled creatures, in the sense that we have all had one and only one strategy: Growth.

Aside from our "mono-strategy" as an industry, we have had:

• Mono-associate career paths (8 years, plus or minus, of lockstep to partnership);
• Mono revenue models (the billable hour);
• Mono levers for increasing profitability (primarily, by increasing leverage);
• And mono techniques for gaining competitive advantage (primarily, lateral partner recruitment).

I believe we're on the cusp of our own "Cambrian explosion," where we may begin to see a wealth of experimentation with different business models.

If the Cambrian explosion of 540-million years ago is any guide, there will be a lot of false starts and dead ends, a/k/a extinct species and firms. But there will also be some far-seeing, fast-running, high-flying, incalculably intelligent designs.

Stay tuned for the next installment in this series.

I've written before about the extraordinary premium put on leadership in this once-in-a-career period we're passing through, but because of its importance it's none too soon to recur to it. What can be said that hasn't already been said?

Bill George, a Professor of Management Practice at Harvard Business School and the former chairman and CEO of Medtronic (a medical device maker) has recently published 7 Lessons for Leading in Crisis, and since it's not the typical content-free platitudinous essay on this topic, let's take a look and see how his thoughts might translate to BigLaw. Let's start with the 35,000' overview and take it from there.

According to George, here are the 7 principles:

1. Face reality, starting with yourself.
2. Don't be Atlas; get the world off your shoulders.
3. Dig deep for the root cause.
4. Get ready for the long haul.
5. Never waste a good crisis.
6. You're in the spotlight: follow your True North.
7. Go on offense: focus on winning now.

He readily concedes that it's very tough to be (not just to appear) optimistic in the midst of a crisis, particularly one of the uncharted depth and severity of this one: But that's precisely what could distinguish you. The flip side of this is to avoid falling into the (tempting, and perhaps readily thrust-upon-you by panicky partners) trap of yanking at any and all readily available "quick fix" levers. On the same note, George opines that the current financial crisis was largely caused by what he calls short-termism, CEOs and other leaders who ignored both their own internal "True North" and that of their organization. The opportunity now—perhaps as never before in your career—is to think deliberately and strategically about what the future landscape might hold for your firm.

This is precisely why you need to avoid the "do something quick" mentality that undermines your colleagues' and clients' belief in how steadfastly you will adhere to your core principles in the midst of this storm. Two further observations on that:

• You have been, are, and will be in the spotlight as never before. Truly, everyone is looking to see what you say, how you behave, and what you do. They will pick up on signs of reaching hastily or desperately with tremendous acuity and their memory of the reflex you chose to pursue in the crisis will be long.
• Pressure—perhaps intense pressure—will be brought to bear for you to seem as though you are boldly confronting things and that you are demonstrating in the moment that you are capable and deserving of your leadership mantle. There's only one thing wrong with this: This is not about you. It's about the firm, the legacy that previous generations have bequeathed to you and the legacy you will be passing on to the next generation. To repeat: This is not about your "saving face."

And there's a third, critical, related point here:

• Don't be afraid to admit that you don't know what you don't know.
• Be candid and forthcoming with all of your various constituencies. In many ways, they don't expect you to know it all and you will tarnish your credibility if you project otherwise to them.

So if you don't know everything, what do you do?

Here's what George has to say about this dilemma:

One of the great myths of leadership in recent years is that leaders have to appear strong and invulnerable to mistakes and pressures. All of us without exception make mistakes and will capitulate under enough pressure. The key is being open with others, taking them into your confidence, admitting your mistakes, and looking to them for advice and support. Rarely does anyone turn down a leader who genuinely asks for help.

Yet we're exposed regularly by the media to the stereotype of the flawless leader who always has an answer and is never left questioning a decision. While most leaders know this is a fantasy, they still struggle with admitting their own vulnerability when a situation goes awry and crisis strikes. It's as if doing so is tantamount to admitting failure as a leader.

What are you supposed to do to avoid this?

• Express humility.
  
  
• Reveal (selective) vulnerabilities.
  
  
• Cultivate an air of openness.
  
  
• Encourage candor by embracing it yourself.

He also laments what he calls the "noticeable void today of principle-driven leadership in business and society." If this strikes you as coming a bit out of left field, the line starts to the right. And yet isn't it what we've seen at the root of so many of the behavior syndromes that led to the Great Credit Meltdown? In this connection, perhaps no quote is more memorable, or infamous, than that of former Citigroup CEO Chuck Prince who remarked to the WSJ a few short months before the gale winds began blowing that "As long as the music's playing, you have to keep dancing. And we're still dancing."

My reaction—perhaps yours—was he said what?

Here's the leader of one of the (notoriously) too-big-to-fail global financial behemoths announcing to the world that he has set his organization full-speed-ahead towards the iceberg, and he's trusting that he can pull the ship safely off course at the last second. (Precisely, not to belabor a point, just as the entire rest of the financial world is attempting to do exactly the same thing, leading to the great liquidity freeze which was an essential part of the core of this crisis.) George's prescription could not be simpler to state or, perhaps, more challenging in the heat of the profit-maximizing moment to live by:

The leaders who successfully navigate their organizations through crises are ones who focused on their leadership principles and stayed true to their values. Only by practicing a clear set of principles can we ensure that the recovery is long-lasting and that future business is sustainable. As a society, we need to get back to practicing values-centered leadership. That's the only way we can restore integrity to leadership.

Why is this so difficult? Don't we all profess—vociferously—to live by our principles and march to our values?

Well, yes.

I just finished reading John Kay's The Long and the Short of It (Erasmus Press: 2009 [so far published only in the UK]), where he trenchantly observes ("Contrarian Thinking," p. 192, emphasis supplied):

Modern financial markets are dominated by the power of conventional thinking. City [of London] folk share superficial views with each other and project current trends too far and too fast, Social and commercial pressures, reinforced by ubiquitous benchmarking, encourage professional fund managers to act on these widely shared opinions regardless of private reservations.

What has this to do with Chuck Prince and with our global financial system's collective conscious and enthusiastic decision to drive over a cliff?

To point out the seemingly irresistible pressure during the boom to lard up balance sheets ever more heavily with RMBs's, CMO's, CDO's, credit default swaps, and other "weapons of financial mass destruction" (Warren Buffett, of course) even if individual fund managers could see the tsunami on the horizon. It is famously better for a banker to go broke conventionally than to prosper unconventionally, and so it appeared to be with our callow and feckless Mr. Prince, quondam Master of the Universe.

I am reminded of nothing so much as the pitiful rats in behavioral psychiatrists' cages, pressing the cocaine lever until they die of exhaustion and malnutrion: "But it feels so good, how can I stop?"

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But back to what you don't know. What to do about that? This is, to my mind, the most important part of the piece. George's recommendation is simple and direct::

Call on advisers
:

And these advisers are?

• An internal management team drawn from a highly selective group; and
  
  
• An objective external counselor.

Can you afford to pull these highly valuable internal advisers from their day to day work? Here's George's answer (emphasis his):

Keep key people focused on winning. During a crisis there's a risk that your entire organization gets so focused on keeping the ship afloat that no one is planning ahead. Therefore, you should assign a small team of highly talented people to devise the post-crisis strategy. It may seem risky to pull key people out of crisis management to plan for the future, but this is required to win. How will you reshape your organization's strategy to emerge from the crisis as the winner?

And the point

To rise above the cacophony, the sound and fury, of the crisis, and to wisely—and in an uncompromisingly principled way—guide the organization to a brighter outcome on the other side:

For seasoned leaders, the most applicable are Lessons #5 and #7, "Never waste a good crisis" and "Go on offense: focus on winning now." So often the go-to strategy for veteran leaders when a crisis strikes is to buckle down and ride out the storm. They don't make any major changes. Instead, they wait until the climate is right to resume normal operations.

Crises offer rare opportunities to make major changes in an organization because they lessen the resistance that exists in good times. Leaders should move aggressively to take actions necessary to strengthen their organizations as they emerge from the crisis. Coming out of a crisis, the market never looks the same as it did going in. Leaders should see this as an opportunity to reshape the market to play to their strengths, while shedding their weaknesses. While others are licking their wounds, successful companies focus on winning now. These are often difficult lessons for veteran leaders to heed.

For many leaders, going on offense when they are in the depth of a crisis is most counter-intuitive, yet it is the winning strategy.

Sound impossible?

Yes, it is challenging. Perhaps your challenge of a lifetime. But you know the right things to do:

• Focus more than ever on what your clients really want; not just what your partners feel comfortable providing.
  
  
• Shed weaknesses.
  
  
• Execute rigorously.

And above all, don't try doing this alone.

Engage your carefully selected key internal advisers and even more carefully selected strategic external advisers. Choose them because they don't come to you (or life, for that matter) with canned, pre-packaged approaches, but because they are honest, probing, and subtle thinkers who are not afraid to admit they may start their inquiries as agnostics. (If they won't admit that, in fact, move on.) And you can always look at the bright side: You'll develop your leadership skills faster than you ever dreamed possible.

Jim Collins, author of the perennial business best-sellers Good to Great and Built to Last is back, and in this outing he presents what sounds like the most timely How the Mighty Fall: And Why Some Companies Never Give In. I must note that I count myself a big fan of his two earlier efforts, so I picked this up with high expectations.

A slender 240 pages (only 123 omitting appendices, notes, etc.), and just published this May, the book might initially strike you as a rush job designed to make a splash before our long economic nightmare is over. That may have been an understandable part of Collins' motivation, but he's too much the professional to do anything other than to provide a thoughtful, data-rich, empirically grounded and briskly written effort.

His thesis?

To borrow shamelessly from the promotional materials, which actually encapsulate his argument in a fashion that's overall fair:

Decline can be avoided.

Decline can be detected.

Decline can be reversed.

Amidst the desolate landscape of fallen great companies, Jim Collins began to wonder: How do the mighty fall? Can decline be detected early and avoided? How far can a company fall before the path toward doom becomes inevitable and unshakable? How can companies reverse course?

In How the Mighty Fall, Collins confronts these questions, offering leaders the well-founded hope that they can learn how to stave off decline and, if they find themselves falling, reverse their course. Collins' research project--more than four years in duration--uncovered five step-wise stages of decline:

Stage 1: Hubris Born of Success

Stage 2: Undisciplined Pursuit of More

Stage 3: Denial of Risk and Peril

Stage 4: Grasping for Salvation

Stage 5: Capitulation to Irrelevance or Death

By understanding these stages of decline, leaders can substantially reduce their chances of falling all the way to the bottom.

Great companies can stumble, badly, and recover.

Every institution, no matter how great, is vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall and most eventually do. But, as Collins' research emphasizes, some companies do indeed recover--in some cases, coming back even stronger--even after having crashed into the depths of Stage 4.

Decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. We are not imprisoned by our circumstances, our history, or even our staggering defeats along the way. As long as we never get entirely knocked out of the game, hope always remains. The mighty can fall, but they can often rise again.

The technique follows Collins' patented MO: With his research team, he gathers an extraordinary amount of raw material (here, "more than six thousand years of combined corporate history...beginning with sixty major corporations...and systematically identif]ying] eleven cases that met rigorous rise-and-fall criteria.") He then produces "paired" companies:

Loser--Winner; A&P--Kroger; Addressograph--Pitney Bowes; Ames--Wal-Mart; Bank of America--Wells Fargo; Circuit City--Best Buy; Hewlett Packard--IBM; Merck--Johnson & Johnson; Motorola--Texas Instruments; Rubbermaid--None qualified; Scott Paper--Kimberly-Clark; and Zenith--Motorola.

It takes little perspicacity to note that some of the "losers" today were viewed as big winners in his previous works (Circuit City and Motorola perhaps most conspicuous, and Motorola single-handedly performing the triple lutz of being identified both as a winner and as a loser, depending on the identity of the competitor). So it comes as no surprise that he devotes a fair portion of the introductory remarks to defending his previous methodology, by explaining, for example, that somebody who eats right, exercises, stays slender, and doesn't smoke can fall off all those wagons and no longer serve as a paradigm of strong health. If his point is simply that it's not "who a company is" but "what they do," I suppose, then, fair enough. But it takes a bit of a reach for him to get there.

What then of his taxonomy of failure?

Conceptually, stages 1 & 2 (above) address how companies get into trouble, and stages 3--5 address management's response. I found the second part of his analysis far more compelling than the first. We have all seen--and some of us have unfortunately been employed at--firms that were in denial about the peril they were in (#3), took desperate measures once it was undeniable (#4), and finally ran up the white flag entirely (#5). Collins does a strong job of describing the dynamics of these phases and, most interestingly, tries to identify what distinguishes those that pull out of their swoon from those that just accelerate and hasten their own decline. Good stuff.

But I was unconvinced by his discussion of how companies get into trouble in the first place, which, according to his own introduction, is the question that set him on the quest to write the book to begin with. The story he tells is of being invited to speak in 2004 at West Point, at the Conference Board and Leader to Leader Institute lecture, to address the small topic "America" in front of 12 US Army generals,12 CEOs, and 12 social sector leaders. The way he proposes to approach the topic is to ask whether America is renewing its greatness or is instead dangerously on the cusp of falling from great to good.

He then relates being approached by one of the CEOs at a break who asks, not implausibly "When you are at the top of the world,...the most successful company in your industry, the best player in your game, your very power and success might cover up the fact that you're already on the path to decline. So, How would you know if you were actually on the path to decline?"

Tantalizing indeed.

But alas, from my view, only asked and not persuasively answered by Collins.

How does he attempt to answer the question?

Stage 1 can begin when people become arrogant and begin to view success as an entitlement. Worse, they lose sight of exactly what behavior made for their success in the first place. Rigorous understanding of why the firm is successful--"because we understand why we do these specific things and under what conditions they would no longer work"--is replaced by the mere rhetoric of success: "We're successful because we do these specific things." Not to pick on GM, but a true story from early in its ossification and decline into irrelevance was the example of an engineer's determination to meet the bizarre, but real, corporate mandate of designing a dashboard ashtray that would work at -40°F. It worked, but it took two hands of strong men to open and close it. Hearing stories like that, of course, you gasp to yourself, "No wonder they were already on a greased flagpole of their own designing," but if it's that obvious do we need Jim Collins to tell us? Be it in sports, in Hollywood, or in investing and the hedge fund world, hubris has never been thought to be positively correlated with terrific outcomes.

Stage 2 shows more initial promise. The "undisciplined pursuit of more" (more scale, more growth, more acclaim) can indeed lead firms astray from their "core competence," as well as inviting senior executive edifice complexes, "Air RJR" (an indelible image from Barbarians at the Gate, describing the RJR corporate aircraft fleet), multi-million dollar birthday bashes for CEOs, etc. But my larger reservation about this hypothesis is that I believe the evidence is even stronger on the other side of this argument: That failure is more often due to companies that are so wedded to the notion of doing what they have always done best that they become oblivious to threatening ways in which the world is changing. 

This alternative, indeed contrary, hypothesis is the premise of the much more compelling and persuasive The Innovators Dilemma by Clayton Christensen.  That book documented how so many once-great companies foundered by focusing with blinkered vision on their suddenly outmoded methods of doing business.

Collins' own discussion of the A&P/loser--Kroger/winner saga would seem to bear this out. A&P failed not because it tried to move into used-car sales (Circuit City actually did, with CarMax--and you thought I was making this up), but because its small stores with narrow aisles were part of its "formula" and its management could not conceive that customers might want bigger, brighter, roomier stores (the Kroger recipe).

Where, then, are we left?

Unfortunately, with the most intriguing question unanswered.

So read How the Mighty Fall when you have a short (less than transcontinental) plane trip in front of you, for its rich cautionary tales of self-destructive and generally bone-headed behavior. But don't anticipate you'll come away with principles of wide applicability that you don't already know in your gut.

I'm at USC Law School speaking in a course entitled The Evolution of Large Law Firms: Effects of the Storm, taught by Adjunct Professor Bry Danner, former partner at Latham & Watkins and General Counsel at Edison International. I've known Bry for a few years.

Here's what the course is about:

Will firms actually create a new business model, or simply revert to their former ways once the downturn changes direction? To answer these questions, Danner provided students with some background in  economics and the recent history of law firm strategies during the first installment of the series, "Framing the Questions," on Sept. 21. In the second installment, "Search for Answers (part one)," held Sept. 30, Danner welcomed Michael Roster, former General Counsel at Golden West Financial and Stanford University and  steering committee chair of the Association of Corporate Counsel's (ACC) "Value Challenge" initiative. Roster also is a former managing partner at Morrison & Foerster in L.A

The description for "my" session of the course notes:

The third installment of the speaker series, Oct. 14, features a discussion with Bruce MacEwen, a lawyer and consultant to law firms on strategic and economic issues, and founder and editor of the "Adam Smith, Esq." website. Included in this session will be a Danner-vs.-MacEwen debate on which ultimate outcome from the current recession (a major change of direction or just a minor detour in the evolution of the law firms) would be best for today's law students.

Through a coin toss, I was chosen to argue the "major change of direction" side of the debate and while I hesitate to attribute the resulting student vote to my advocacy skills, a clear majority seemed to agree that a major change would be better for their careers than a minor detour.

I fly up to Portland, Oregon tomorrow for a mix of business and pleasure; back in New York early next week.

Hogan & Hartson/Lovells?

As amply reported (Legal Week, The National Law Journal, The Lawyer), the firms are in merger talks and, since no one is remotely denying the reports, we can only assume it's all quite for real.

We'll get to what we think it means in a moment, but first, to the numbers:

	Hogan & Hartson	Lovells
Revenue*	US $922.5-million	US $984.5-million
% change Year over Year	+4.9%	+10.9%
PEP	$1,160,000	$932,000
% change Year over Year	-1.7%	-11.3%
Revenue per Lawyer	$835,000	$695,000
Number of partners	202 equity/494 total	370
Number of lawyers	1,111	1,421
Non-home country offices	14	27
Non-home country lawyers	23%	82%
5-year CAGR of Revenue per Lawyer	+5%	+5%
5-year CAGR of Profits per Partner	+9%	+8%

*All figures in US$, using a conversion ratio of 1.594 $/£.

In addition, cities where both firms have offices are:

• New York
• London
• Hong Kong
• Beijing
• Paris
• Tokyo
• Munich
• Moscow

On a pro forma basis, the combined firm--assuming a complete merger--would have these characteristics:

• Revenue: $1.9-billion
• Number of lawyers: >2,500
• Global rank: Neck and neck with Latham & Watkins and Allen & Overy, all in a horse race for Global Firm #7:
  • DLA Piper: $2.26-billion
  • Linklaters: $2.23-billion
  • Freshfields: $2.21-billion
  • Skadden: $2.20-billion
  • Baker & McKenzie: $2.19-billion
  • Clifford Chance: $2.16-billion
  • Latham & Watkins ($1.92-billion), Hogan/Lovells (roughly $1.9-billion), Allen & Overy ($1.88-billion)

Finally, the practice mix would seem at first glance to be highly complementary. Hogan is known especially for its regulatory/government law practices, antitrust, litigation, intellectual property, real estate, and a substantial level of corporate work. Lovells, somewhat unusual for a UK-based firm, also has a relatively robust litigation practice and is less deal-driven than (say) the Magic Circle, as well as having strong real estate, antitrust, and regulatory law capabilities.

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So: What does this really mean?

Already the naysayers, of course, are keening about the challenges and the obstacles.  To be fair, the commentary has not been uniformly negative, with (for example) Alex Novarese of Legal Week saying that "at first glance, there appears much to commend this union," but he is quite the exception.

A sampling:

• "Merger-averse Hogan" supposedly reversing field;
• "partner compensation is, of course, a tougher challenge;"
• "transatlantic deals are fiendishly difficult to pull off;" and "transcontinental mergers have a mixed [read: dubious] history;"
• "US/UK deals are notoriously difficult to secure given the challenge of marrying differing partner compensation and accounting models;"
• "it's not clear what a merger would do for the combined firms' profitability;" and, of course, the inevitable
• "there could also be conflict over whether control of the combined firm would reside in Washington or London."

I'm here to tell you that it's time for us all to just get over ourselves.

So far as I can tell (no insider knowledge here, folks, sorry to report), this deal makes superb sense.

For how many years/decades/centuries have major corporations been doing transatlantic business on a routine basis? And somehow they have been managing to smooth out the differences between the pound sterling and the dollar, the differences between compensation expectations in the US and the UK (not to mention New York and London specifically), the differences between driving on the right and on the left, and of course the grain of truth in the famous quip about being "divided by a common language."

As for the New York/London divide specifically, we are informed by a UK legal publication that the architects of this deal should be grateful Hogan doesn't have its roots here in the Empire State: "A conservatively-run practice like Hogan, with a centre of gravity outside the brittle egos of Manhattan, shouldn't be the hardest American firm to align with a UK practice." [Note to visitors to the home office of "Adam Smith, Esq.:" Please check your egos at the door; we do.]

Are there challenges? Of course; there are challenges to running each of the firms today, as they stand alone. Would the challenge of running the combination be twice as great? Perhaps, but I doubt it--at least it would decline over time, and in the meantime there would be double the resources to devote to the challenges. Combinations that have far more moving parts than this one (just to pick a current example, Kraft/Cadbury) are pulled off routinely in CorporateLand. Why do we presume market forces end where legal services begin?

More importantly, do you see what's going on here?

Each of the obligatory reservations stated to the deal--partner compensation, the putative transatlantic "challenge," whether Washington or London would "win"--is at bottom a rather shameless exercise in navel-gazing.

When I said it's time for us to "get over ourselves," this is precisely what I meant. So far, the tenor of discussion about this proposed merger has been--at least when it shifts from pure journalistic reporting to implied or overt opinion--about as sophisticated as sports bar debates. (I am compelled to note one outstanding exception, which I would like to believe serves to prove my rule, namely the thoughtful commentary by Aric Press, "What a Hogan/Lovells Merger Would Mean.")

This is potentially a transaction that will change a conspicuous portion of the BigLaw landscape globally. Prattle as we may about the "globalization" of the profession, the Global 100 law firms are still (for reasons that have understandable, if archaic, roots in history and regulation-by-jurisdiction) almost shockingly insular, domestically rooted institutions. Of those 100--pop quiz--how many have:

• Over 50% of their lawyers outside their home country? Only 10 (yes, including Lovells, and counting DLA worldwide and DLA international as one firm).
• And of those 10, how many are of US origin? Two, namely White & Case and Baker & McKenzie.
• Between 30 and 45% of their lawyers outside the home country? Again, only 10, with a somewhat more respectable 7 of US origin.
• And below the 30% bar, the pickings get slim indeed, including some heavyweight name brands with surprisingly low numbers. For example? I would argue that if at least 3 out of 4 of your lawyers are in your home country, you're not yet seriously international. Here are some candidates (not to single these out, just to make a point):
  • Sullivan & Cromwell: 22% of lawyers non-US based
  • Skadden: 16%
  • Sidley Austin: 16%
  • Davis Polk: 13%
  • Simpson Thacher: 11%
  • &c.

The point is simply this: As an industry, we are not nearly as "internationalized" as our clients, and certainly not remotely as global as the premier clients we all aspire to serve.

It sounds to me as though the leadership of Lovells and of Hogan & Hartson are focusing on genuine strategic objectives and not on "who's on first."

We all need to grow up, snap out of our self-referential and unappealingly self-regarding reveries, and seriously contemplate what this may portend. And from my perspective, it will all be good. Overdue, but good.

I've written previously about Legal OnRamp, but some new developments call for an update.

What's new?  Primarily, the ability of individual law firms to feature their own selected areas of expertise.  First up is Latham & Watkins, with its outsourcing practice.  But a bit of background.

LOR was founded in early 2007 with backing from Cisco Systems and describes itself as a "Web 2.0 'Community of Action'" of in house lawyers and law firms, deploying

"the latest Web 2.0 technologies- blogs, wikis, profiles, search, "connections," "Twitter-like" capabilities - in ways that are specifically focused for lawyers to improve productivity and collaboration for legal departments and law firms."

Some additional facts, all verbatim courtesy of LOR:

• Legal OnRamp's rapid, viral growth makes it the market leader in social networking for lawyers. It currently boasts nearly 10,000 members (half of whom are inhouse) in 40 countries.
• In July 2009, Legal OnRamp announced a strategic partnership with The Corporate Executive Board's General Counsel Roundtable, the world's largest network of inhouse counsel, with 14,000 individual members from more than 500 companies - this partnership will see the General Counsel Roundtable's 14,000 member group added to Legal OnRamp's nearly 10,000 members, making it one of the most powerful inhouse counsel communities in the world.
• The ongoing development of the "Legalkipedia," with hundreds of law firms' members authoring tens of thousands of frequently asked questions and answers around day-to-day legal matters.
• As part of the roll-out to the General Counsel Roundtable, Legal OnRamp is adding a series of "FirmRamps" - sub-communities within Legal OnRamp which combine deep resources from law firms or other partners with best practice sharing from clients and ongoing discussion and collaboration. Latham & Watkins was the first firm Legal OnRamp invited to create a FirmRamp, focused on Latham's highly innovative work in streamlining the negotiation and operation of complex outsourcing agreements. Latham & Watkins will be offering in-house counsel the ability to pick our lawyers' brains through forums, access to a number of materials and the next generation of our interactive tool, Capture, for speeding up outsourcing transactions.

The fourth of the above is the one I want to focus on today.

But first, a bit more about exactly what LOR looks like and what it offers.

It requires invitation-only membership (although invitations aren't very hard at all to come by), so the home page is immediately personalized to you. Here's mine of earlier today:

I've highlighted a few things with the red arrows:

• "Hot Topics"--which appears to be auto-generated depending on activity on various parts of the site--is featured top right;
• They offer a group of blogs; recent posts are featured;
• It displays "My Profile" and you can of course edit away from there; and
• LOR is "presence" enabled, so it lists Members Online pretty much in real-time; you can IM or EM them, etc. (and you can, thank the gods, suppress others' awareness of your whereabouts).

In other words, and as promised, it offers a lot of what we've come to group under the umbrella term "Web 2.0." And, like all topics Web 2.0 or social-networking-related, it invites questions, foremost among them whether this is a fad (I hereby nominate Twitter for the Academy Award in that category) or here to stay.

I humbly nominate blogs for the Oscar for Here to Stay, having demonstrated, or so I believe, for nearly a decade now, their ability to provide focused, intelligent, and informed commentary on topics far too circumscribed to engage the Mainstream Media in any sustained or material fashion. Hasty caveat: Yes, of course, you must tune your antenna quite judiciously to avoid the roughly 1:10,000 signal:noise ratio--but as a discerning reader, that's amply within your control.

Now, back to item #4 on LOR's feature list.

The first so-called "FirmRamp," or micro-community, within LOR itself was recently launched by Latham & Watkins to focus on its outsourcing practice. Core to the "Outsourcing Center" is its so-called "Capture" tool, which is designed to capture the client or prospect's key requirements for the putative outsourcing transaction in order to permit Latham to generate an RFP and or a draft of a contract incorporating those requirements. Here's the Outsourcing Center home page:

On the "introduction to Capture" page, Alex Hamilton, Latham's London-based partner in charge of this efforts, explains as follows:

One of the most time-consuming and expensive phases in any outsourcing project is building your requirements.  Latham & Watkins has developed a new approach that can capture requirements with efficiency and economy.

Capture is a set of interactive, intelligent, dynamic forms that help you to quickly and comprehensively capture the stakeholders' requirements.   As you complete the forms, questions relevant to the particular transaction are revealed, driven by the options you select.  The Capture forms act as a checklist for key issues and, once completed, provide a blue print of your deal's specific requirements.

Using the answers to the forms, Latham & Watkins can then quickly produce an RFP input and/or contract, reflecting the requirements.

The Capture forms support and integrate with Latham & Watkins' Diamond contract structure and modules.  There is a Capture form for each part of the agreement (e.g. services, service levels, pricing terms, transition and so on) and the forms may be used in IT and business process outsourcing deals

And the benefits of doing work this way are said to include:

• speed
• accuracy
• a focus on the key issues
• enforcement of specific standards
• tailored requirements (rather than requirements starting from the last deal done for someone else)
• confidence
• quality

The process can be kicked off with an online RFP submitted directly to Latham, which looks like this:

Minimal information is required, only:

• name of your project, and version if applicable
• your name
• date
• contact info including name, telephone, and email

---

Let's step back. What's really going on here?

Abstracting from all the buzz--which different people will view positively and negatively--about social networking, Web 2.0, etc., these various tools and sub-sites are ways for lawyers to collaborate with clients. This is what lawyers do, and what they've done since the Code of Hammurabi and before.

In that sense, lawyers have been "social networkers" from the beginning.  The behavior, the interaction with potential clients, and the hoped-for results are not new, only the coinage of "social networking" seems to be new.  Remember when we just called it "networking?"  

Another thing lawyers have always done is demonstrate their expertise.  (Some simply assert it, but that's a mug's game.)  So Latham & Watkins could say, "We know outsourcing."  That and $2.25 will get you on the subway.  

Being far smarter than that, they've of course done something altogether different.  They've said, in effect, "Let us show you what matters inyour outsourcing contract; then judge for yourself."  If there's any time-tested way to win over a prospective client, this surely is it.

LOR is, then, from one perspective a remarkably conservative initiative: One that is attempting to enable lawyers and clients to do what they've always done, only with up-to-date tools instead of their various predecessors ranging from papyrus, quill pens, messengers, faxes, and FedEx, to email.

From the opposite perspective, however--and the one you can hear loud and clear when LOR talks about its mission (see the early part of this column)--LOR and its latest invention, "FirmRamp"'s (another is in the work about ethics, courtesy of Goulston & Storrs), are all about turning the profession on its head: "Welcome to the Future" as the home-page proclaims in the lead story. Insofar as no one else is really doing this, certainly not remotely near the scale of LOR after its 2-1/2 years, then the story truly is about something New and Different.

At the intersection of these two perspectives, the timeless and the innovative, lies the challenge that I would worry about the most had I a stake in the success of LOR. (I don't.) And that challenge simply is to maintain and consistently enhance the quality of its content and of its community.

This can pose a chicken and egg dilemma. People won't visit if there's nothing of value to come for, but firms have to publish content of value in order to have any hope of attracting high-quality traffic (and, by hypothesis, before there is much of any such traffic).

In this regard, LOR is trying to beat the 1:10,000 odds (I made up that ratio, of course). To all appearances, they have quite the fighting chance.