Research points towards talent being the key ingredient distinguishing the elite law firms from the mid-tier. Analyzing common characteristics of partners ranked tier-1 or tier-2 by Chambers or Legal500 shows that it is not legal knowledge but soft skills and talent that make the difference. Rainmakers typically did not build their practice on outstanding knowledge of the law, but on their other less tangible talents. Given the importance of non-legal skills, it is quite surprising that law firms do not really invest in developing such skills. As any law firm will have a well-organized and structural program for legal education and training, only few have a comparable program in place for the non-legal development of their lawyers. Law firms are underutilizing their revenue and profit potential as a consequence. Talent is not only for recruitment Perhaps recruitment is the only place where law firms are actually focused on soft-skills. Today it is not only the grades that count, but recruiters are specifically looking for extracurricular activities that demonstrate an interest beyond the law. Unfortunately once onboarded law firms seem not to be interested anymore. The emphasis during one’s career path in a law firm is heavily on ‘making flying hours’. The idea behind this is that one will automatically one day make a great partner if one works hard and has a lot of experience. Until the day a lawyer is made partner, any development of the important non-legal skills is marginal. Once partner, in most law firms all investment in personal development stops. Partners are supposed to be a ‘finished product’. No external input needed. What a missed opportunity! Success is based on investment in people The difference between an OK law firm and a highly successful law firm is in the talent. That is a fact. Few investments yield such high returns as smart investment in personal development of lawyers. Regardless if it’s novices or senior partners, every individual lawyer will benefit from developing and honing their non-legal skills. What is holding firms back is often the fear that these programs go haywire, cost a lot of money, fail to produce results and turn out to be a waste of time. That is why we have developed the 360Talent Tool to help you out. 360Talent Tool Based on over a decade of experience working with elite law firms we have defined the 7 Core Dimensions© on which highly successful partners score above average. Partly this is down to talent, but largely these dimensions can be developed and improved over time. To minimize the risk of wasting time and to help law firms improve their partners’ skills over time we have developed our comprehensive easy-to-use 360Talent Tool ©. The tool helps identifying development opportunities and offers the ability to track development progress over time. The tool is easy to use and takes very little valuable partner time. The 360 produces reliable, objective and actionable results. The 360, how does it work? Basically the 360 is a simple anonymous online evaluation. All partners are invited to rate each other on each of the 7 dimensions. Rating is easy: 5 stars means excellent and no priority for improvement. 1 star signals priority for improvement. 2/3/4 stars are somewhere in-between. Experience shows that it takes on average 3 minutes to evaluate one partner. This has a significant positive effect on the participation rate. On average more than 90% of all partners fills out the questionnaires. It is obvious that there are subjective elements at play when rating other partners. There will be differences in interpretation of what each of the dimensions mean, and some partners will not know some of their fellow partners well enough. The guiding principle is that evaluation should be based on ‘intelligent intuition’. Post examination of result has showed that this methodology works really well and indeed produces reliable results. The procedure is fully managed by us. All you have to do is provide the list with email addresses and make sure our survey is not blocked by your firm’s firewall. We send out the surveys and the reminders. We do the analysis and provide the results in an actionable and comprehensive manner. No need to say that the survey is 100% anonymous. It is not possible for anyone, including us, to see who did what evaluation. Inspiring, Actionable and Measurable One of the key advantages of the 360Talent Tool is that it provides totally objective insights to each partner and as such a powerful tool for future development. Because of the methodology the results are completely free of any bias. Feedback does not depend on individual relationships or anecdotal evidence. We have found that this significantly increases the acceptance. On an individual level the scores provide an unparalleled and neutral insight in on what dimensions best to focus when it comes to individual talent development. As the survey will be repeated on an annual basis is becomes possible to track progress and development over time. This is a strong incentive for partners to change and improve their skills. Positive effect on firm culture We have noticed that in some firms there is an initial negative attitude regarding the concept of partners evaluating partners. These firms fear that the evaluating partners will ‘unleash the beast’ and highlight inequalities between partners. Such sentiments of caution seem more common with law firms that have a low-trust culture. In reality however we have so far not noticed such adverse effects. On the contrary, inviting partners to actively think about what each of the 7 dimensions means to them and to their firm, has commonly led to open discussions that solidified the values of the firm and created a stronger feeling of operating under a ‘shared vision’. The majority of the partners who have participated so far, embrace the opportunity to further develop as they subscribe to the necessity of permanent improvement to keep up with market demands and maintain a competitive edge over their peers in the market. Who is it for? Law firms that aspire to be the winners in their market must turn themselves into talent breeding institutions. The law firm that attracts and maintains the top talent will be the one with the most interesting clients and mandates and the highest profit per equity partner. Talent is not just something one is born with. It needs to be developed, honed and maintained. Our 360 is the best tool currently available in the market to support law firms in this process. Our methodology is suitable for any law firm from 18 to about 80 partners. Jump on the opportunity Don't wait and take positive action right now. Drop Lisa an email and get a free proposal that you can use for further discussion within your firm: hakanson@tgo-consulting.com

Remember how positive and full of inspiration we entered into the new decade two years ago? Seems like ages. Hard to imagine how ignorant we were about how things would unfold when the new decade was just two months in progress. March 2020 our entire world entered into full crisis mode. None of us imagined back then that two years down the line the world would still struggle to get to grips with the situation. As we enter into 2022, the Covid virus still rules our lives and dominates the news. The vaccines, developed with amazing speed, turned out not to be the ‘life saver’ expected to be. So far we all need at least one booster shot to get out of this misery. Legal industry Meanwhile the legal industry is breaking record after record. Law firms are reporting their best years on record. Lawyers have done extremely well the past two years. The drivers behind the growth are an abundance of liquidity in combination with almost unprecedented uncertainty and disruption. The side effects of this tsunami of work have become painfully visible. Many lawyers, even partners, are overworked, suffering mental health issues or burn-out. The numbers of young lawyers resigning have grown. Scrambling to attract adequate replacement, this raises the burden on the ones that carry-on. “The ability to attract, develop and keep talent will become the key differentiator for law firms” Before we descend into doom thinking, I would like you to take one step back and be proud of yourselves. I’m not joking! The legal industry is not only incredibly successful, but also extremely professional and well organized. Client satisfaction ratings are verry high. Law firms are, but for a few exceptions, a great place to work. They have a strong culture and camaraderie. From a financial perspective one would struggle to find business models that are equally profitable. The problem is that lawyers rarely, if ever, take that step back and be proud of their achievements. Perpetually lawyers are obsessed with flaws and risks. This never ending focus on the negative, while part of the success, is also mentally exhausting. Like a Formula-1 motorsports team, law firms relentlessly focus on every little detail as the know that there lies the difference between winning or losing. Unlike Formula-1, lawyers never take the time to celebrate and recover. After winning the World Championship on 12 December, Max Verstappen took time off. Judging from the news, he still is on holiday today. Unlike Max, most lawyers kept working until Christmas eve and have reported back to duty after New Year. If anything, allow yourself that morale booster shot. Be proud of what you have achieved! Talent is the next battleground for law firms If you cannot take care of yourself, how can you take care of others? Relentlessly focused on their practice and always anxious not to make even the tiniest mistake, law firm partners can be extremely demanding to their team of associates. Irregular workloads and working hours, intense scrutiny and verbal and emotional abuse are not unheard of. The problem is that the younger generation is not accepting this anymore. The present generation of partners have all grown up in what they think are similar conditions. They also had to do all-nighters, skip social events, holidays and family gatherings, have also likely been shouted at from time to time. The difference is that compared with today, the real workload back then was relatively mild. The other differentiator is that Baby Boomers have a very different perspective on what matters in life than the Millennials and Generation-Z now joining the workforce. The Baby Boomers knew that their social and economic situation would only get better. For the present day generations this is not the case as it will likely get worse. Associate turnover rates at AmLaw 100 firms reached nearly 25% last year, up from about 19%. Last year a large number of law firms have thrown large sums of money at it, but despite big salaries and round after round of bonuses, associate attrition rates are spiking, too. The present day generation of lawyers does not want to be seen as a ‘production asset’ or just another cog in the billing machine. They don’t want to be considered resource that can be bought with money. Todays talent wants to be seen and treated as human individuals and not as legal ‘sex workers’ providing a service without any personal emotions. This is not a ‘pussy generation’ Baby Boomers often speak of the younger generation in a disparaging manner. They are described as entitled, weak and sometimes lazy. Some call them the ‘Snowflake’ generation. It is important to stress that this does not do them justice and it more than counterproductive. The younger generation is equally, if not more, talented than their parent’s generation. They are also absolutely willing to go the extra mile. One just has to look at today’s sports records or the large number of successful start-ups for example. The key-differentiator is that the younger generation is not for sale. They are willing to give it all they’ve got, but only in exchange for personal growth. Law firms are well advised to change course and start offering professional and structural personal development opportunities for talent. For us at TGO Consulting, helping our clients design, roll-out and maintain a smart development program, tailored to individual needs and preferences will be an important strategic focal point in 2022. Our TGO-360 evaluation tool has proven to provide a solid base of associates and partners alike. Perhaps you should inquire and find out how we could help you being successful in 2022 and beyond.

As we are now in December, we can say with some confidence that for law firms 2021 will be another bumper year. Probably even better than last year, which was already record breaking. The pandemic has triggered unprecedented amounts of liquidity created by the National Banks. Quantitative Easing was universally seen as the best way to avoid a global economic crisis, and so far it seems to work. For investors money certainly is not the problem. With so much cash and interest low or even negative, it is no surprise that investors are looking for yield. This for one is the engine behind the M&A and IPO flurry we are seeing. It certainly is keeping lawyers off the street. It is fair to say that since September 2020 the workload for lawyers has been consistently at an extreme level. For more than 14 months now, many lawyers have hardly had any time to breathe, and it is taking its toll. Partners and associates alike are suffering burnout, severe work-related stress and mental health issues. Dropouts further increase the work pressure for those who still soldier on. Throwing money at it is not the solution Desperate to get the work done and trying to avoid more trained associates leaving, law firms have raised salaries and hand-out huge bonusses. Focused on revenue and profit, the last thing law firms want to do is NOT accepting new mandates or clients. Saying ‘NO’ does not seem to be an option. Sure, every mandate will add to the firm’s bottom line. With costs being fixed (except for the extra bonusses) all extra revenue will come at no extra costs and will entirely convert into profit for the partners. It is easy to see that this is too attractive to resist. Hence the drive to keep accepting the new mandates even if many lawyers are at the brink of a collapse. Paying outrageous bonusses or raising salaries is peanuts in the bigger scheme of things, at least from the firm’s perspective. From the individual non-equity-partner lawyer perspective, extra money does not take away the pain of being endlessly overloaded with work. A bonus at the end of the year does not reduce stress or improve work/life balance. Despite the extra monetary reward, associates still get a burn-out or quit their jobs. The current situation calls for an entirely different approach. What is it actually that lawyers want? Last week Thomson Reuters published their ‘Skills and Progression Mid-Year Survey, November 2021 edition’. This research is conducted among 1170 stand-out (identified by clients) partners from over 50 countries. The researchers found that “younger lawyers, along with female lawyers, were the least happy with the number of hours they were working, demonstrating the widely acknowledged push factor which causes many in these groups to leave the industry”. The group expressing dissatisfaction with working hours is substantial — 3 of every 10 lawyers. In line with other working hours data in the industry, younger lawyers in the survey work the greatest number of hours and the oldest age group analyzed work the fewest. Contrary to what we may assume, the youngest lawyers are not the group most comfortable with long working hours. Young professionals are placing more explicit emphasis on work/life balance, mental well-being, leisure, and other activities outside work, than was evident in previous generations. A higher proportion of the professional workforce are mothers and as men now take more active roles in child-rearing, it means that younger professionals as a group are juggling more domestic responsibilities alongside their paid jobs. Today’s under-40s are also conscious that their working lives will likely be much longer than those of their older colleagues, which further influences their perspective. Collectively, these factors mean that long working hours are a potential push factor for younger talent to leave law firms. So, what is the solution? As throwing money clearly is not the solution, what is, you might ask? The answer to that is twofold. On the one hand law firms need to reduce the workload, on the other hand firms need to focus on training and personal development. In order to understand, let’s break this down. Reducing the workload: A strategic shift by accepting only mandates that contribute to the market reputation of the firm. Except for the largest legal markets, ‘National Champions’ cannot live of strategic work alone. The markets in which they operate are simply too small to sustain the 3-5 top law firms only doing strategic high value work. In order to survive these firms typically have to take on about 50% non-strategic/commodity mandates. In times of work-overload like we are seeing today, it makes sense to reduce this number. Partners should actively reduce the volume of non-strategic work. A more even distribution of workload. Analyzing data we have found that even when firms operate in overdrive mode like right now, the workload distribution between the associates varies wildly. While part of the associates make crazy billable hours, some others are still find themselves below target. In times of stress partners tend to rely more on the associates they trust most to deliver. Partners fear having to spend too much time instructing some others. Hence the workload imbalance. The use of technology to augment lawyers. For the last decade or so law firms have been tumbling over each other to tout their Legal Tech. One firm even smarter and more innovative than the other. While this has been hollow words for PR purposes only, some real world adoption and implementation of new technology would have made perfect sense. As the Creation-Production Divide Concept© shows, the value of the lawyer to the client is not in Production (execution), but in Creation. Yet it is Production which is most time consuming. Law firms could easily free up a significant amount of time by augmenting their lawyers with technology that will make Production/Execution substantially faster and less time consuming. Out of fear that this will undermine the business model (reducing the number of billable hours spent on a mandate), law firms have resisted taking the necessary steps at the right time. This is now coming back to bite with a vengeance. At least 25% of all billable hours consists of ‘dummy work’ that could easily be done by a machine. Just imagine how this could have prevented the current workload crunch. Training and personal development: Reading the Thomson Reuters report between the lines, there is something else that clearly stands out: the need for personal development perspective. 84% of respondents say they want to be more involved in client relationships, 62% would like to see more time spent on mentoring. This aligns with our own findings. Our data shows that young lawyers are looking for personal growth rather than for money and income safety. The younger generation wants to clearly understand how the time they spend at the firm will help them grow and develop skills that have value later on in their career. Younger lawyers don’t want to be just a cog in the billing machine in exchange for an absurd amount of money. They are looking for meaning and personal growth, in exchange for which they are surely prepared to put in the hours. Law firms are well advised to recognize this need. Failing to do so might well leave the partners that today are 55 years of age and up, having to work alone without a team in the future.

The other day I was having dinner with the managing partner of a well known leading law firm. At some point he confessed to me: “You know what Jaap, I have been a partner with my firm for more than 20 years now. I have been the managing partner for the last four years and I have just been reelected for a second term. For the last few years I’m feeling more lonely than ever…” To tell you the truth, for me his confession did not come as a surprise. As I have been working with law firm leaders for many years, I know that being managing partner can be a lonely job. Most partners who get elected are not prepared for this. Let’s examine what transformations take place. As an MP you are no longer ‘one of the boys’ As an ordinary partner you have probably developed professional friendships with some other partners. Perhaps you go out for lunch together, probably some regular banter, complaining and office gossip. Maybe you travel together to visit referral firms. What most newly appointed MP’s are not prepared for is that all this will stop once you are the managing partner. As a managing partner it is difficult to have a closer friendship with some of the partners as it may look like a favorable position of unfair advantage to others. As a managing partner you cannot engage in office gossip or even share your private opinions. As a managing partner you may have to get used to eating alone in the ‘canteen’ as there will be a threshold for joining you at the table. As a managing partner you have a responsibility to lead the firm, but that same responsibility will also make you an outsider. MP’s make enemies As a law firm leader you have to make decisions all the time. Some of those decisions will affect individual partners. Sometimes the MP has to make some tough decisions and some of the partners may get angry as a result. In a worst case scenario it might be required to take unpleasant measures against your closer friends. Many managing partners struggle with this kind of confrontations. It is so much easier to be ‘Mr Nice Guy’ and make everyone happy all the time. Unfortunately this is not how the world works. Sometimes you have to break some eggs to make the omelet. As an MP you will make enemies and there will be scores to settle. Having the unfortunate task to do the dirty work can be emotionally challenging. Most humans prefer harmony over conflict. Also don’t count on support from the other partners as you act in their interest or even on their request. The majority of the partners may pressure you to take measures against an individual partner, but once you act they will most likely remain silent and turn their back in order not to get emotionally involved. Perhaps only after everything is settled and put behind, the MP might get some applause, but probably not even. No praise only criticism This is another element that can make law firm leaders feel lonely. Law firm partners have a strong tendency to focus on what is wrong rather than what goes well. As a managing partner you could be working 24/7 and dedicate all your talent and energy to the firm, still you will likely be criticized for those few things that are still on your to-do-list. It is my experience that for managing partners this can be frustrating and exhausting. The absence of positive feedback and the ever continuing criticism can really get under your skin after a while. Becoming the managing partner, you should prepare for this. Constant focus on the negative and little or no recognition for the success. A vulnerable position When an experienced partner, trained as a lawyer, becomes the managing partner, he/she is entering in a whole new territory. It takes some time to get the hang of it and figure out what it is you are actually supposed to do. One way or the other the investment in time in managing the firm will go at the cost of your practice. Effectively a fulltime managing partner will be a part-time practicing lawyer at the best. We all know that being a practicing partner at a leading high-end law firm is extremely demanding. Combining it with managing the firm is near impossible, I only know very few examples of managing partners who pull that off successfully. Most managing partners over time get fully absorbed by their management responsibilities and lose their clients and practice as a consequence. Not having a meaningful practice of their own, will make a managing partner vulnerable. Secondly managing the firm requires a totally different skillset than being a practicing partner. From micro to helicopter view one could say, or from risk to opportunity. After a period of learning and unlearning, some managing partners develop an interest and talent for management. The prospect of at some point having to return to practice might over time become a threatening one: some do not want to go back to being a practicing lawyer. They become locked into the MP position and cling on to it with all their might. The fear of being demoted makes them vulnerable. This further adds to the emotional burdens mentioned. Be prepared All this might seem to be a bit overwhelming and could put partners off from accepting the managing partner role. It should not. Managing your firm can be hugely satisfying and rewarding. The important message is that one should start with the right expectations. The more realistic and aware the new managing partner is, the better prepared for what is thrown at him/her. At TGO Consulting it is our business to prepare newly elected law firm leaders for what is coming their way. We also coach managing partners on the job. If you accept the position, you’d better make it a success. We got your back covered.

As the year slowly draws to an end, for many law firms a familiar topic is on the table. At least for those that end their fiscal year on 31 December. This is the time for law firm leaders to zoom in on individual partner’s performance. Having only one more month to go, the balance can be made with a reasonable amount of accuracy. Universally the focus is on a partner’s revenue and billable hours. This may seem logical, but actually it is an unreliable metric. The core of the issue is that a file for administrative reasons will be in the name of the partner who originally opened it. As a consequence all the revenue generated in that file will be put under the name of that partner. Even if other partners had a substantial contribution in completing the file, the revenue they created will not show up under their name. The matter is further complicated by ‘origination credits’ or the ‘billing partner’ concept that attribute all or part of the revenue to the partner that originally ‘brought’ the client or manages the relationship with the client. There can be several other distorting constructions be found in the wild. All of them blur the view on the true financial contribution of the individual partners. Not only revenue is unreliable and biased as a yardstick for partner performance measurement, the same holds true for billable hours. The number of billable hours made by a partner are also not a usable measurement of performance. In general it should raise suspicion rather than praise if a partner makes a lot of billable hours. Partners should distribute the work to the associates and use a substantial part of their time to go out and find new matters and new clients. Why measure performance in the first place? So, if revenue and billable hours are unreliable metrics to use, what metrics should law firms use to monitor performance and provide partners with insights on how they are doing? Before answering, probably another question needs to be posed first: why are law firms closely monitoring individual partner performance in the first place? For any ‘eat what you kill’ firm the answer is probably easy, but for pure lockstep? In theory, measuring would spur partners to do the best they can. In reality measurement is a compensation for a lack of trust. If partners in a lockstep firm would completely trust each other, why would they want to measure individual performance as performance has no consequence for the profit distribution? Focus on individual performance tends to undo some of the fundamental benefits of equally sharing the profit as it emphasizes inequality and creates an unsafe environment for some that become vulnerable. Size matters Actually for any law firm, the average file size should be an important metric. If two partners both have a revenue of 1 million (just for the sake of the example) and partner A has 10 files of 100.000 and partner B has 100 files of 10.000, partner A clearly has the better practice and will contribute more to the overall reputation of the firm. For files, size does matter. Larger files are more likely to be strategic than small files. Larger files are also more profitable to work on as it will be easier to spend a full day on the same file, rather than an inefficient start-stop on multiple smaller files. What I am saying here is that partners should be stimulated not to gather revenue regardless, but focus on working on the largest possible files they can get out of the market. If there is too much emphasis and pressure on revenue alone, partners will be inclined to take any file in order to meet their targets. They shouldn’t. Average file size should be made an important metric in any high-end law firm. Feeding the little birds If a law firm had to live only off the revenue created by the partners, profit shares would plummet. In order to reach an acceptable and competitive profit, any law firm needs leverage. More than the billable hours of the partners, the billable hours of the associates contribute to the net-result. Even with today’s high salaries and office costs, the profit margins on the associates are incredibly high. It is therefor of vital importance that partners provide the associates with all the work they need to reach at least 100% utilization. Not only utilization is an important metric to monitor, but also the ratio between partner hours and associate hours. Partners should be required to keep all associates fully occupied. In an ideal situation, there will not be a single associate that does not meet the targets. Only by closely managing the utilization of each individual associate, a law firm can properly manage profitability. In reality things often do not function optimally. Partners can be preoccupied with meeting their own billable hours target and do work that should have been done by associates. What we also see a lot is that workload distribution is very unevenly distributed between associates. In such situation, part of the associates makes a lot of hours while some others are seriously under-utilized. The problem here is that under-utilized associates do not get the same learning experience than the ones that work a lot. This will further widen the gap. Partners should have an obligation to equally distribute the work and provide all associates with enough work to meet the targets. Like the mother birds, partners have to feed the little birds, all of them.

At any law firm, only a small percentage of all lawyers are partners. And even within the ranks of the partners, there are two tiers: the equity partners and the salaried partners. It is not easy for a lawyer to become an equity partner at the firm. Partnership equals ownership and it takes at least ten years of experience, business acquisition skills and a solid business case to be voted in as a new equity partner. In the past, once in, you would be left alone for the rest of your career at the firm. Partners were independent, self-steering and self-responsible business units. As said, this was the past, today partners are not home-free and these days a partner’s financial performance is tightly monitored. For the majority of partners their financial performance is directly connected to their renumeration. Many law firms have some sort of renumeration committee that annually reviews each partner and decides on what part of the firm’s profit a partner will receive. It is not uncommon to take other elements, besides revenue and billable hours, into consideration as well. For various reasons the annual partner review however, is a root cause for tensions and debate. Let’s look at some of the bottlenecks. The financial information might be wrong or incomplete In our day-to-day practice we do often a Financial Business Analysis©. If there is one thing that we have observed through the years, it would be that the data we receive straight out of a law firm’s financial system typically misrepresents what is actually going on. This has nothing to do with poor administration but is just a consequence of how matters are being recorded. Firstly, a new matter is always opened on the name of one individual partner. Even if during the course of the matter other partners also work on the case, the revenue will be in the name of the partner who originally opened the file. Secondly, many law firms use Origination Credits of some sort. This could take many shapes and forms, but all of them will distort the data and blur the view on an individual partner’s performance. Often one partner can claim ‘ownership’ of a client and get part or all of the revenue in their name, regardless the amount of time they have actually spent on the file. Thirdly, just focusing on bottom-line revenue completely misses the point. Not all revenue is created equal. The profit margin will largely depend on leverage and effective hourly rate. Your reputation will depend on the quality of the practice. If two partners both create 1 million in revenue and partner A has 10 matters of 100.000 and partner B has 100 matters of 10.000, partner A definitively is the better performing partner. Financial data is only half the story Partners do not operate into a vacuum. Therefor there is a need to take other elements into account that are not directly derived from the firm’s financial system. What exactly these soft elements are varies wildly between firms. The way in which a partner interacts with his/her team might be one. Firms typically don’t appreciate partners that mentally or physically ‘mistreat’ associates. Contribution to the firm, might be another one. What such elements have in common is that they are to a high degree subjective and could therefor be seen as unfair. The elephant in the room The main issue I have with all these measurements and appraisals is that they are looking in the rearview mirror. It focuses on the past and criticizes flaws, rather than identify growth opportunities. It is a common misconception to consider the equity partners ‘complete’ and their skills and talents a given that cannot or need not be changed. We firmly believe that every partner is entitled to further development and growth. Partners should not be seen as independent, self-steering and self-responsible business units that are best to be left alone. It is in the interest of the individual partners and in the interest of the firm to permanently stimulate development and growth of each of their partners. The annual partner review should not focus so much on what a partner did, but on development opportunities instead. Bear with me, I am not preaching some sort of softy tree-hugging approach. Development should be quantifiable and progress should be measured at all times. In that respect our method does not fundamentally differ from the present methods. What is fundamentally different is that we should look forward and focus on the future, rather than focus on the past by looking in that rearview mirror. We have a method for that TGO Consulting has over the years developed a method that might help you to unlock more of your partners’ potential. Our method integrates financial data and skills and attributes. It includes a smart tool for assessment and measuring progress. Please drop us an email if you are interested in learning more on this method and on how it could fit-in with your firm’s particular culture and needs.

On 21 October a new piece of academic research was published. It explains why human brains decreased in size approximately 3,000 years ago. The reduction in human brain size 3,000 years ago was unexpected. It is a surprising fact about humans today that our brains are smaller compared to the brains of our Pleistocene ancestors. Why our brains have reduced in size has always been a mystery for anthropologists. Brains use up a lot of energy, and smaller brains use less energy. The externalization of knowledge in human societies, thus needing less energy to store a lot of information as individuals, may have favored a decrease in brain size. The new study suggests that this decrease was due to increased reliance on collective intelligence, the idea that a group of people is smarter than the smartest person in the group. These findings strongly support our mantra of using Swarm Intelligence in law firms. Lawyers operate self-centered Today law firms are still very much organized around individuals (partners), making even integrated law firms effectively barely more than a group of individuals sharing an office and some other resources. Although most law firms will probably argue that for their firm this is not the case, reality is that partners are competing with each other for matters, clients and resources. Furthermore within a law firm there are silos: the practice groups and offices. Each silo has its own resources being primarily the associates, secretaries and paralegals. No need explaining that this commonly leads to poor use of the physical and intellectual resources. It frequently is the root-cause of under-utilization of fee-earners, and thus has a direct negative impact on a firm’s bottom line. This self-centered and silo-based organization model comes not only at the cost of sub-optimal profitability, it also under-utilizes the intellectual and creative capital of the firm. Today law firm clients are facing increasingly complex challenges that go well beyond the expertise of one individual practice area. Helping clients navigate these multidisciplinary issues will require not only breaking down the practice group silos to foster cooperation, but it will also require tapping into the collective intelligence, experience and creativity of the firm. We call this ‘swarm intelligence’. Only the firm collectively will be able to find answers and solutions, were no individual partner or lawyer can. Just like our ancestors 3000 years ago. The world around us is getting more complex by the day. Law firm clients are real-life companies and organizations that must work very hard on a daily basis to remain relevant in their market. Almost every industry is facing new challenges these days. The banking industry, which has been going steady for decades, is now facing negative interest rates, a much tighter regulatory framework and stiff competition from crypto currencies and new entrants into their market. The energy sector is seeing transformative challenges it has never seen before. The automotive sector is disrupted by electrification and supply chain issues, and so has every other private or public sector comparable challenges of their own. All this calls for strategic ‘out-of-the-box’ thinking. Just applying experience from the past doesn’t cut it. Helping clients navigate these challenges and help lead the way to new market opportunities and new business models, requires skills and creativity that goes well beyond what any individual alone could achieve. General Counsel were first to recognize this need. On countless occasions GC’s have voiced their desire to get broader input from their outside counsel. This is not about handling individual mandates, but about exploring new ways forward, which is crucial for any company's future existence. Towards a collaborative culture I would argue that both law firms and clients would benefit from a more collaborative culture. What if a client is not the client of an individual partner, but a client of the firm. Clients would benefit because they would always have the best lawyer on the job depending on experience, expertise and availability. This even implies that the required skill could change during the course of a matter. Something that requires a business savvy negotiator in the start could require a patient technical lawyer later in the process. Even default discussing the strategy in a particular matter between the partners will positively impact quality. Would you as a patient not prefer your doctor to discuss your case with his colleagues to obtain their insights and opinions? I would personally not put myself in the hands of a medic who does not consult his colleagues. Why then would this be different as it comes to lawyers? Swarm Intelligence will unlock the full potential The way in which law firms operate now is geared towards rewarding individual performance and individual responsibility. Today all but a few exceptions lack a structured exchange of knowledge, expertise, insights and innovative creativity. Partners have basically no tradition or incentive to truly collaborate and tap into the combined brains of all partners (and all others) in the firm. It is not hard to see that a firm that would truly succeed in ‘melting the brains’ would become unbeatable. Just imagine how powerful all that combined knowledge, skills and brainpower would be. Now it turns out that humans are evolutionary primed to cooperate, one could argue that working solo goes against human nature. Humans, lawyers no exception, are really smarter together. We would advise our clients to securely embed collaboration and applying Swarm Intelligence across the firm. If incorporated properly and embraced wholeheartedly, it is guaranteed to contribute to your firm’s future growth and success. Both your partners and your clients will thank you for it.

As law firms over the world are hurdling back to the office, familiar pre-pandemic patterns reemerge. For this article I will focus on internal meetings. Meetings absorb more time and drain morale more consistently than any other corporate activity. Before the pandemic law firm managers were spending an average of 23 hours a week in internal meetings. For the other partners numbers were not as high, but still mounted up over the year to about 8 hours a week on average. I’m not sure if working from home has reduced these numbers as having too many Teams or Zoom call has been the most widely heard complaint over the past year. Now that lawyers are gradually returning to the office there is perhaps a once in a lifetime opportunity to rethink and restructure the way we communicate. This is the time to get rid of about half of all meetings. Meetings drain morale and drain energy What percentage of internal meetings in your firm, did actually start on time? Probably not that many. It is a common annoyance. I know of law firms resorting to drastic measures such as locking the door once the meeting has started, to enforce more punctuality, but to no avail. For what percentage of meetings would you say that all attendees come well prepared? Again, probably not that many. Typically no one has read any material or even the agenda. They just come in, take a seat and wait for things to happen. Partners have typically not prepared for internal meetings, which makes discussions inefficient and also a bit pointless as arguments have not really been thought through and are mostly based on the gut feeling of the moment, or on what someone else has just said. What percentage of meetings you are requested to attend has a clear purpose? Often the objective of a meeting is totally unclear. The meeting exists just because it exists. This could be the monthly meeting of the IT committee, the International Committee, you name it. Any meeting without a clear objective such as information sharing and coordination, or finding a solution for a well defined problem, is bound to be a waste of time. The fact that partners are late for internal meetings and/or bring their laptop to work during the meeting are sure signs that those meetings are doing more harm than good and should be scrapped. Ted Lasso doesn’t do meetings There is a hugely popular series on Apple TV right now that is called Ted Lasso. Since it started airing in 2020, it has won more than 20 awards among which 4 Emmy awards. The shows’ main character is a small-time college football coach from Kansas, Ted Lasso, who is unexpectedly recruited to coach AFC Richmond, an English Premier League team, despite having no experience at all in association football. If you’re not familiar with this series, it’s definitively worth giving it a try. Despite having no experience whatsoever in coaching professional football, Ted Lasso soon turns out to be highly effective at it. He manages to turn a group of individuals who are, due to their egos and lack of communication, dysfunctional as a team, into a close knit team of champions. For someone with my background, it is striking how many similarities there are with managing the partners in a law firm. Rest assured that I am fully aware that Ted Lasso is fictional comedy, nevertheless there are perhaps lessons to be learned. For one, professional footballers do not spend a lot of time in meetings like law firm partners do. And yet, there is the need for a lot of communication, but these tend to be brief, focused and held in the locker room. This illustrates that there is no need for formal meeting in order to have a number of highly talented individuals to adopt and execute a strategy and work effectively together to achieve a pre-set goal. And, before I forget, professional football players are also not participating in an IT committee or an international committee. They leave that to the real professionals to deal with. Focus on what is essential When returning to the office, prioritize spending quality time together. Focus on social interaction that will reinforce the fabric of the team and the culture of the firm. Make transfer of knowledge and a creative meeting of minds a top priority. Above all, stop wasting valuable time on pointless meetings. It is advisable to create a high threshold for scheduling a meeting. Internal meetings can only be called for if there is a ‘business plan’ outlining what the purpose of the meeting, who should attend and why, and what information needs to be available and what topics should be covered. No purpose, no meeting. At the end of each meeting briefly evaluate if the objectives have been met and what could have been done better. No meetings that become recurring by default! The return to the office after the pandemic is perhaps a once in a lifetime opportunity to break with bad meeting habits, so grab the opportunity. You will save valuable time and boost morale and firm culture.

I guess all of you are familiar with the now infamous Elizabet Holmes, founder and former CEO of Theranos. In 2014, Ms. Holmes, then 30 years old, was on top of the world. Theranos was valued at $9bn. With a few drops of blood, Theranos promised that its Edison test could detect conditions such as cancer and diabetes quickly without the hassle of needles. Bigwigs from Henry Kissinger to general James Mattis sat on the board. But by 2015, the fabric unraveled, and Elizabeth Holmes was exposed as a fake. The technology she touted didn't work at all, and by 2018 the company she founded had collapsed. Right now Ms. Holmes, now 37, stands trial and faces up to 20 years in prison if found guilty of the 12 charges of fraud against her. Lance Wade, a partner at the Washington law firm Williams & Connolly, is the lead lawyer for Holmes. During the trial’s opening statements on Wednesday 8 September, he argued that “Failure is not a Crime” and with that he has a valid point: there is no disgrace in failing. The fragile Ego In life there is no such thing as zero-risk. In whatever we do, there will always be risks. Even if we do nothing, there is risk. Each individual will have their own level of risk acceptance that can be split-up into four distinct domains: personal economical risks, risk to people that are close to us, physical personal risks, and reputational personal risks. "Often our egos are standing in the way of greatness. Not because the ego is too strong, but too fragile" The risk to suffer a financial loss is generally more acceptable than endangering the ones that are close to you. The risk of personal injury also has a high threshold as many have an unhealthy lifestyle and navigate traffic. More vulnerable than our body is our ego. Some would rather lose a limb than widely be seen as a failure. Perhaps we need personal recognition more than anything else in life. Just look at the concept of ‘losing face’. In rare and extreme cases people rather commit suicide than publicly losing face. Tragically, I know an example of a Managing Partner who did just that. Failure is an option, not trying is not The fear of failing is closely connected to the fear of losing face. Our fragile egos cannot cope with the prospect of having to admit that we did not succeed. Or even worse being publicly mocked for our failure. We rather do nothing at all. I would say such sentiments are stronger among lawyers than in the rest of the population. Lawyers are risk adverse by nature. Their profession forces them to focus heavily on potential downsides and pitfalls, rather than on opportunities. As a consequence it can become very hard to convince lawyers to venture out into the unknown. This hesitance will be manifest on many different levels. Propose to organize a high-level event for CEO’s and board members and immediate fear will be that many will not show up and that the ones who do will therefor think it is a total failure. As a consequence no event is organized. Try to convince partners to improve the quality of their practice and they will fear that if they do not succeed in attracting better clients and mandates, they will have lost part of their existing workbook and end up loosing money or even being kicked out of the firm. The problem is that not doing something is in itself also an act. By not acting, one does not avoid risks, but on the contrary introduce new risks that are beyond control. If the world does not act against climate change, the climate will act against us. Not trying something, out of the fear of failure, could turn out to be a costly mistake. If you do what you did, you get what you got. We are in the business of helping law firms to improve their position in the market. Invariably this entails change. Unless something changes, everything will remain the same at best. Preferably change is fueled by ambition. Ambition to grow. Grow as a lawyer, be the best law firm, get the best clients, win the best mandates. It is here were we immediately run into a problem. Ambition inherently comes with the risk of failure. All change comes with the risk of failure. In the face of the ever so slight possibility of failure, partners back-out. That is one of the main reasons (there are others!) why so often a brilliant strategy never gets executed and implemented. What if we fail… Bolster your egos Our fragile egos are firmly standing in the way of realizing our full potential. If only we did all those things that we didn’t do because we were so afraid of possible failing. Failure is not a crime, not trying is. TGO Consulting has defined 7 Core Lawyer Development Dimensions©. Confidence is one of them. For any law firm that strives to improve its market position, time spent on developing their lawyers’ confidence is time well invested. Egos should become less fragile and personalities more robust. No partner should be blown away by negative comments from others. Adversity should be the fuel that drives determination. As Nietzsche put it: "Was uns nicht umbringt, macht uns stärker" (what doesn’t kill us, makes us stronger)

I am sure that none of you have failed to notice that Germany has held its general elections last Sunday. With that, there has come an end to the era of Frau Merkel. She has been Chancellor for so long that Sunday’s first time voters have never experienced another leader. Almost like the Brits have never experienced another monarch except Elizabeth II. Angela Merkel has no doubt earned her place in the leadership hall of fame. She has largely contributed to Europe’s growth and stability and led Germany to remain a global economic super power. And yet, whoever will be her successor will introduce significant policy changes. This in fact is the fate of most leaders. No matter how successful they have been, their successors will break with their strategies and policies and start with a clean slate. In business, as you know, every new CEO will reorganize and take a loss in their first year. In part to symbolize a break with their predecessor and in part to create a quick win after the first year. The king is dead, long live the king. For the outgoing leader this can be a brutal experience. Not only have they lost the power, the status and the amenities, but also all what they have worked for appears to be teared down. This would feel as a kick in the back. Bitter feelings towards successor Now that we are officially in Q4 for many law firms the time has come to elect new leadership. This means that a number of managing partners is now in the final 3 months of leading the firm. This, in combination with approaching year’s end and the impact of the pandemic will make many of them reflect on their achievements. You will be surprised to learn how many past managing partners we speak with, have become disappointed with their successors. Especially if the new leaderships abandon part of the policies and strategies they had introduced. This could feel as a late vote of no confidence or even a stab in the back. Some former managing partners have bitter feelings towards their successor. Let’s explore how to avoid ending up that way. A law firm is not a company The majority of publicly traded companies has a change in leadership at least once every 10 years. Rarely this is triggered by the retirement of the sitting CEO. In order to please their shareholders companies have to periodically shake things up to signal that they are still vital, innovative and relevant. Keep the same old leadership for too long and risk see the share price dwindle or falling prey to activist investors. Law firms are very much unlike publicly traded companies, as they bear more resemblance to a family owned business not constantly having to please the financial markets. This is not a weakness but a strength, as it allows for a more consistent long term strategy. From this perspective sudden changes in style and direction should be rare. So why does it happen so frequently anyway? Lack of vision, lack of agility, lack of communication Only ever having been practicing lawyers, newly appointed law firm leaders are not well prepared for their new leadership role. Could you imagine any other company hiring a CEO without any relevant management experience? Probably not. As a consequence a large percentage of law firm leaders merely acts as caretakers. They preserve more or less the status quo and attend to the nitty-gritty daily chores. They don’t break things, but they also don’t inspire. Lack of vision will ultimately turn against this type of managing partners as even if everything runs as smooth as it could, there still is among partners that yearning to grow, improve and innovate. No-one will ever thank you for being a good caretaker managing partner, so avoid being one. Lack of agility and adaptability is another reason why the next managing partner might drastically want to change course. As time progresses, markets change, society changes, the partnership changes, and so on. When things change, one needs to adapt. Adapt to meet new demands, but also to explore new opportunities. We have seen managing partners that started out as visionary leaders in their early days, but failed to adjust the strategy as the world around them changed over time. Leaving their successor no other option than change course as soon as they have taken over the helm. What worked in the past, may not work today. Managing partners that missed agility and adaptability, risk ending up frustrated with their successor. This might well be the case for Mrs. Merkel. Despite her undisputed achievements as a world leader, she failed for example to recognize the importance of investing in infrastructure and state-of-the-art broadband and mobile network (Germany is ranked number 30 in the world on data connectivity). Being a law firm leader can sometimes become a lonely existence. When still a partner, it was easy to be ‘one of the boys’ (or girls) and socialize, do banter and gossip. As a managing partner, things are different and everything you say or do has gravitas. Hanging out with other partners might be interpreted the wrong way by some others. Over time law firm leaders run the risk of losing touch with what’s going on in the partnership. This could leave them blind sighted if their strategy or style of leadership is losing support. Their one day successor will become the voice of the signals the former managing partner has ignored. Back to Germany, this seems to apply to Merkel’s party CDU/CSU who had to endure an historic loss. Ignore the signals at your own peril. Advice to Managing Partners old and new Once elected managing partner, you are expected to lead. So lead, don’t be a caretaker. Remain agile and flexible while pursuing a coherent strategy. Communicate with your partners on a daily basis. Leave no-one behind or feel excluded. Stay open to bottom-up ideas and initiatives while keeping an eye the bigger picture. Become part of a continuous path of steady improvement.

Almost invariably business law firms have their offices in the most prestigious locations in the tier-1 cities in the country. As where the headquarters of large, listed companies are predominantly found outside of the city centers or even in more rural areas, law firms occupy prime property. After salaries, rent and occupancy are the biggest cost for any law firm. It is not just the uber-expensive location, but there is typically also a lot of ‘unused space’. Law firms tend to have a very large lobby, designed to impress visitors. There will be more meeting rooms than ever will be used at the same time, there will typically be an inhouse restaurant or cafeteria, and sometimes an auditorium, a bar or a rooftop terrace. Despite the very high price per square meter, there is hardly any urgency to use the space as economically as possible. For a law firm, more perhaps than for any other type of business, their prestigious location and slick and expensive office, is closely tied to their identity. Being on a triple-A location in a fabulous office is part of who they are. It oozes a sense of prestige and success that radiated to clients and employees. The office is used as an endorsement of the brand. A law firm that has a prestigious office in the heart of the financial business district, must be better than a law firm that is in an efficient modest building on an industrial estate. That is what everyone will believe. I even personally know of a newly started law firm of young lawyers. At first they occupied a relatively small office outside the city center. Despite their great quality they struggled to attract the big clients and the right talent. Then they decided to be bold and signed a contract for renting one of the top floors in a newly built skyscraper that is one of the tallest in the world. Although this was at the time way too big and far too expensive for this small law firm, it soon paid off tremendously. Because of their now super-prestigious location, new clients came in and talent started to apply for jobs. For this law firm, in hindsight, the location became instrumental to their success. Work from home? Maybe not Now that is seems that the worst of the pandemic is behind us, law firms are discussing how and when to get safely back to the office. I have written about this before. Although with the Delta variant, the outcome of this discussion keeps shifting, it looks like a majority of law firms will opt for a hybrid solution, where employees will be required to be 3 days per week in the office and are allowed to work 2 days from home. This may sound reasonable and smart to you, but to me it sounds like a bad idea. Allow me to give three arguments why hybrid working maybe is not so smart. 1. Security and confidentiality For any law firm, confidentiality is core to its existence. That’s one of the reasons why we protect the attorney client privilege. Lawyers typically work with highly sensitive confidential information that you don’t want to end up in the wrong hands or even worse, on the street. For that reason law firm offices are set up like a fortress, almost impossible to penetrate without permission. Both physically and electronically. No visitor will ever be allowed on a ‘production floor’ or access to the lawyers’ network. When lawyers are working from home, there are no such physical or electronical barriers. There is no oversight who sees what document or overhears a telephone conversation. This is waiting for disaster to happen. You take your office and data security serious for a good reason. Don’t create multiple weak spots. 2. Training on the job and mentoring Learning to be a good lawyer is dissimilar to learning to be a financial controller or a software developer. The latter two are mostly about mastering technical skills. Becoming a lawyer is different as transfer of experience and development of human skills are core to the profession. You become a great lawyer, only by studying the behavior of another great lawyer and copying part of that. Observing, listening and asking questions are crucial. In theory it might be possible to get a law degree by only studying remote. It is impossible to become a lawyer the same way. Proximity and person-to-person interaction are needed. If there is less of this, the quality of the lawyers will absolutely decline. Don’t forget, many lawyers are introverts by nature. Give them half a chance and they will stay comfortably at home. 3. The ecosystem Last but not least, your fabulous office on that prestigious location. It is not just that because you have spent so much on the office, you should use it. In theory you could scale down or move to a less expensive location altogether. The office as it is, is more than just a symbol of the past. Your office creates an ecosystem, that itself is part of a larger ecosystem. This ecosystem is where talent thrives and where the constant buzz creates a sort of ‘magic’ that is converted into cash. Together in one space, one building and one business district, people will achieve more than they ever would individually behind their screens at home. I am not aware of any business law firm, which does not use it’s location and office to attract talent. It is an attractive privilege to work in the lively and hectic business district, where you are surrounded by great restaurants and bars to meet and hang out. Where you can go out during lunch break and browse nice shops. Maintaining the ecosystem could well be core to a law firm’s success. Don’t let that slip away. Get everyone back at the office and allow for few exceptions, certainly not structurally one or two days a week. Show leadership, bite the bullet, be though. Later they will thank you for it.

In 1992 American author and relationship counselor John Gray published a book that instantly made him famous. The book has sold more than 15 million copies and it was the "highest ranked work of non-fiction" of the 1990s, spending 121 weeks on the bestseller list. The title: ‘Men Are from Mars, Women Are from Venus’. This title must have been a stroke of genius and it has been applied to many other situations in which structural misunderstandings between certain groups exist. In the context of this article one could perhaps paraphrase and say ‘Some Lawyers are from Mars, and some Lawyers are from Venus’. Working with lawyers from all parts of the world, we find remarkable similarities despite cultural differences. If you have been to the annual IBA meeting, you will know what I mean. There is this instant feeling of recognition and familiarity. However, some differences can still be sensed: this is particularly true when you interact with China and connect with Chinese lawyers for the first time. In the eyes of European, American and Australian lawyers, sometimes it seems PRC lawyers are from a different planet even though superficially we would expect all lawyers to be the same. TGO Consulting has been working with China for many years and we have developed some great relationships and cherished friendships. We find China a great source of inspiration and innovation. We learned through experience that we fundamentally need to adapt our way of thinking and reasoning when we communicate with our Chinese friends. This article, which is co-authored by my good friend Mike He, is to help lawyers outside China to better understand where Chinese Lawyers are coming from. In doing so, we aspire to contribute to less frustration and surprises, and a smoother cooperation or referral business. Understanding where China’s legal industry is coming from The modern Chinese legal industry according to our understanding started only around 1990. So, unlike the Western world, in China the legal industry is only a few decades old. After the recovery of the lawyer system in China in 1979, lawyers were viewed as civil servants who worked in state-run law firms. It is not hard to imagine that lawyers then were reluctant to develop new practice areas or new clients as they received fixed salary no matter how much they contributed to the firm. Thanks to some pilot programs in 1988 which encouraged “more pay for more contribution”, many law firms transformed into cooperation firms and finally partnership firms in 1990s which allowed lawyers to keep a percentage from the revenue they bring to the firm. With the growth of the Chinese economy and release of the long-suppressed impulse for wealth, the percentage a partner can keep reaches a high level and a strict eat-what-you-kill model gradually becomes the dominant remuneration model for most Chinese law firms. The major advantage of eat-what-you-kill model is that it greatly motivates the partners to develop their own clients, business and revenue. For partners at their early stage, they can easily control the cost (such as lawyers’ salary) and maintain it at a relatively low level so that they could earn more margin and flexibility. For law firms, it is also one of the easiest ways to attract more partners and build a relatively large-scale law firm instantly. However, the downsides are also obvious. As partners mainly get profits from their own revenue and clients, selfishness and low professionalism breed. It is usually very hard for partners to refer cases to each other or cooperate on the same projects due to lack of profit-sharing mechanism as well as trust on each other. It is not hard, however, for a partner to leave a firm with his or her clients due to lack of loyalty to the firm and bond to other partners. Most partners in Chinese law firms would have their own P&L and only the bare minimum of costs would be shared. It will come as no surprise that this form of partner remuneration will drive partner behavior. Moreover, it will also tend to confuse the clients when they feel the astonishing gaps in lawyers’ professional skills and service between different teams within the same firm due to the lack of standard recruitment and training at the firm level. One should also not expect commitment from other partners unless there is a strong monetary incentive. As a result of the rapid increase of economic development and a shared entrepreneurial spirit among the Chinese society, many Chinese partners, even today, are driven by the unlimited impulse for the pursuit of fortune and independence. Though many Chinese lawyers and law firms have realized the advantage of cooperation and commitment to the firm and have made some serious and solid efforts, the majority of the Chinese lawyers and law firms still embrace eat-what-you-kill model. This in many aspects is fundamentally different from lawyers in many countries in Europe and America where in various gradations there is more emphasis on cooperation and the firm as a whole after so many years of exploration and evolution. Only 1% of law firms in China has a lockstep profit sharing system. Many of today’s partners in Chinese law firms have completed a study and gained experience in the US and the UK before setting-up or joining a law firm in China. As the result of the study, exchange or working experience of many Chinese managing partners in UK and USA in 1990s and early 2000s, they brought the “Prometheus fire” - lockstep remuneration model – from Magic Circle firms in UK to the Chinese legal market. In 2000s, a very limited number of Red Circle firms in China started their lockstep reform. The outcome is mixed. Thanks to the (modified) lockstep reform, one particular firm developed so quickly that it became one of the top tier Chinese law firms within a relatively short period of time. The lockstep reform created a sense of altruism as the partners there seem to care more about how to jointly pitch a giant/top client and develop it as the client of the firm instead of worrying more about who this client belongs to and how much margin he or she can get. Moreover for this particular firm, the lockstep reform also contributed to the increased investment on the firm’s branding, facilities, administrative service, recruitment and training as a whole. Many young talents from international law firms chose to join the firm as they were quite used to its similar remuneration system, and its high standard of talents and professionalism. Likewise, many multinational companies also chose to hire the firm as it can provide them with united strength from different offices and different practice areas. On the opposite side, another firm who adopted a pure lockstep approach encountered a total “Waterloo”. Many talents left due to the reform. It was not until 6 years later that the firm involves “merits” evaluation into its remuneration system again. It was a bitter memory that most of the partners and lawyers do not want to remember even till now. Why is the outcome so different? The two examples unequivocally show us that lockstep is certainly not the ‘holy grail’ for Chinese law firms or even all firms. Lockstep, in theory, can create a sense of common interest, generate more resource to key clients, encourage cooperation, attract partners who value professional performance, and gain comparative advantage when the market competition is fierce. However, lockstep must be implemented cautiously according to the very strategy, need and reality of the firm. Lockstep is a means of remuneration to better serve the interest of the firm and its lawyers instead of a sacred end by itself. To be more specific, the problem is, essentially, seniority must not be the only indicator that measures a partner’s contribution to a firm. Individual motivation to make more fortune and the fair sense of “more contribution, more payment” shall be respected. Otherwise like in the second and failed example, young, energetic rainmakers may vote by their feet as the result of the long-lasting sense of “exploitation” by those senior partners who earn much more according to their points while contribute much less according to their profit-generating performance. 4% of Chinese law firms turned to hybrid model while 95% still have undiluted eat-what-you-kill Facing both the challenge of talent loss as well as the demand of deeper integration among the firm, quite a few top-tier Chinese firms tend to embrace “modified lockstep” nowadays (including the above-mentioned two firms now). About 4% of law firms has adopted a hybrid system of profit distribution, which we are also used to in other parts of the world. Eat-what-you-kill model remains no doubt the most popular model among Chinese firms. Usually, an equity partner in such firms submits 10%-40% of his or her total revenue to the firm in return for its light-touch contribution to branding, office facilities and office administration. The partner then has to pay from the remaining 90%-60% of his/her revenue the salaries of the lawyers in his/her team. Whatever remains after the cost of being with the firm and the salaries of the lawyers in the team have been deducted is the personal income of the partner. Typically, the partner in a traditional Chinese law firm will end up keeping 50%–70% from the total revenue he or she earned every year. No remuneration system is perfect and can solve all problems once for all. The golden rule is: the remuneration system should match and serve the firm’s strategy. It is gratifying that more and more Chinese firms have realized that and are gradually combing the elements of both lock step system and eat-what-you-kill system into a hybrid system which suits their strategy and culture. On one hand, law firms must recognize and respect the annual financial performance of the partners and their legitimate need to be rewarded accordingly. On the other hand, law firms must also create a pool of common interest by recognizing and respect the historical contribution and non-financial contribution of the partners to the firm’s interest. Only through this way can law firms achieve a delicate balance and develop in a steady and vibrant manner. Transforming from a pure eat-what-you-kill model to a hybrid model, many old law firms are given a second life and are gradually regaining their strength step by step. Adopting the hybrid merit-based model combining both revenue performance and seniority or contribution to the firm from the very beginning, many new firms are attracting more and more partners to join and leading a new exciting wave of firm development in China. Getting to know the Chinese legal market The legal industry in China is developing at a rapid pace. By the end of 2020, there are more than 520,000 Chinese lawyers and 34,000 Chinese law firms in China. Non-litigation practice areas such as capital markets, M&A, private equity and venture capital are booming in developed regions like Beijing, Shanghai and Shenzhen. Traditional litigation and routine legal consulting for enterprises are still the dominant practice areas for lawyers in less developed regions. According to 2020 Global 100, 6 out of 10 largest firms in the world are Chinese law firms. At least 5 PRC law firms have entered the Global 100 with regard to total revenue per year. At least 5 PRC law firms have more than USD 1 million in profit per equity partner. There is another PRC law firm which has 83 offices and over 10,000 lawyers worldwide. The vast majority of lawyers outside China has little or no knowledge or understanding of what is going on in the Chinese legal market. There are great opportunities for cooperation and doing business. This is the first in a series of articles that will help to bring you up to speed. The second article will be published later this year. About my co-author Mike He My good friend Mike He is the co-author of this article. Mike holds an LLM from Harvard and he is the Chief Strategy Officer at Merits & Tree Law Offices. His firm is a typical example of a hybrid remuneration system. Unlike many traditional Chinese law firms, M&T partners share M&T’s profits (one firm, one profit pool for all) instead of splitting the revenue (one firm, different profit pools for different partners and their teams). For those young partners, the firm almost fully focus on their annual financial performance so that they could be encouraged to generating more clients and increasing their revenue. For those senior partners, the firm divide the evaluation elements into two major parts – (A) annual financial performance and (B) other factors such as historical contribution, seniority, and management – so that a sense of common interest can be formed while their annual merits can also be recognized and appreciated. Through this hybrid remuneration system, M&T strives to build a “one firm” firm with excellent professional quality, integrated cooperation and self-motivated talents. It is now widely recognized as one of the most promising law firms in China.

We are now well into September. The holidays are behind us and in the early morning there is a slight scent of autumn in the air. The legal industry almost desperately needed the summer break. The workload has been high and the work from home left everyone fatigued. After we re-energize, things will surely be better, or will they? Around the world, companies and law firms alike are trying to get to grips with the future of work. Are we going to ask everyone to get back to the office, or can people continue to work from home? Are we going to demand that everyone at the office is fully vaccinated or at least can show a recent negative test result, or do we consider this outside the domain of an employer? Can we organize larger in-person events like seminars or even a partner retreat, or is this still too risky? These topics are simultaneously on the table in boardrooms around the world. They are wrapped in uncertainty regarding resurgence of the virus, the effect of vaccinations and how governments are going to respond. We are absolutely not out of the woods yet, and it seems that no one know what the endgame will be. Will mask wearing become as normal as let’s say wearing socks? This month traveling came back with a vengeance Just looking at our own situation at the moment, there has been a seismic shift. After one and a half year working from behind our screens, now there is a frenzy of in-person meetings. It seems as if everyone is seizing the possibly short window of opportunity to schedule meetings, lunches, dinners and partner-retreats. That means that this month we will be clocking more airmiles than in the whole 20 months before. What also becomes apparent is that the easing of restrictions is not evenly spread around the developed world, or even Europe. As some of you may know, I am a strong believer in the power of binging people together in one room, one building or even one business district. A recent academic study showed that this even creates measurable economic benefits. Brought together people and businesses are more creative and make more money than if they are alone. After the demise of Kodak, other businesses in Rochester New York, which were totally unrelated to Kodak, produced fewer patents and the patents that were created were of less value and importance. If a successful company takes office in an office building, on average the revenue of the other businesses in that same building grows by 2%. People do become more successful if they are part of an ecosystem. This builds a compelling case for getting everyone back to the office and for maintaining in-person relationships. Remote working and Zoom simply don’t cut it. We need to focus on sustainability! To be frank, on the one hand I feel happy that we can finally meet our clients again in person after more than one and a half year. Our clients are happy that their partners can meet. Associates are happy that they can hang out with their team and their peers. On the other hand, personally I feel guilty about the vast amount of air-travel that I am going to do and I know that this will not be sustainable on the long run. Something will need to change. At TGO Consulting we have committed ourselves to reducing our carbon-footprint by 33% over the next three years (as compared to 2019). As air travel out of all the things we do has the highest impact, it will mean that we will travel less and on top of that we will compensate for all CO2 emissions each time we do travel. All this means that, as far as we are concerned, Zoom is here to stay. Easily 33% of all meetings can be done remotely, especially those about operational or factual matters. We are encouraging all our clients to do the same! Introducing Mansi Jasuja Over the past two years or so, we noticed that businesses are increasingly asking their law firms question on sustainability and diversity. Today this topic is almost universally part of any RFP or pitch. For law firms it is getting harder to get on a panel or remain on a panel if they cannot show that they have at least some sort of sustainability and diversity policy in place. It is not only clients that ask inconvenient questions, but also recruits are shunning firms that do not care about sustainability and diversity. Because we care about sustainability and diversity ourselves, and because we increasingly get questions from our clients, and because we see a wider need and opportunity in the market, we have set up a Sustainability Practice and developed the TGO Sustainability Scan©. Both are now ready for launch. Our Sustainability practice, which also includes diversity, is headed by Mansi Jasuja. Mansi has an impressive track-record and over a decade of experience with international companies and organizations. We are thrilled to have Mansi as part of our team. The TGO Sustainability Scan© has been developed and perfected over the past year. It is, to the best of our knowledge, the first of it’s kind specifically tailored to the legal industry. The scan will comprise all aspects of sustainability and diversity in a firm. It will provide law firm leaders with a clear and practical overview of the current state and provide actionable handles for improvement. It is advisable to repeat the TGO Sustainability Scan© on a yearly basis in order to track progress. It provides law firms around the world with a meaningful answer when clients or recruits ask the questions. If you are interested in improving your sustainability and diversity score, just send an email to: mansi.jasuja@tgo-consulting.com

I don’t know if you have noticed, but several elite US law firms are engaged in a full on salary rage. It all started on 10 June when Millbank announced that it would raise the salaries of 1st year associates to $200.000 (for their German office starting salaries were raised to €160.000). One day later Davis Polk announced $205.000. Since then the parade of associate salary increases has yet to come to an end, with law firms such as Weil Gotshal, Sidley Austin, Sullivan & Cromwell and Clifford Chance all unveiling raises in line with the scale set by Davis Polk & Wardwell. If salaries keep increasing at the current pace, starting lawyers might be making half-a-million by the end of this decade… As ludicrous as it might seem to pay someone fresh from university and without any relevant experience a $200.000-plus salary, for the elite firms that have leapt into the latest round of associate salary increases, even after issuing special bonuses earlier this year, it’s a no-brainer. Many posted record profits in 2020, and surging deal work this year places them in a position where these added expenses will likely have little to no impact on their profitability in 2021. What puzzles me, are not the salaries as such. What does puzzle me is why these elite law firms have to resort to such extreme salaries in the first place. Let me explain: imagine you are a freshly graduated cook, and it is your ambition to one day become a Michelin star chef. What would you do? You would most likely try to get an apprenticeship at a Michelin star restaurant, to learn from a famous master chef. Last weekend I read an interview with a well-known sommelier, she literally followed that route and early in her career was ever so grateful that she could work in the cellars of a famous restaurant, even as the hours were bad and the salary low. If you want a career in the fashion industry, you must try to get a poorly paid apprenticeship at Vogue or one of the great fashion houses. So why is it that aspiring top-lawyers only want to work with the elite firms if they are paid a ludicrous amount of money...? It does not make sense. Having Sullivan & Cromwell on your resume will open doors and is worth more than a Harvard Law School degree. So what is going wrong here? Two weeks ago, I published an article highlighting the issues that associates are dealing with right now. Many are close to a burn-out or even facing mental health issues. As I wrote in that article, “in the first quarter of this year, more lawyers left their firm, than in the whole of the year before. At the same time, because of the amount of work, law firms are desperately trying to hire new talent. Partly to replace the ones that left and partly to scale up production. These two conflicting interests of overworked lawyers at the one hand, and almost out-of-control demand and the opportunity to make unprecedented partner profits, are at a high risk of spiraling out of control”. This was written just hours before Milbank send out its press release. The elite law firms need the hands to get the work done. Not having those hands will harm their revenue and profitability. This league of elite law firms is closely monitoring each other, as they can not afford to get out of line with their peers. If the PEP at one firm would drop out of pace, it would immediately lead to a departure of high-potential rainmakers and an inability to attract lateral talent to fill the gaps. Joining the salaries-race is therefor not an option but inevitable. Ending up in this situation is however the result of poor strategic choices in the past. Multiple times, in previous articles, I have written about the Creation-Production-Divide Concept©. In short the Creation-Production Divide Concept© distinguishes between two components in the legal process. On the one hand there is CREATION, which is the process in which the legal strategy is decided. This component is heavily reliant on human skills. It does typically not involve a great amount of time and it is what has the greatest value to the client. The 'Creation' is what makes one lawyer different from the next. This is where specially the elite law firms should invest. This is what gets them their clients. The second component, PRODUCTION. Execution/Production is mostly labor intensive and therefore costly, but it has little added value to the client. There is also not much relevant difference between lawyers as it comes to production. This is the part of the process the elite law firms should have almost completely automated by now. The problem these law firms are having with automating production, is that they fear it will undermine their business model. Since lawyers are billing for time, they will make more money as they spend more time on the client. Investing in technology to make lawyers more efficient, feels like spending money to earn less. This does not fly well if you are in a tight race to remain in the top-10 as it comes to PEP. So here we are, we need to hire more people to just do ‘document work’ most of the time. Work that to a large extent could be done by a small number of lawyers who are augmented by technology. The elite law firms have to resort to paying crazy salaries to apprentices that should in theory be eager to work for peanuts, just for the learning experience. The reason being that these young lawyers are clever enough to understand that they to a large extent will just be ‘document monkeys’ working on ‘Production’. Since all the value is in ‘Creation’ this (production) is not a relevant learning experience. If talented young lawyers were offered the opportunity to ‘carry the bag’ of an experienced partner and be in his/her presence most of the time, accompanying to important client meetings, they would perhaps even be willing to accept the statutory minimum wage. Just being a cog in the billing machine, no thank you, then I want my fair share of the profit.