You might be surprised if you knew how often the I get asked about what I think is the best governance structure for a law firm. It seems like many partners are searching for a Silver Bullet as it comes to how to best manage their firm. The mere fact that I get asked so often, is already a clear indication that there is that lingering feeling that law firms are not managed in an optimal way. So are law firms really poorly managed? Looking at it from a distance the answer should clearly be no. Few businesses succeed in making so much money without investment as law firms do. Delivering such high yield, law firms must clearly be doing something right. Looking at it more closely, it turns out that there is much room for improvement. Law firms have largely become successful ‘despite’ their management instead of ‘thanks to’ their management. The legal market has been so buoyant for the past decades, that it is almost impossible NOT to make more money than the average university graduate with the same years of experience. The ‘Herding Cats’ Myth “Managing a Law Firm is like Herding Cats” as the saying goes. This popular ‘wisdom’ can be heard being used ad nauseam by Managing Partners (especially former Managing Partners) and Law Firm Consultants. In effect it has become used so often that people have started to believe it is true. Well, it is not. It is just a lousy excuse for poor management. (Former) Managing Partners use it to justify why they have achieved so little, and consultants use it to sell their services and also to explain why they didn’t contribute much. The road to better management starts with denouncing the ‘Herding Cats’ myth. Effective Law Firm Management is absolutely possible (and necessary!). Many Law Firms are ‘Managed by Fear’ When I say law firms are 'managed by fear', I certainly do not mean the fear of brutal and unpredictable leadership. It is not that Managing Partners are managing their firm like Joseph Stalin used to rule Russia. On the contrary: it is not the partners that fear the Managing Partner, it is the Managing Partner who fears the partners. Managing Partners commonly fear falling out with the powerful partners in the firm. Their fear is that when they rub partners up the wrong way, powerful partners will either call for the Managing Partner to step down, or might themselves take their book of business and leave the firm. This in turn could cause the other partners to demand the Managing Partner to step down and ultimately even be asked to leave the firm. Permanent subconscious fear of being demoted can prevent Managing Partners from effectively leading their firm. They become expensive caretakers instead. Don’t Micro-Manage Perhaps Jack Welch (1935-2020), the legendary former CEO of General Electric can be considered the architype of a boss. Mr Welsh was a notorious micro-manager. He famously said: “I’ve managed a lot of people, and one thing I have found is that the staff was more productive and attuned to how and what we needed to get done when I was closely involved with them”. Being lawyers, many Managing Partners feel the same and they resort to micro-management. Driven by the fear of being held responsible for mistakes that are made elsewhere in the firm, and at the same time being convinced like Jack Welch that others will greatly benefit from their insights and infinite wisdom, some Managing Partners put a disproportionate amount of time and energy in micro-managing every aspect of the firm: marketing, HR, IT, knowledge management, you name it, the MP knows best. Having a Managing Partner, who is by definition a career lawyer, micro-manage the firm is a poor use of resources. On top of that, all the time, effort and energy spent by a Managing Partner on micro-management, can not be spent on leading the firm to a better future. Micro-management is often a form of escapism, and an excuse for not leaving the firm in a better position at the end of the tenure. Leadership Needed Many lawyers make a lot of money almost by accident. Partner incomes North of Half-a-Million are the rule, rather than the exception. It does not look like this is going to change anytime soon. The business of law will remain extremely profitable for the foreseeable future. It is not that law firms are not doing well; they are not doing well enough. Those who cannot keep up, are bound to spiral downward. There is an urgency to do better in order to attract, grow and keep talent. In the world of big law, there is a race to the top. The income gap and the gap in quality of clients and mandates between the firms who succeed and those who don’t will increase. To have a living chance of surviving this race to the top, a firm needs a leader and not a caretaker. An Iron Fist in a Velvet Glove Coming back now to the initial question: “what do you think is the best governance structure for a law firm Jaap?” It will come as no surprise that the answer will be “it depends”. That is not because I am a lawyer, but because effectively it does not matter whether a firm has just one Managing Partner, or a Managing Partner and a Senior Partner, a Managing Partner and a Board, or an Executive Committee. The only thing that does matter is ‘Leadership’: Is the management capable to effectively lead the firm? Leadership implies the capability to overcome resistance-to-change among the partners. Leadership entails the courage to face the possibility of strong opposition, to press ahead with the strategy while keeping the partnership together. Leadership means focus on the things that really matter and not shying away from ‘fighting’ with powerful partners if needed. An effective Managing Partner should be an 'Iron Fist in a Velvet Glove' and not a ‘Push-Over-Pussy’ hesitant to take the lead. I am fully aware that there is much more to be said on this topic and that for the sake of clarity I have had to skip some nuance to get my point across. I will elaborate more on the topic in the weeks to come. Don’t want to wait?, drop me an email and we can discuss what is appropriate in your specific situation.

Back in the days, within a few months after I had graduated with honors for Law School, I applied for a junior management position at a blue chip company. Part of the recruitment process was a one-day talent assessment. Part of this assessment was a job simulation in which I had the role of a manager who has to fire a senior employee that had been with the company for more than 20 years. Fresh from university, with all relevant employment law still top of my head, I worked my way through an imaginary checklist and bluntly told the employee that he was fired. It will come as no surprise that I failed the test and did not start my career at that company. Rightly so. By only focusing on the legal aspects of the employment termination, I had completely ignored the human aspect of firing someone who had been with the company for two decades. My approach lacked the empathy that is needed in real world situations. Although I did not get the job, this experience taught me a valuable lesson and I have never made the same mistake again. He who focuses only on the legal aspects runs the risk of totally missing the point. How clients select lawyers Lawyers like to believe that clients come to them because of their superior knowledge of the law. In reality this is seldom the case. For clients, knowledge of the law is a given, just like every doctor is expected to have the medical knowledge. Clients select a lawyer not because of legal knowledge, but because of knowledge of best-market-practice as it comes to distribution of risks, and because of the lawyer’s human skills. Now that we at TGO Consulting have had some extra time at hand because of the global travel restrictions, we thought it would be interesting to employ an algorithm and analyze client feedback and comments from the Chambers directory. We ran all ‘Chambers Review’ sections on individual lawyers (as published by Chambers on their website), through the algorithm. It looked for word-combinations that were describing legal-skills and those that were describing 'human-skills'. It turned out that in a whopping 80% of all comments, clients were praising a lawyer for 'human skills' rather than legal skills. A typical client feedback was 4 times more likely to look like this: "X is a very calm lawyer who is focused on the clients' interests. He's practical, solution-oriented and understands the industry", than: “X is a brilliant lawyer that has a great knowledge of the law” Distribution of Risks Clients don’t hire lawyers to explain all legal roadblocks. Clients hire lawyers to help find solutions that will bring their business forward. Most contracts contain serious imperfections as any litigator will tell you. The point is that a ‘perfect’ contract probably will never get the signature from both parties. Propelling your client’s business in the real world will always mean making compromises. The best lawyer from the client’s perspective is the one that has the best knowledge of industry standards and market best-practices as it comes to a fair distribution of risks between parties. This is not predominantly a legal issue. This is not only applicable to transactions, but equally to litigation and advice. A large part of litigation has a ‘strategic’ component and is meant to make a statement more than expected to actually be winning in court. The majority of cases is settled between parties before a verdict has been reached. Even legal advice is expected to deliver practical solutions, rather than an overview of obstacles down the road. We need a change in paradigm The difference between highly regarded successful lawyers and the ones that are just average is, as demonstrated, not in the knowledge of the law. It is in understanding the business environment of the client, and understanding the strategic interests of the client, the knowledge of industry standards and best-market practice as it comes to distribution of risks. Successful lawyers help propel their clients’ business forward. Successful lawyers are perhaps business enablers more than anything else. May I ask you to reflect on this for a moment. Understanding this will mean that in order to become more successful, some things will fundamentally have to change: Recruitment needs to select on other criteria than focusing on the highest marks. Once onboarded, lawyers will need to be educated and trained in a different way. The internal communication will need to change and focus on the wider economy and on sharing best-market-practice, rather than legal updates and case law. Partner criteria will need to be different. These insights will lead to a change in paradigm. From legal centric to client centric. Not as a platitude, but as the origin and the core.

Over the past few weeks I have had several conversations with a law firm that got it into their head that they need to merge. The situation is that in Q4 of 2020, as a consequence of an internal power struggle, the firm has lost almost its entire Banking & Finance capability. Obviously the decision of the team (partners + associates) to set up camp elsewhere, had a history in the making. For months there had been internal discussions, but without avail. Once the team had decided to leave, a new internal discussion started on how to fill the sudden Banking & Finance void. At this point in time, a merger with a smaller boutique, was thought to be the solution. My point this week is not this particular situation, as it is specific for this firm. No, what I would like to highlight is the incredible amount of energy wasted on internal discussions that did not bring any new business, or helped improve the market position of the firm. On the contrary, I would say: focusing inward, rather than outward left the firm weaker than it was before. Keen to focus on internal issues If you would take a step back and look at it, it is actually quite surprising that law firm partners spend so much time discussing internal issues. As partners experience permanent pressure to perform and grow their book of business, one would expect this to be the number one topic on their agenda, but it isn’t. Ninety-nine percent of the time clients and business are not on the agenda at all. So, let’s explore why partners rather talk about internal issues, than about the clients that bring them commercial success. The ownership syndrome At the vast majority of law firms, the partners are technically the owners. For many, that actually translates to behaving like a business owner and wanting to be involved in all the decisions. In the past this would go as far as partners wanting to have a voice in what printers to buy, and what brand of coffee to select. Although this level of detailed involvement has fortunately become the exception, most partners still want to have an active say in the day-to-day management of their firm. Needless to highlight that most of the time this does not make sense. Being lawyers, partners are by no means experts on printers or the professional market for coffee. Focused on details and potential risks By nature of their profession, lawyers are the masters of spotting – potential – risks. As often there are risks in the details, there is also a strong focus on details. Overarching this, is the concept of perfection and doing it right the first time around. All these great qualities make perfect sense in the day-to-day practice of a lawyer. Missing a tiny detail could eventually mean a lot of trouble or losing the case. Being focused on details and micromanagement day-in day-out, it becomes difficult to put that attitude aside when it comes to managing the firm. That is why often in partner meetings discussions have a level of detail that will not be found in the boardroom of any company. Practice is a most individual thing In any regular company, the clients are the client of the company and not of an individual employee. Sure, I have a personal account manager at my bank, but in the end I am the client of the bank and the account manager is replaceable. I would say that even for my accountant that is the case. I like my accountant a lot and we have a great relationship, but if one day he decides to leave, I will most likely stick with the firm. For lawyers this is different. Mostly clients are the client of an individual partner, rather than a client of the firm. This is also how the relationship works in the mind of the partner. The partner feels a strong personal responsibility and therefore no inclination to discuss this with the other partners. Outside the comfort zone Becoming a partner in a law firm comes to a certain degree with parting with doubt. Having the final responsibility representing the client in a matter, requires confidence and a steady hand. Partners work under professional conditions that vis-à-vis the client, the opposing party or the court, leave very little room for doubt. As a consequence and as a sort of ‘defense mechanism’ partners tend to avoid situations where they are not certain. Clients and Business Development are among those topics. In general it is hard to have an open, honest and meaningful discussion with a group of partners on how to grow the business. The topic is out of the comfort zone and it comes too close to the individual performance of the partners. Potentially highlighting differences in reputation and commercial success. Therefore partners tend to avoid going there. You should really change the conversation topics From time to time, I ask law firms what percentage of partner meetings time is spent on clients and markets versus time spent on internal issues. Unsurprisingly 99% of the time in partner meetings is spent on the latter. After reading the article, I hope you would agree that this practice is valuable time being not well spent. Discussing internal matters does nothing for improving the reputation and the financial success of the firm. Having partners decide on the printers will not lead to better business (or even better printers). Like in the example in the intro, internal issues can be huge drains of energy without any meaningful material returns. It is time to start focusing the energy outward instead of inward. Time to start discussing market opportunities, instead of the flowers on the reception desk. Smart companies are rigorously focused on long term commercial success and their internal discussions reflect that. It is time for law firms to do the same, and focus on market opportunities and exchange information and insights on clients, best practices and rumors from the grape vine. Adopting this practice is guaranteed to make you money. Hopefully, if I would ask you in one year's time, you would say that you spend at least 80% of the time discussing market opportunities.

After a repeated recommendation of a friend, last Tuesday I finally watched the first episode of ‘Industry’. Industry is a British television drama-series produced by the BBC. It premiered November 2020 on HBO and BBC-Two. The series follows a group of young graduates competing for a limited set of permanent positions at Pierpoint & Co, a fictitious London Investment Bank. I cannot say that I particularly liked the episode, but it depicts the reality of entering the competitive world of Investment Banking quite well. Talented young graduates seek to pursue a career that elevates them into the well paid realm of high-pace high-flying dealmakers. It is not about the work, it is about being part of that world. The same holds true for most young graduates that want to pursue a career in Big Law. It is not just about being deeply interested in legal stuff. It is probably even more about becoming part of the world of high-end law and all that comes with it. For talented young graduates, Big Law is an appealing place to work. Offices are glamourous and on prime locations in major cities. Big Law lawyers are smartly dressed, go out for lunch in fancy restaurants, and have all sorts of perks like a gym or dry cleaning service in the office. The world of Big Law is an aspirational lifestyle for many. Compared to most other organizations, law firms also have a relatively young population. Thanks to the pyramid system, the average age of the lawyers hovers around 30. You will not find that at a bank or a large corporate. With many people in the same young age group, law firms are a great place to hang around. Most are not settled with a house and kids, so there is a lot of ‘work hard, play hard’. Joining Big Law is perhaps more buying into a lifestyle, than anything else. Those graduates, who are predominantly content driven, become academics, work at the courts or the legislator, go in-house or join a small law firm. Now that the lifestyle has gone Last Friday, it was surprisingly the fourth time since early December, that I was approached for career advice by a senior associate from a Big Law firm. Not that I knew any of them, and also their firms are not my client. It is just what happens if you are well know in the market. Giving career advise is not our business and we do not charge. This however is not the point that I want to make. All four were highly successful and on a clear partner track and all were seriously contemplating quitting their lucrative job and leaving the world of Big Law. Four conversations in six weeks, that is not a coincidence. This is a clear sign that something bigger is going on here. For every lawyer that contacts me, a total stranger, there must be hundreds more that are going through the same internal doubt and struggle. Any of these could work at your firm today! The four lawyers are unrelated, as they work in different countries, in different law firms and in different practice areas. What they had in common was that they had been working from home for most of the year. Working from home deprived them of the perks and the lifestyle and had forced them to solely focus on the legal work itself. So instead of going to the office, do some work, have some meetings, go out for lunch with colleagues or clients, discuss some matters, go for after work drinks or to they gym (or both), they were now sitting behind their computer screens for 10 hour per day. After nine months, this had now put serious doubt in their minds if they wanted to be a lawyer after all. If you take away the lifestyle and the colleagues to hang out with, it turns out that being a lawyer is a tedious and boring profession. The pandemic has left the world of Big Law somewhat standing naked. Law firms are at serious risk of losing valuable talent, as it’s the lawyers with a broad interest and above average social skills, which are most prone to feelings of doubt. So, what should law firm leaders do? Last Monday, 18 January, was Blue Monday. This is the day that is generally considered the most depressing day of the year. All the end-of-year festivities are behind us. Outside it is dark and depressing, and the New Year’s resolutions have already failed. This time, the situation is even more desperate than usual. Most of Europe is in a harsh lockdown, with the free movement of its people severely restricted. Our political leaders warn us that with the mutations of the virus, even with the vaccine this miserable situation will likely continue to last for weeks or months to come. This may be a totally depressing outlook for most of us, it is especially hard on young people who are not settled with a family and depend on friends and colleagues for their social contacts. Perhaps this year it is not just Blue Monday, but Blue January instead or even Blue Spring (I admit that that sounds like a contradiction, but you get my point). The moment at which things might return to ‘normal’ is being pushed further down the line all the time. Law firm leaders cannot change the way things are, so like everyone else we have to live with the situation and try to make the best of it. The first thing law firm leaders should do right now is to acknowledge the ‘lifestyle aspects’ of becoming a lawyer. This means recognizing the reality that young people did not join the firm out of a strong desire to develop a deep knowledge of the law. So bring back that feeling of 'glamour', lifestyle and ‘brotherhood’. Sitting at home becomes miserable after a while. Why not support your usual lunch spots and arrange for 'business class lunches' to be delivered to your associates’ homes once or twice a week. To replace after-work drinks, send a bottle of champagne on the Friday afternoon. Offer a personal trainer. Do whatever you need to do to maintain the illusion of a ‘Big Law lifestyle’. “Send a bottle of champagne on the Friday afternoon” It is not good for anyone to sit behind a screen for ten hours a day for months. Law firms should 'force' their associates to take a two hour lunchbreak and go out for a walk. Being outside, having some exercise and being away from work will boost morale and productivity. If permitted, associates should be encouraged to take such walks with one or more colleagues (number depending on Corona regulations in your situation). I have taken up daily mid-day walks myself and I can testify that it really works! “Take a two hour lunchbreak and go out for a walk” As I have outlined many times before, people are the most important asset of a law firm. For Big Law, human talent is key to survival. What you want are not the introvert legal nerds, but the sociable people with a broad interest that goes beyond the law. It is exactly this group, the ones that you need to keep, that suffer most under the current restrictions. It is time to recognize this problem and to do whatever you can to prevent your talents from pursuing another career.

Mankind has always had a fascination for ‘Super Humans’. People just like you and me, but with some extraordinary power. The Greek had Heracles, the Baby Boomers had Batman and our children have Harry Potter. What these characters have in common is that on first sight they are just like us, ordinary people. Only if the world is in danger they come out and protect us from evil. Being at the core human, makes them relatable and enables us to fantasize that perhaps we also could be special. Such mythical creatures are also present in the Legal Industry. Here they are called Rainmakers. At first sight they seem to be just like all the others but when it comes to creating revenue, you can see their Super Powers. Like magnets they seem to be able to attract prestigious clients and big mandates, and that is how they come to the rescue of their firm. Rainmakers have the ability to create reputation and profit out of thin air. Thanks to this ability Rainmakers have mythical status and are highly sought-after as lateral hires. Typically a lawyer is not outgoing by nature. If asked, most would prefer to work on client files, rather than having to go out and find new clients. Perhaps deep down, they would like to be more confident and sociable, but like the children who fantasize about being Super Humans, they know that they are not. That is why they envy and admire the Rainmakers, as they represent what they would wish they could be. Rainmakers, sometimes not quite what it seems Partners whose revenue is in the upper 10% of their firm, are commonly considered Rainmakers. This would suggest that the fact that they have high revenue is predominantly thanks to their amazing reputation and/or acquisition skills. In reality this is not always the case and requires closer examination: Some ‘Rainmakers’ have simply ‘inherited’ a large part of their practice from a partner before them. Unless they cannot live up to the standard, those clients will typically remain loyal. Building one’s practice on a high quality 'inheritance' is much easier than building from scratch. Succeeding a renowned partner will also be a definitive advantage in building a reputation. Some ‘Rainmakers’ just got lucky once on landing a very large mandate, maybe because another lawyer was conflicted. This is especially known to happen in litigation. Some ‘Rainmakers’ go to great lengths to get files put in their name. Sometimes ‘Rainmakers’ claim that they are the Client Partner even if other partners do the actual work. Sometimes ‘Rainmakers’ are tempted to open a second file in the same matter which is then under their name. These ‘Rainmakers’ are very protective as it comes to their Book of Business. Some ‘Rainmakers’ purposely create weak offspring by appointing their ‘helpers’ to partner while expecting them to keep serving in their practice. We know of many instances where ‘Rainmakers’ did never make partners that were better or equally good as themselves. Some ‘Rainmakers’ only allow new partners to be appointed in their practice area on the condition that they will not compete and focus on a different segment of the market. As you will understand, above are just a few examples to illustrate that not every lawyer who is perceived as being a ‘Rainmaker’ actually possesses the ‘magical skills’ required. Just like a Las Vegas magician is not a sorcerer like Harry Potter. Fear and the Stockholm Syndrome Within their firm, Rainmakers have a very special position. That almost invariably includes having an important voice if it comes to the management of the firm. Rainmakers rarely act as Managing Partner, but behind the scenes they want to pull the strings. This as such might seem logical, but it actually does not make sense. The qualities that make a Rainmaker are different from those needed to define the strategy or to manage the firm. So why is it that Rainmakers wield so much influence? The naked truth is it is all about fear. The other partners feel inclined to accommodate the Rainmakers on all their whims, simply because they are afraid that otherwise the Rainmaker might get upset and might decide to leave the firm. Putting Rainmakers on a pedestal is in a way a form of the Stockholm Syndrome. In our practice, over time, we have come across examples of Rainmakers that had shown atrocious behavior. Committing fraud, Me-Too, misuse of firm property, it all happens. The partners know about this, but prefer to turn the blind eye. This illustrates the lengths to which partners are prepared to go to keep the Rainmaker on-board. Afraid as they are to lose the revenue, profit contribution and the reputation. Obviously the majority of Rainmakers is not at all guilty of any ethical or legal misconduct. Still some among this group might be found guilty on bullying other partners or behaving like a dictator during Partner Meetings. Again, the other partners tend to refrain from taking action out of fear of displeasing the Rainmaker, who then might leave. All this to illustrate that the relationship between the firm and the Rainmakers is ultimately ruled by fear. No need to explain that this is an unhealthy situation. How to mitigate the downside of Rainmakers? Management guru Tom Peters is probably the most famous consultant McKinsey has ever produced. His influence on the firm was enormous and helped raise McKinsey’s profile beyond its wildest dreams. Yet in 1981 Tom Peters was asked to leave. His contentious departure has been well documented. McKinsey had a rule that The Firm is more important than the individual. When Tom Peters became a 'Prima Donna', McKinsey did not hesitate to ‘kill’ its most celebrated Rainmaker. Turned out that ‘firing’ Tom Peters did not harm the firm, as we all know today. Also Tom Peter has done quite well for himself. So for law firms, the first step is to recognize the Stockholm Syndrome and to overcome the urge to allow the Rainmaker to behave as a spoiled celebrity. Law firms could learn from McKinsey in recognizing that The Firm is more important than the individual. Don’t be afraid to part with a Rainmaker that is causing Thunderstorms. Secondly, and perhaps even more important, consciously mange the quality of your partner group. The ability to attract mandates and clients should not be an exception. It is a core requirement for every partner. Law firms are still focusing on legal competencies as it comes to nominating new partners. It should be recognized that commercial and relationship skills are far more important. Lawyers should be trained from the day they start, to develop those skills. When the average quality of the partner group increases, the Rainmakers will gradually disappear, as every partner becomes a Rainmaker. Being a Rainmaker should become the rule, not the exception. Then the creature will lose its mythical status. This is part of what we advise on for a living. Do not hesitate to contact us if you would like to discuss: bosman@tgo-consulting.com

Comes December, come familiar rituals. Every year law firms have to approve a budget for the next year, promote new partners and, every couple of years elect new management and discuss partner compensation. Part of this annual recurring ‘circus’ is requiring partners and practice groups to produce a business plan. This may sound like a sensible thing to do, but it is not. I do not recall ever having met a single partner that is looking forward to producing a business plan. Here’s what typically happens: the Managing Partner, the Practice Group Leader or Business Development sends out a template for the business plan, to be completed before a certain date. Partners have no clue how to deal with this and it is about the busiest time of the year, so they just leave it. When, after several reminders, the deadline approaches, they ask their assistant to pull up the business plan from the year before, make a few alterations and submit. A few weeks later, all the plans are discussed. Lawyers are highly skilled in discussing things that have been put on paper, so the discussion of the plan is navigated without any hick-ups or consequences. Shortly after everyone gets back to work as usual as if nothing has happened. A useless ritual performed once again and home-free until the next year. Just like they did it back in the days in the USSR Remember the Soviet Plan Economy? Under Joseph Stalin's close supervision, a complex system of planning arrangements had developed since the introduction of the first five-year plan in 1928. For every enterprise, planning ministries defined the mix of economic inputs (e.g. labor and raw materials), a schedule for completion, all wholesale prices and almost all retail prices. The planning process was based around material balances—balancing economic inputs with planned output targets for the planning period. On the whole, the plans were overoptimistic, and plagued by falsified reporting. In short: in theory plan-economy may have sounded like a great idea, but in the real world it did not go well. Every time I see a law firm requiring it’s partners to produce a business plan, I cannot help thinking of the Soviet Plan Economy. You will have to admit that the similarities are striking: a pre-defined mix of economic input (billable hours) and retail prices (rates), with planned output targets for the planning period and the resulting plans being over-optimistic. Requiring partners to produce a business plan, provides a rational false sense of control. Businesses are supposed to make business plans, that’s what we are taught. Law firms are businesses and should also make business plans. Never mind that these plans are almost invariably a mix of wishful thinking and a clear lack of market intelligence. Just like in the good old Soviet times, partners are required to put on paper how they are going to produce let’s say 2.5 million in revenue and what new clients and markets they are going to develop. Sound remarkably similar to “We are going to produce 10 million tons of potatoes that we are going to sell in South East Asia”. For the Soviets we know, this notoriously did not work well, so how has this been working for you so far? So if not a business plan, what should you do? Let’s start with highlighting that your firm should have a strategy. A strategy that clearly outlines where the firm wants to be after a period of five years. The strategy should describe at a minimum, what type of clients, what markets and what type of matters the firm is looking for. Preferably the strategy should also set clear targets and milestones against which progress can be monitored. This strategy is valid for let’s say a period of five years and should not be changed in the meantime unless a true Black Swan event occurs (which usually is not the case). Once you have a viable and realistic strategy, everything else is execution. Execution is a permanent process and not an annual ritual. This indicates that instead of the annual business plan, it makes more sense to work with quarterly targets for every partner and every practice group of which the execution is permanently monitored and evaluated. Execution and evaluation should be a joint orchestrated effort and not individual actions that could well be scattered all over the place. Law firms do not need business plans, they need a strategy and a permanent framework for execution. This execution needs to be supported by data. This would be accurate and up-to-date data on progress, and current data on external economic and business developments. Every month partners should sit together in small groups and discuss where they are and what should be done and/or could be improved in the month to come. At the end of every quarter there is a formal meeting with all the partners to take stock and define goals for the next quarter. Business development originates in the strategy. It focuses on the execution needed to reach the strategic goals. It is a permanent process that needs to be deeply embedded in the day-to-day workflow of the partners. The execution should be closely monitored and supported by internal and external data. No other method will help you reach your goals and targets, certainly not copy-pasted business plans done once a year. That is a pointless habit, that you should stop repeating as of today. If you need help with setting this up, or with your strategy or the execution thereof, drop us a note, we are happy to assist!

As the year draws to an end, a familiar discussion emerges. Whenever law firms are inching closer to completing their fiscal year, discussions on partner remuneration flare up. 2020 no exception. If one would look at it from a distance, it seems as if in law firms the discussion on what would be the best and fairest way to divide the profit among the partners never ends. Like ‘Groundhog Day’ it keeps repeating itself. There is no one way of doing it right With a global practice like ours, we have probably seen more partner remuneration systems than we could count. As every lawyer knows, the two main categories are: Merit-based and Seniority-based. Partner income is either closely tied to their individual performance, or to the performance of the firm as a whole, of which each partner receives a cut based on seniority. The former is commonly referred to as ‘Eat What You Kill’ and the latter as ‘Lockstep’. Basically it boils down to remuneration being either ‘Me-based’ or ‘We-based’. Looking at global market data, the law firms that operate a pure lockstep profit distribution system are a minority. In the Legal Industry, sometimes it seems like ‘lockstep’ is considered some sort of ‘Holy Grail’. When on 10 September Davis Polk announced that they were moving towards a ‘Modified Lockstep’, this immediately made headline news, on which I was asked to comment. Moving from Lockstep to Modified Lockstep is presented as another ‘defeat’ for the lockstep. Reality is, that all this attention for Partner Compensation is overrated. After years of experience we found that there is little or no relation between a firms compensations system and its commercial success or profitability. We see market leaders with a lockstep and we see ‘losers’ with a lockstep. The same goes for Eat What You Kill. The reason that firms like Davis Polk shift to a Modified Lockstep has mainly to do with boosting their ability to attract expensive lateral talent. Attracting Star Partners requires a lot of money and this typically does not fit well in a rigid Lockstep. We need to talk about the Spread One of the main advantages of a Merit-based compensations system is that it allows for a much larger spread between the top performer and the one at the bottom. The average spread in partner compensation in law firms is about 10 : 1. This means that the highest earning partner earns ten times as much as the lowest earning partner in that firm. Although this is the market average, we have come across firms that have a 33 : 1 ratio (highest earning partner gets 33x what the lowest paid gets). In a pure lockstep the compensation spread would typically be between 5 : 1 and 3 : 1, so much lower than market average. As it comes to Merit-based compensation, the spread in remuneration reflects to a certain extent also the spread in quality between the partners. I must say ‘to a certain extend’ since there are also other factors in play because most firms have highly complicated formulas for calculating the remuneration of each partner, which take different aspects into account such as ‘Origination Credits’. However as a rule of thumb: the bigger the spread, the bigger the difference in quality in the partner group. What is the single most important predictor of success? So if your Partner Compensation System is not a predictor of success, what is? This is where data analysis comes in. We applied a tailor-made algorithm to a data-set that we pulled from different data sources and supplemented with some of our own data. The data clearly shows that a narrow quality spread between the partners combined with a high average quality is the single most important determining factor as it comes to success and profitability of a law firm. Even tough this may seem obvious, we see only very, very few law firms act accordingly. If the average quality and the spread in quality of the partner group are so important, one would expect law firms to be extremely critical as it comes to partner promotions: every new partner should preferably help raise the average quality of the partner group. We know from experience and from looking at data, that this is rarely the case. Partner appointments remain at large opportunity driven political events. We even know of firms that introduce weaker partners on purpose in order not to have too many ‘Prima Donnas’. Actively managing and continually improving the quality of the partner group is going to make you more money as a partner, than any Merit-based system can do. Partners that are on the same level, perform better as a team, as all will have similar quality of mandates and clients. A comparison could be made with football (soccer): the Champions League teams have better players over all and a very narrow spread as it comes to the quality of the individual players. Any team where a few players would be top-level and earn accordingly, while the others are mid-level, but with a lower salary, would not perform well. In order to be successful as a team the players must have a comparable quality. Yes there will always be a Lionel Messi or a Cristiano Ronaldo in a team, but the 10 other team members are still damn good. For law firms that want to be successful, this is no different. Become a Talent Breeding Machine Now that we know for a fact that in the end the only thing that matters is the average quality and the spread of the partner group, we also know that scouting and developing talent is the best investment a law firm could make. Like the Champions League teams all have extensive professional talent training programs with the sole purpose to breed better talent than their competitors, law firms should do the same. Rather than discussing Partner Remuneration again and again, firms should focus on raising the quality with every new partner appointment. The higher the average level, the more money a partner will make. Even if the system is an undiluted Eat What You Kill. The law firm that becomes the best Talent Breeding Machine, will be the one that wins in the end.

The other day I was interviewed by the economist of a large international bank. The economist is writing a report on the economy in 2021 and wanted the hear my thoughts on the legal industry. Based on an analysis that was underpinned by trends in global trade and the development of GDP, their model had projected that employment for lawyers in the legal industry would shrink notably in the coming year, an outcome with which I said I tend to disagree. After the 2008 financial crisis, law firms were shedding jobs and significantly reduced their headcount. When from 2010 onwards the economy picked up, the legal industry struggled to rehire lawyers with the right level of experience. Firing lawyers in a panic turned out to be a costly mistake. Looking at 2020 it is clear that law firms have learned their lesson back then. So far there has been no sign of mass redundancy of lawyers. On the contrary: law firms are not just keeping their lawyers, but some are even handing out massive bonuses. At the same time some 64.000 legal secretaries, support staff and paralegal jobs quietly disappeared since March 2020 in the US legal market alone. Other jurisdictions are showing a similar picture. Also partner promotions seem to remain on-track. There is not a single law firm we know of, that has postponed of cancelled partner promotions. This being said, we see two major questions arising: 1. How are the new partners going to build their practice? The present year 2020 has been very good for law firms. There have been no signs of an overall decline in demand and clients have hardly been asking for discounts. According to our outlook, 2021 will be different. Building your own practice as a young partner is difficult enough as it is in normal times. It could prove to be very hard in 2021. At many law firms, partner promotions tend to be based on personal relationships and internal politics, more than they are on the argument of a strong business case. Lawyers get promoted partner because they have served their partner loyally for many years and partner promotion is their reward. In law firms that have a merit based compensations system and reward ‘origination credits’, the more senior partners could even have a financial incentive, as they will profit from the origination credits in providing the new partners with work. Not scrutinizing the business case before making the appointment is ill advised in normal times, it could become a serious issue in times of a massively shrinking economy like we are seeing now. Law firms should double up the effort to help newly appointed partners build their practice in 2021. Even if this could mean that the sitting partners need to handover part of their business and will see their income reduced as a consequence. This is the question you need to ask yourself before voting-in the new partners next month: “am I confident that there is a good business case, and am I prepared to invest some of my own income to make this a success?” If you hesitate or if the answer is no, perhaps don’t do it… 2. Looking forward: will there be partner promotions at the end of 2021? This year has been in many aspects an extraordinary year. For one, the legal industry has been working remotely for most of the year. Even though Pfizer and others have shared promising data regarding their vaccines currently under development, it remains unlikely that the world will return to normality before the end of 2021. It would be realistic to assume that working from home will remain the norm for the foreseeable future. Partner promotion decisions are a marathon, not a sprint. Being promoted to partner requires a level of sponsorship and connection to the firm. These are things that will be very hard to create remotely on-line. Not being physically together will become an obstacle when it comes to evaluating and developing the next generation of partners. It is hard to imagine how this could be done without sufficient in-person interaction. We see the lack of personal interaction as one of the major obstacles as it comes to talent development in the year to come. On top of that we also expect that in 2021 the financial effects of the economic crisis will kick-in and we foresee overall demand for legal services will shrink by 6%. Obviously some legal areas will be more affected than others, but is seems reasonable to expect that 2021 will not be nearly as good as 2020 for most law firms. A decline in revenue and PEP will also not be encouraging for new partner nominations at the end of 2021. What to do? As the legal industry is changing and emerging technology is gradually augmenting lawyers to be more efficient, human talent becomes more important than ever. Law firms will have to step-up their efforts to educate and train their young lawyers in a more structural and broader manner. Just putting a trainee behind a screen and let that person make the ‘flying hours’ starting with stupid simple work and gradually becoming more complex over time, will no longer be adequate. At TGO Consulting we are working with clients to set-up professional structural permanent education and training programs for their lawyers of all categories. These training programs not only prepare for future partnership, but they also create much more points of evaluation and interaction, even when working from home. The young lawyers who have been participating so far, show an increase in sense of belonging and a much better understanding of what their potential career path might look like and what it takes to become a partner at the end. If you are considering implementing a structural education and training program at your firm, please do not hesitate to get in touch. We would be most happy to share our insights and our experience.

Tuesday 3 November, I read a slightly bewildering article on Bloomberg. In Europe banks are lobbying regulators to restart dividends and bonusses while we are still in the worst economic recession in living memory. The tone struck by Europe’s lenders is in stark contrast with a deteriorating backdrop of new infections and restrictions that threatens to bring more economic pain. Coming at a time when taxpayer money is being used to soften the impact of lockdowns that could bankrupt companies and throw millions out of jobs, the dissonance risks putting bankers on a collision course with regulators. The banks look extremely good at the moment because governments take the biggest burden of the crisis. Thanks to governments, the biggest banks in Europe in Q3 set aside the least amount of money for doubtful loans since the onset of the coronavirus -- at a combined $7.2 billion, it’s a fifth of the $36.7 billion provisioned in the first half. Reading this, it seems that the banks are completely out-of-sync with reality. It is a question of when, not if, banks’ asset quality will deteriorate in this crisis. This is interesting as there are some striking similarities with what we see happening in the legal industry right now. For many law firms 2020 will be a bumper year. When the crisis first hit back in March, generally law firms feared for the worst and immediately started taking measures to brace for the impact. Cashflow was for most the first concern. All available credit lines were drawn to the max. Some firms put staff and lawyers on government furlough schemes. Some firms – temporary – reduced salaries of lawyers and staff. Payments to creditors were deferred and partner payments were halted or reduced. Anything to save cash and secure liquidity if revenue would drop. There was huge concern that clients would pull back on collections or would defer work. Some law firms anticipated no less than a 30% drop in revenue. Today it is November and we are seven months into the crisis and we have seen that the legal industry so far has steered clear of the worst case scenario. Very few clients pulled back work or adopted substantially longer payment terms. Looking at the tier-1 segment of the legal market, there have been surprisingly few discount requests from clients. Like the banking sector, the legal industry has taken all precautions and braced for an impact that did not come. Production so far has been on par with 2019 Year-on-Year or sometimes even better. Law firms have taken large provisions for client fees that they would not be able to collect, but clients are paying and paying on-time. Things are looking particularly bright right now. At the same time costs are down YoY compared to 2019. There is almost no travel and expenses, no events and lower cost of marketing. Many firms have asked part of the furloughed assistants and staff to leave and have been lowering their salary costs. Some partners have been ushered into early retirement or asked to leave the firm. With a healthy revenue, normal collection rates and lower cost, profits are expected to be higher than in 2019. Despite the pandemic and the economic crisis, many law firms are in for a bumper year. The impact is yet to come! [ source OECD data by 31-10-2020 ] With the rapid rising number of Covid-19 cases in Europe and the United States and many economies back in lockdown, all hopes for a rapid V-shaped economic recovery have evaporated. On top of that we have the US-elections which took place on 3 November which adds further to the uncertainty, then there is Brexit and in 2021 Angela Merkel will step down. As the graph shows, the European economy is projected to contract by 11.5% over 2020 and the US economy by 8,5% and this does not yet take into account the outcome of the elections. With such numbers, it is unavoidable that many companies will be affected. Many SME are going out of business as a consequence of the forced closures and mandatory lockdowns. The hospitality, travel- and airline industry, the retail sector, the car industry, just to name a few and all their suppliers are facing hard times. Millions of jobs will disappear and the damage does not stop here. Also large multinationals that still make a more than decent profit are shedding jobs. On 29 October Royal Dutch Shell Plc reported $955 million of net profit over Q3. This beat even the highest analyst estimate. The company reported lower net debt and strong cash flow. Still 9000 jobs at Shell are to disappear and Shell is not exception, they are just an example. In an article that I published on 9 April 2020, I predicted that the 2020 legal market in a worst case scenario would shrink by 10%. At that time the article was meant to dampen the ‘panic’ at law firms and the fear that the market would collapse. My prediction back then was that this was unlikely to happen and with today’s knowledge I was right. My forecast today, seven months down the line, is less optimistic than back then. I fear that things will get much worse before they will be getting better. It is unlikely that revenue and profitability for law firms in 2021 will be as good as they will be in 2020. I would advise to err on the side of caution. For those law firms where the fiscal year ends on 31 December, I would advise not to distribute all the profit as usual, but make provisions for the year to come. If this is not possible for tax reasons or just because the partners do not trust the firm with their money, then at least manage expectations and prepare the partners for weaker results. It would also be advisable to take an extremely conservative approach as it comes to advance payments to the partners. You do not want to end up in a situation where partners have to refund payments received. I think law firms could learn from the banks. Just as the banks right now are pushing to pay dividend and bonusses to keep shareholders and traders satisfied, law firms are under pressure to distribute all profit in full to keep their partners satisfied. Just like the banks seem out-of-sync in their demands, law firms will be out-of-sync if now they do not save for a rainy day. For the banks there is no doubt that their asset quality will deteriorate in 2021, just as for the law firms it is hard to imagine that they will once again be spared from the effects of the economic crisis. Just like the 2008 financial crisis led to a 5% contraction of the legal market in 2009, the current economic crisis will again lead to a drop in demand and revenue. Only this time the economic crisis is much deeper and more wide spread and not limited to the financial sector, so the impact will likely be more severe. Get ready for a long dark winter!

[Guest post by Lodewijk van der Peet - Leadership Coach] In 2004, there were several scouts in the stands of the Amsterdam Arena, all watching Raphael van der Vaart, one of the most creative players of the highly successful Ajax football team. The team’s technical director, Arie van Eijden, was excited and nervous. His trainer, Ronald Koeman, insisted on keeping “Raffie,” his star player. So after consultation, Arie decided to raise the price considerably. Ronald was instructed to make Raphael captain and to always keep him in the starting team. In confidence, he told a journalist from De Telegraaf, the country’s most widely read newspaper, that the Ajax planned to offer Raphael a new contract. Don't tell anyone! It was international news within hours. Bad atmosphere Raphael’s teammates rebelled against him. The guy might play great football, they said, but he shouldn't tell anyone what to do. Who does he think he is? The bad atmosphere affected the team’s performance to such an extent that Raphael lost his position as a top transfer. He opted for the huge salary at Hamburg SV, a mediocre team where he was the top player. Then to Real Madrid. Not a success. Actually, Raphael has never had the success predicted for him. Even a top player needs a coach Quite a few managing partners have gained their positions by being the best players on their team. Because of their exceptional intelligence they usually manage to make it work (unless they’re too vain). They listen to their predecessor and probably know a CEO of some other large company to whom they turn to for advice over drinks. But at the Champions League level, no one can make it with intelligence and commitment alone. Like the very best football players in the world, a managing partner needs a good coach. Serving players Sometimes managing partners are appointed who are not the best players. They have to ensure that the best players can continue to excel and are not bothered with trivial corporate matters, like automation or HRM. Those are the serving players. The disadvantage of this position is that they have little authority within the group and less mandate to represent it. Get to work Mistakes are inevitable in both cases. The managing partner is paid well and continues pushing on, trying to figure out how make it work. They are offered no support. Don’t complain. Keep working. Loser! In the legal world, it’s seen as a weakness to admit you don't know something. It’s even a loss of face to admit that some things make you nervous. But addressing a group of employees is quite different from convincing a judge. Dismissing an employee is quite different from reaching a settlement agreement. Motivating, exciting, persuading, orating, and looking someone in the eye while delivering bad news is new territory for a new managing partner. Burnout I spoke with several managing partners who from their first day on the job started their one-way trip to a serious burnout. They had completely underestimated the job and hadn't counted on being given so little time, credit and goodwill. They spoke of being mercilessly and frequently criticized by their colleagues, who were once their peers, but soon saw them as targets. A burnout is the ultimate loss of face in the world of elite lawyers. And a unnecessary waste of talent. Coaching It’s high time for law firms to provide sufficient guidance during the onboarding process. Give the new managing partner a dedicated coach. A mentor. Give her a few months to learn the required skills—skills that no one is born with. A coach doesn’t even need to know anything about the legal profession. Perhaps it’s best if they don’t, actually. The coach must have knowledge of people and communication. Because a managing partner must suddenly deal with a completely new set of challenges and processes, entirely distinct from those pertaining to law for which she was trained. And the fees charged by a good coach are miniscule compared to the enormous risks they will reduce. Reappraisal of experience Is it a bridge too far for your firm to hire a professional coach? If so, I have another suggestion: ask a for help and tips from people on the floor. They will admire you for being vulnerable at the start of your new mission. You might be surprised how helpful they will be. This article is written by Lodewijk van der Peet - certified leadership coach

Remember when you started out as a young lawyer straight out of university? Well, I certainly do. Most of us have been incredibly lucky. We graduated at a time when the legal industry was experiencing unprecedented growth. Basically, when we started, everyone with a ‘decent background’ and a law degree, could make it as a lawyer. The demands back then were way lower than they are today. Law firms have professionalized and grown over the past 25 years. Partner incomes today are much higher than anyone would have thought possible back then. Anyone who is a partner at a law firm today has in a way had a tremendous tailwind when making a career. These days the reality could not be more different. Many more young people acquire a college degree in Law. October 24 The Economist published an article stating that each year America produces some 25.000 “surplus” lawyers. Please let that number sink in for a moment. Universities are churning out more graduates than the market can absorb. Over 30% of British graduates are “overeducated” relative to their jobs, according to that same article. Having a ‘decent background’ and not being a ‘total idiot’ is no longer enough to make it. The tailwind all of us experienced, has turned into a headwind. Many of us probably would not succeed if we had to do it all over again today. I hope this insight will make us somewhat humble. On Friday 23 October I hosted a Virtual Roundtable with a number of international experts on education. This is a topic which is close to my heart and I am deeply worried by how we (the haves) are robbing a generation of their future. With large parts of the world now deep into the second wave, education of the future generation is severely hampered. While this time governments are trying to keep schools open, schools themselves are struggling because of teachers falling ill or having to self-quarantine. Large numbers of schools have switched to blended-learning, a combination of in-class and on-line. For those students who are in vocational education, the situation is particularly bad since on-line education is not an option and also traineeships at companies are extremely hard to find right now. We are not only robbing the young from their right to get a decent education, but we are also depriving them of their social and emotional development. The journey from childhood to adulthood is not only about acquiring knowledge, but also about social interaction and learning to stand on your own two feet. It is impossible to learn how to function in a job if you have had your education largely alone at home behind a computer screen. Perhaps you are familiar with the film ‘Being There’ (1979) directed by Hal Ashby and with Peter Sellers playing the lead character, a gardener who only learned about the real world by watching television. Having acquired virtual knowledge and wisdom, he turns out to be socially and emotionally inept. The problems do not stop here. Also the opportunities to find a good job after graduation are fading fast. Thanks to governments’ response to Covid, we got caught in the worst global economic crisis in living memory. Many SME are going out of business as a consequence of the forced closures and mandatory lockdowns. Millions of jobs will disappear and the damage does not stop here. Also large multinationals that still make a more than decent profit are shedding jobs. On 29 October Royal Dutch Shell Plc reported $955 million of net profit over Q3. This beat even the highest analyst estimate. The company reported lower net debt and strong cash flow. Still 9000 jobs at Shell are to disappear and Shell is not exception, they are just an example. Please remember that it will be the future generation that has to repay all of today’s government debt created to support the economy. We are spending their money, we are depriving them of a good education, we are denying them a normal social life and are blaming them for being young and careless. It goes without saying that this is all not black and white. But the contrast between the ‘baby boomers’ who are now in power and who’s career path has essentially been a-walk-in-the-park, and the future generation who will have far less opportunities and is facing an uphill battle, is pretty stark. What you could do to help I am aware that all this is not your fault and that law firms have little or no influence on government measures, education and the economy. Still there are a couple of things that you could do to help: Do not stop recruiting, but hire more trainees than you would need. Sounds stupid? Look at it from this way: most tier-1 law firms will likely have a bumper year. Revenue over 2020 is typically on-par or up from 2019, while the costs are down at the same time. This would allow for being generous while hiring. Even if you already know today that you do not want to keep all recruits after three years or so, you can still give them now a valuable education that will enhance their job opportunities further down the line. So take your social responsibility and become a mini-training center helping young people on their way. Develop a purpose made training program for your young lawyers. Due to work-from-home guidelines, there is limited or no opportunity for lawyers to work from the office. This is especially bad for those who are fresh from university now starting their professional career. Remember how your own start as a lawyer was back in the days? Remember how much you had to ask and how much you learned by simply observing how the partners operated and behaved. We at TGO Consulting are right now helping our clients to develop tailor made training programs for their trainees (and associates) to teach them important skills and the firm culture along the way. Team-up with the universities. This is something we are doing ourselves: we reached out to universities and are offering free guest lectures to help bridge the gap between the theoretical education and the real-world needs in (tier-1) law firms. We would encourage law firms to do the same. Try to pull some of the training you would normally do within the firm forward and offer it to students. This should not be about the law, as universities have this already covered, but it could be about drafting, negotiating, how to divide risks and how to communicate with clients. I mentioned the roundtable with international experts on education that I hosted on 23 October. It goes without saying that the experts are deeply worried and raised a lot of concerns. At the same time, all of them had confidence in the ability to adapt and the resilience of the young generation. Having two daughters myself, I think this is true. At the same time I feel that it is our (the haves) duty not to be selfish and to do whatever we can to help. Only by actively reaching out we can avoid that the future generation will become those who ‘have not’

Last week I published an article on Partner Retirement. This seems to have struck a nerve and triggered a lot of response. Since I had already planned to write an article on the emotional aspects of partner retirement, due to popular demand, I have decided to pull that forward. So here you have it, a glossary of emotional considerations for partners who are facing retirement from their law firm. 1. I am too young to retire Depending on the law firm, partners may have to retire as early as their late fifties. Partners at that age bracket are still relatively young and will likely have some forty years or so ahead of them. Being asked to retire feels like a disqualification and is a harsh confrontation with one’s own mortality. Up till the moment of retirement life seems endless. Retirement signals that one has entered the last stretch of the education-working-retirement divide. For most partners retirement just does not feel right. They feel way too young to retire. 2. I don’t know what to do next Most partners who are close to retirement have been with their firm for over 30 years. Many have even never worked anywhere else. Being a partner is typically an all absorbing high stress occupation. Once retirement comes in sight, partners often have no idea of what to do next. Most certainly do not what to sit at home staring out the window for the rest of their lives. They want to remain relevant and contribute to society. Many partners dream of being appointed to the boards of companies. Reality is that this is not going to happen for 95% of them. So if not board member, then what else can they do? Many partners do not have hobbies or interests. Lack of perceived alternative options make that they will try to hang on to their practice for as long as possible. 3. I need the money Partners at law firms make a lot of money and many have the lifestyle to reflect. Despite the high income, you might be surprised by the percentage of partners that is not financially independent by the date of their scheduled retirement. One does not need to be an actuary to calculate that it takes a lot of money to maintain a wealthy lifestyle for forty years or more without a steady flow of income. A surprisingly high number of lawyers still burns through too much money during their active career, while saving too little for later on. On top of this there are those who went through a costly divorce, taking a huge chunk out of their savings. Whatever the reason, part of the partners who are facing retirement just need the money. 4. My wife does not want me home I am taking the male partner perspective here, as the overwhelming majority of partners retiring today are male, reflecting the lack of gender diversity back in the days. The partners who are in their late fifties/early sixties today have basically spent most of their time at the firm working on client matters. I literally know a partner who, when his wife visited the office to show their first born son to his colleagues and his team, accompanied her home after the visit with the pram filled with dossiers and she having to carry the baby. The practice came first, family often came second. With their husbands spending so much time away from home, no wonder these wives have developed a life of their own. A life with lots of freedom and things to do, can be brutally disrupted if the husband is suddenly at home 24/7 and starts to interfere. Matrimonial tensions do arise after decades of stable marriage if the status quo gets disrupted. 5. I do not have any friends Having spent 30 years or so practicing at the same firm, most of the people you know will be business related. They are either colleagues or clients. This whole network will fall away overnight after the moment of retirement. This can be hard on partners, all their cherished relations turn out to be just business related. People valued you, not per se because of who you are, but because of what you represented. Believe it or not, but I do personally know lawyers who get sort of emotional when they pass a building belonging to a former client where they have been in board meetings on a frequent basis, and have now, after retirement, no ‘ticket’ to enter anymore. Once an insider, now an outsider. There could hardly be a stronger signifier that life has gone on and you are not needed anymore. Partners can be lonely after retirement. Lonely and feeling ‘useless’. 6. I fear losing my edge Of all the emotional considerations regarding retirement, for me this is the most serious. While working in their practice partners need to be top-performers. Working permanently on the top of your abilities puts the brain in a ‘state of excellence’. Turbo performance if you may. This supercharged intellect is what makes the top-partners so special. They have unparalleled analytical skills, they are razor sharp. They are inspiring to hang around with. You have seen what happens to Olympic athletes, world champions and professional sports players. After their career has ended they often grow old and fat, much faster than anyone would expect. The same is – mentally – true for lawyers. I have seen it happen, more than once. When a partner does not use his brainpower in supercharged mode anymore, part of that brainpower just disappears. The brilliance fades away, and the person is not special or inspiring anymore. This is what I would personally fear the most. There is a limit to the length of these articles. The six emotional considerations regarding retirement are absolutely not exhaustive. There are many others that are also relevant to consider. Not all partners are subject to all these fears. And, yes, there are partners who happily go into retirement without any fear or any regret. This article is not for them. It is for those who resent retiring from the firm. As outlined in last week’s article, retirement of a partner is merely a contractual event. It has nothing to do with judging the partner as a person. For law firms we advise to set up a formalized ‘Partner Retirement Program’ to coach the partner in overcoming the fears and develop a positive perspective on a meaningful future. Such program should also deal with a smooth transfer of matters, clients and contacts. If managed well, both the partner and the firm will benefit. TGO Consulting has all the required knowledge and expertise to help you set up such a program. Please inquire how we could help you as a partner, as a firm, or preferably both.

When stars in our galaxy reach the end of their life cycle, they turn into ‘White Dwarfs’ and fade away. Occasionally there is a star that does not obey to these rules. These stars become ‘Supernovas’ and go out with a bang. A Supernova is the biggest explosion known in the universe. An unimaginable force of destruction. This article is not about astrophysics, it is about partners reaching the age on which they are to retire. Ideally law firm partners beyond a certain age should gracefully ‘fade away’, leaving their practice and address book to the generation below. Every once in a while there invariably is a partner that refuses to facilitate that transition. These partners then become ‘Supernovas’ that go out with a bang, causing lots of collateral damage. We need to address the Baby Boomers Partners who are today hovering around the age of 60, started their career as a lawyer more than 30 years ago. The legal world in 1990 is in many aspects incomparable with the legal industry today. During that timeframe the legal industry has seen exponential growth. The Business of Law has been professionalized beyond recognition, in part thanks to pioneers such as Harvard professor David H. Meister who published his book Managing the Professional Services Firm in 1993. Partner incomes have quadrupled and many partners are earning more today than they ever imagined when they became partner some decades ago. Baby Boomers have built their career with an incredibly strong tailwind. Not only their professional career, but also in their private lives. For example the value of their property has risen tremendously. Not only thanks to their extraordinary talent, but also thanks to the favorable circumstances, the Baby Boomers have built impressive practices with big revenue, high profitability and a strong reputation in the market. Now that they are around the age of sixty, they start to think about their future. Most law firms have set an age limitation to equity partnership. This age limitation now has come in sight. This is often causing sleepless nights for the partners concerned. Baby Boomers don’t want to retire because they are still too young Certainly today, no one around the age of 60 would consider himself/herself ready for retirement. Thanks to a better lifestyle and medical advancement, people are getting older and stay in great shape much longer. Any lawyer approaching in his early sixties will still consider himself/herself fit for practice for many years to come. And rightly so. Partners in law firms have to retire, not because they are old and tired, but because they have to make way for the next generation. Being a partner is different from being an employee. Partners have entered into a contractual relation and in this contract is stipulated when it ends. It is a business arrangement, not a personal or emotional one. Whether or not the partner is still fit to maintain a high level practice at the age of retirement is not part of the equation. The contract ends, and that’s all there is to is. Nothing personal. Reality is however that most ‘senior’ partners do not see it that way. They have developed a kind of amnesia as to why the partnership agreement is formulated as it is. When they were still young partners, it seemed like a great idea to set a fixed age limit to equity partnership an make room for younger partners to grow their business and their profit share. When reaching the age limit themselves the perspective has completely shifted. Now it feels as if they are being cut-off at the height of their career. TGO Power Curve© When we work with our clients, we often use a TGO Power Curve© analysis. This analysis uses a smart calculation for each of the partners based on the size of the practice and the reputation in the market. The result is plotted on a base line, representing the age distribution of the partner group. The graph below represents two different situations. Figure-A reflects a partnership where revenue and market reputation are concentrated with partners who are now in their late fifties and early sixties (the Baby Boomers). Figure-B represents a law firm where the strongest and most successful partners are in their early fifties. As you can see, in Figure B, partners are transferring their practice towards the end of their professional career. Why smooth, well managed succession is in everyone’s interest. “Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light. Though wise men at their end know dark is right, Because their words had forked no lightning they Do not go gentle into that good night.” These words of Dylan Thomas come to mind when we see the internal struggle some partners – especially Rainmakers – have as the contractual end of their partnership comes near. Part of that struggle is emotional and has to do with uncertainty and fear. I will address this in a separate article in the weeks to come. From a pure business perspective it is in the interest of the firm that partners start transferring some of their practice and clients early on. Ideally this starts as soon as the partner makes a new partner. New partners should get part of the practice as a form of ‘starting capital’ the day they become partner. Splitting a successful practice in two, is the most efficient way to grow revenue and profitability for a law firm. Around the age of sixty a partner should once again actively start to transfer mandates, clients and reputation to the younger generation. The problem is that this requires a great amount of trust. Obviously the partner should have complete trust in the quality of the next generation (I can tell you that this is not always the case). The partner must also get the comfort and the guarantee that transferring part of his/her practice and revenue, will not lead to loss of respect, status or income. Rainmakers have special status in any law firm. No partner will want to risk losing that special status. Sometimes rainmakers do want to continue practicing until they are 70 or beyond. They then rather take their practice and move to another firm towards the end of their career. For them, not transferring their practice is part of an ‘insurance policy’ that they still have market value. Again, as understandable as this might be, this is not in the interest of the firm and of the remaining partners. Succession is an important and complex topic. Now that the Baby Boomer generation is about to retire, succession has more than ever become a strategic issue for law firms. We at TGO Consulting have a wealth of experience. We would be more than happy to advise and help put together a process that perfectly fits your firm.

In the garden of Huttenstrasse 9 in Zürich (Switzerland), you will find a life-size sheet-metal cat. The cat is movable, so one can never know beforehand where it will be. Between 1921 and 1926 the famous Austrian theoretical physicist Erwin Schrödinger lived in the house while he sojourned in Zürich. In 1933 Schrödinger received the Nobel prize for his contribution to the wave theory of matter and to other fundamentals of quantum mechanics. Most of us lawyers may not be familiar with Erwin Schrödinger, but you might have heard of ‘Schrödinger’s Cat’. Schrödinger’s Cat is the product of a thought experiment in 1935 explaining one of the fundamentals of quantum mechanics in which a quantum system such as an atom or photon can exist as a combination of multiple states corresponding to different possible outcomes. I know this is way too complex for simple lawyers like you and me, and therefor you only have to remember the cat. Schrödinger’s hypothetical cat is locked in a sealed box with a poison that could kill it. As long as the box remains closed there is no way to know if the cat is already dead or still alive. Only after opening the box it becomes certain if the cat is still alive or not. As long as the box remains closed the cat is dead and alive at the same time (both assumptions are equally valid). Schrödinger’s Cat and the Hourly Rate Thinking about the hourly-rate, I cannot escape thinking of Schrödinger’s Cat. Some say that the hourly rate should be dead and that there is no longer a case for time based billing. As I will explain further on, I myself pivot towards that point of view. At the same time, as we all know, time-based billing is still the norm and the hourly rate seems very much alive indeed. So how can the hourly rate be both dead and alive at the same time? Why is the time-based billing like Schrödinger’s Cat? It may seem like billing by the hour has always been the standard, but it became only widely used after 1975. Throughout the 20th century, legal fees in the U.S. were largely capped by state law and lawyers were using fixed-fee schedules, published by the courts and the ABA, to establish prices. Although Sherman and Sterling started tracking time as early as 1945, the minimum fee structure stuck until it was challenged and struck in 1975 when the U.S. Supreme Court agreed, ruling in Goldfarb v. Virginia State Bar, that the minimum-fee schedules violated federal antitrust law. This paved the way for the adoption of the billable hour. Ever since 1975, the billable hour has been the de-facto worldwide industry standard. The use of timesheets in combination with billing by the hour has brought great riches to the lawyers. By the 1950s lawyers had fallen well behind the pay scales of fellow professionals such as doctors and dentists. After 1975 lawyers not only caught up but outpaced their fellow professionals. Though today the billable hour is often criticized, it remains the standard for both lawyers and clients. Even today’s Alternative Fee Arrangements are ultimately based on the expected number of hours multiplied by the applicable rates. The end of the hourly-rate? When I was still a very young lawyer, some of the senior partners used to weigh a file on their hand after completion, to establish the fees for services rendered. Despite this being an outdated and disappearing practice at the time, it had an element of fairness because it took not only into account the efforts of the lawyers, but also the value to the client. One of the assumptions on which time-based billing is based, is that there is a linear relation between time and value. If time is used as a measurement, spending twice the time will double the costs. Assuming that double the cost equals double the value is clearly not right. There is no linear relation between time and value. Actually there is no relation whatsoever between time and value. As I have explained in an earlier article, something that takes little or no time could be invaluable to the client (Picasso Principe), as where something that has been time consuming could only have little value. If there is no linear relation between time and value, then from a client’s perspective this renders the hourly rate unfit for purpose. Not only from a client’s perspective is the hourly-rate a poor choice, also from the perspective of the lawyer it is. The Creation-Production-Divide-Concept© as established by TGO Consulting, clearly demonstrates that in the whole process of handling a matter, the unique human skills that distinguish a great lawyer from a mediocre one, are not time consuming. It is the processing hereof by junior lawyers that consumes most time. It is exactly here where law firms and lawyers are hard to distinguish and add little value to the client. One could say that lawyers undercharge for their unique skills and overcharge for processing of documents. In a way the processing is ‘subsidizing’ the ‘Creation’ (unique skills of the partner). Artificial Intelligence and Legal Process Outsourcing will reduce the amount of time spent on Production, thus undermining the ‘subsidy’ needed to deliver Creation. In the end the hourly-rate will turn against lawyers once efficiency on Production will be increased. Why does time-based billing remain the de facto industry standard? As demonstrated, there is a strong business case to be made that the hourly-rate is dead. It is flawed as a measurement and will fundamentally undermine the business model of law firms. Yet at the same time, looking around, the hourly-rate seems very much alive. One can only speculate as to why this is the case. Perhaps clients find it difficult to put a value to the work of a lawyer, perhaps they do not like to haggle, or perhaps in the bigger scheme of things the legal budget is simply not significant enough to be bothered. Right now I do not have the final answer to that question, but I will further discuss this with GC’s and business leaders in the months to come. Time based billing is very much like Schrödinger’s Cat: alive and dead at the same time as long as the box remains closed. Upon opening however, I am prepared to bet that we will find that it is dead after all. To be continued.